So you’ve become adept at finding quality commercial multifamily properties. Now what?
My last blog post discussed two ways that you can profit from your skills without having to actually purchase any property. Both bird dogging and wholesaling properties can be lucrative ways to make money on real estate that you don’t want to own for yourself.
But what about properties you do want?
After all, commercial multifamily real estate ownership has a proven track record for creating financial stability and independence for those who invest wisely. There are two ways to own apartments:
- Wholly as an individual or corporation
- Fractionally as a group in a syndication
Individual ownership can be a great way to own apartments, but it has its limitations. Most physicians are not independently wealthy and cannot afford multimillion dollar down payments that go with commercial multifamily real estate.
Consequently, the average physician will be limited to owning smaller residential real estate (1 – 4 units). As an investor who started out in residential real estate, I am well qualified to say that residential has its drawbacks.
- Lack of economies of scale
- Lack of access to professional property management
- Lack of availability of non-recourse lending
- Reliance on the comparison model of valuation as opposed to the income model
While incomplete, the above list represents four things that I hated most about residential real estate. Without the economies of scale that come with larger properties, I was always just one vacancy away from negative cash flow. This is why I’m convinced that 90% of dissatisfied real estate investors come from experiences in the residential market.
Despite my misgivings, there is money to be made in residential real estate for the attentive owner who invests wisely and stays on top of operations.
Syndicated real estate or fractional real estate investing is when groups of people come together and pool their money to purchase larger properties.
Again, most physicians could not afford to purchase a 200 unit apartment by themselves. However, 30 physicians could easily take down such a property. For those physicians who are fortunate enough to have investor partners, most don’t have access to deal flow or the experience and expertise required to successfully operate such a property. This is where the syndicator or deal sponsor comes in.
A good syndicator has access to deal flow and the expertise to weed through those properties and find the ones that are true gems. If your aspirations are to become a syndicator, you will meet some road blocks along the way. In this business, it is a chicken or egg kind of proposition. Finding financing for these deals can be next to impossible without experience, but getting experience is usually dependent on being able to secure financing.
However, once you establish a reputation and track record for providing solid returns to your investors, you will have people beating down your door wanting to invest with you.
On the other hand, if you are a busy physician and have little to no interest in creating a second job as a syndicator, you still can obtain access to commercial multifamily real estate investments through a syndicator. Passive investors bring the capital to these deals and leverage the expertise and experience of the syndicator.
Having invested this way for years, I find it ideal for the busy physician looking to diversify into commercial multifamily real estate without having to deal with the headaches associated with acquisitions and operations.
P.S. Whether bird dogging, wholesaling, purchasing apartments wholly, or fractionally investing as a syndicator yourself or passively investing through a private real estate investment company, it might just be the right time to add commercial multifamily real estate to your portfolio.