Money Vs. Time: Finding The Right Approach For Multifamily Investing

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Founder of Apex, a private equity fund specializing in acquiring the best multifamily assets to ensure strong returns for our investors.

I first started my real estate journey in single-family real estate, where I began as a wholesaler. A wholesaler looks through a bunch of bad deals to find a good one and then puts together the deal in hopes of selling it to an end buyer who will pay the price that the wholesaler has marketed the deal for.

I did this for three years before realizing how much equity I had sold away instead of building my investment portfolio. I had essentially built a job for myself instead of a business. The worst part about it is that I was on a path to keep doing that well into my 70s and 80s unless I figured out a way to make my money work harder for me than I was working for it. This eventually led me to multifamily real estate.

A person can be in real estate for 15-20 years and never own any real estate. That is what the illusion of doing transactions can do to you if you’re not careful. This article isn’t about single-family real estate, though; it’s about how to start investing in multifamily real estate and create financial freedom.

Hands-On Syndication

When I first realized I needed equity in real estate to build passive income, I knew I wanted nothing to do with single-family houses, so I immediately started learning about syndicating large apartment buildings. What this means is I would find an opportunity, get it under contract, and begin raising money to acquire the property by a set date.

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This is one of the most common ways people start their multifamily real estate journey. They may not do every step of the process, but they do something that brings value to be a part of the general partnership of the property.

This is a very hands-on approach; it isn’t as passive as you may think. This is a great option for a person who has time, but if you don’t, this isn’t a great model unless you have someone you can partner with or hire who has more time than you do.

Limited Partnership (Syndication)

Another way people get started investing in multifamily is through investing as a limited partner (LP) in syndications. This is an excellent option for high-net-worth and high-income individuals who do not have the time but have the money. Many opportunities like this will only be available to these individuals because they fit the accredited investor criteria.

The minimum investment for these types of investments is typically $50,000-$100,000 because you’re working with accredited investors, and to accept less than that would make it take much longer to raise money than it needs to take.

The risk behind this strategy is that if you invest in a single apartment building, you’re essentially married to that property with your money until the operator sells it. This can be problematic in times like now, when interest rates have risen and operators have stopped paying distributions.

Limited Partnership (Fund Model)

This is the same model as above, except you’re investing in a fund instead of a one-off syndication where you’re committing 100% of your investment capital. This way of being a limited partner in multifamily properties often allows the same $50,000-$100,000 invested to be divided among multiple properties, mitigating the risk and offering a blended rate of return as a limited partner (LP).

Some risks to the fund model is that your money could be held in investments longer due to the time of the acquisitions of the assets and the different hold times each one requires for the business plan to work.

You could also invest in a fund that is struggling to find opportunities. Some funds may have money, but they can’t deploy that money into assets because they either can’t find opportunities or they have not built a network that can bring them opportunities. This results in your money sitting idle for months, not making money.

You want to always ask the fund operator about how they acquire assets, what their immediate and long-term outlooks are on the markets they are investing in, when the last time they acquired a new asset was and if you can see the pitch deck over it.

Which Options Work Best?

This must be determined solely by the investor because more factors than one can come into play when choosing how to get involved in multifamily real estate. If you’re a “do-it-yourselfer” and prefer to have more control over the outcome of a property you invest in, then a more hands-on approach is likely your best option.

Your personality and past experiences can and will play a major part in your decision of which way to get involved investing in multifamily. Your occupational background plays a part as well. For example, a physician or engineer who wants to begin investing may have money but very little time. In this case, a more hands-off approach is probably fitting.

Only you know your situation, and all three options above are great ways to get involved. For many investors, the goal is to utilize their time, money or both to create enough passive income in order to be financially free. Which option would you choose to do that?

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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