Debunking Common Misconceptions about Multifamily Syndications

Multifamily syndications, despite their potential for lucrative investment opportunities, are often surrounded by myths that may discourage potential investors. Let's address and debunk four common misconceptions about multifamily syndications.

Myth: "I cannot invest because my net worth is under $1 million/I don't have any money."

Reality: Real estate syndications offer various methods of investment through the SEC. The most common method is the 506(b) offering, which allows "Sophisticated Investors" to invest in multifamily syndications with as little as $5,000 (deal specific). You don't need to be wealthy to participate in this class of investing. Another type is the 506(c) offering, where each individual or entity must be a verified accredited investor. Meeting the accredited investor criteria, such as having a net worth over $1 million or meeting certain income thresholds, qualifies you to participate in the 506(c) investment offering.

Myth: "I can't communicate with the Syndicator."

Reality: Unlike with a REIT investment, reputable syndicators maintain close communication with every investor. They provide valuable direct contact, answering questions, addressing concerns, and providing updates on portfolio diversity, 1031 exchanges, and other relevant matters. Transparent reporting is delivered throughout the investment lifecycle, from pre-investment to the eventual sale.

Myth: "Syndicators with a lower minimum investment amount are buying lower-grade real estate."

Reality: In the past, syndicators set higher minimum investment amounts to keep investor groups small. However, advancements in technology have transformed the process. Virtual deal room technology enables documentation, accounting, electronic signatures, cloud storage, and ACH distributions. This transition from paper to the digital platform has significantly reduced administrative time. As a result, minimum investment requirements have dropped to levels as low as $5,000 to $25,000. Experienced syndicators can now acquire large real estate projects while allowing broader participation through lower investment minimums.

Myth: "I'll have no authority in decision making."

Reality: Syndicators who structure ownership through a Tenancy-In-Common (TIC) model follow IRS guidelines that mandate TIC owners' participation in major decision-making, such as sales, refinancing, and annual budgets. Investors have control over these crucial aspects while being relieved of routine maintenance decisions. On the other hand, investments in funds, Delaware Statutory Trusts (DSTs), and REITs often offer indirect or no control through voting rights. These investment structures grant control to a manager, trustee, or provide insignificant voting rights to REIT shareholders.

If you have concerns about a syndicator's decision-making abilities, it may be prudent to seek out a different syndicator. Trusting the person managing your investment is crucial, so take the time to establish trust and alleviate potential stress for both parties involved.