With a passive multifamily real estate investment, all of the below benefits are truly value add to an investor’s financial security and wealth creation. Whereas with an active investor, you not only don’t receive the below-highlighted benefits but rather, have to be “all hands on deck”. Often, investors prefer to passively invest to allow themselves to focus on their primary business/es. And the importance for investors is to ensure they are investing with a best-in-class multifamily investment management firm or individual transaction sponsor who solely specializes in the acquisition and management of multifamily properties.
Passive investing has lower barriers to entry than active approaches, as investors don't need multifamily expertise or specialized knowledge of asset acquisition and management tools. Meeting specific income and/or net worth standards is generally sufficient.
Partnering with multifamily investment firms allows individual investors to leverage valuable assets like relationships, software tools, expertise, and time, leading to enhanced investment returns in commercial real estate.
A passive investment offers the advantages of multifamily ownership without the burden of property management. This allows investors to earn passive income while having the freedom to pursue other interests.
A multifamily transaction sponsor investment offers two key tax benefits to individual investors: First, the LLC processes all property income and expenses, with any remaining profits distributed to investors. Second, investors can defer capital gains taxes on profitable investments by using a 1031 exchange.
Multifamily investment firms can attract capital from numerous real estate investors, allowing them to acquire higher quality apartment buildings in prime locations with more reliable cash flow. For individual investors, owning a fraction of a high quality asset can be more beneficial than owning 100% of a lower quality asset.
When comparing multifamily real estate investments to other options like stocks or bonds, one notable advantage is the stability of prices. Unlike publicly traded debt and equity markets, many passive investments in multifamily real estate are not subject to the same price fluctuations.
For those who are convinced of the benefits of a passive multifamily investment, there are two common investment vehicles through which this can be accomplished:
REITs are a specialized type of investment firm that provide investors with exposure to commercial real estate assets. REIT shares can be publicly traded on major stock exchanges or they can be privately offered to accredited investors. REITs can also specialize in certain property types.
Multifamily investors can work with an individual deal syndicator who is raising capital for the purchase of one specific rental property. This scenario provides less liquidity, but it also provides investors with direct knowledge of the property they are investing in so that they can complete their own due diligence.
