There are a few ways to invest in Multifamily. You can buy a property or invest with someone else.
- Owning Multifamily: One must find a property, perform due diligence, secure financing, close it and manage the property. If you have time and interest to manage properties, you can pursue this method to own properties.
- Investing with Others: You can invest with others, who take the responsibility to find, perform due diligence, close the property, and manage the property. Syndication is a popular method for group investments in multifamily.
Investing with Others:
Syndication: Multifamily syndication gives you an opportunity to invest your money in apartment buildings. People pool their resources to purchase large assets, which would be difficult to acquire individually. The key players in this partnership are general partners, limited partners.
General Partners: General partners put the deal together and manage the property. General partners play a critical role in acquiring properties. They find property, underwrite it, negotiate with seller, perform due diligence, secure financing, and manage it. GP is responsible for day-to-day operations of the business.
Limited Partners: Limited partners are passive investors. Limited partners are responsible for funding a portion of the initial investment. Typically, they receive quarterly distributions of profit for their share. They will have no role in day to day operations.
Investing: Federal and state securities laws apply to real estate syndication transactions. Only qualified investors can invest as limited partners in syndications.
Qualified Investor: There two types of qualified investors: accredited and sophisticated.
Accredited Investor: An investor considered as accredited investor with an annual income of $200,000 ($300,000 for joint income) for the last two years or with a net worth exceeding $1 million not including home.
Sophisticated Investor: A sophisticated investor is one who has knowledge and experience in financial and business matters and who can evaluate risks of the prospective investments.
Main types of syndications: A general partner can sell private securities to the limited partners under Rule 506(b) or 506(c). Through Regulation D, people can raise money from investors without registering with SEC, if certain conditions are met.
506(b): It allows organizations to raise money from unlimited number of accredited investors and up to 35 sophisticated investors. General solicitation or advertisement is prohibited. Security issuers (general partners) must have a substantive pre-existing relationship with investors (passive).
506(c): Issuer can advertise to anyone as long as they accept only accredited investors for the offering. Issuers must take reasonable steps to ensure that all the investors are accredited at the time of the investment.