In June 2022, New York Times headlines declared, “Consumer Spending Weaker Than Reported, a Bad Sign for the Economy.”
CNN proclaimed, “The US economy shrank 1.6% in the first quarter (2022), adding to recession fears.”
NPR announces, “Job cuts are rolling in as recession fears rise.”
Investors have a keen eye on such reports because they can affect every investment category, from traditional market investments to hedge funds and real estate. In search of safe havens for a potentially bumpy ride through another recession, many investors are turning to real estate syndications, especially those focused on multifamily housing.
Real estate offers many protections for investors in less favorable market conditions. Below are a few of the benefits of investing in multifamily real estate syndications:
Investment safety: Buying an apartment complex through a real estate syndication gives you ownership of physical property, reducing risks and increasing the safety of the investment. While property values fluctuate over time, there is intrinsic value in the land and buildings, which buoy up the investment, even in recessionary times. Apartment complexes, in particular, provide essential housing needs and can perform well regardless of the economy.
Enhance diversification: Market retractions often cause entire investment categories to collapse. Improving diversification could reduce the overall volatility of your portfolio. Real estate does not tend to move in tandem with the stock market and can continue to rise, even in a bear market.
Achieve profits in multiple ways: Multifamily real estate syndications return earnings to investors primarily through increased revenues and appreciation. The sponsor can improve revenues through property enhancements that support higher rent rates or cutting costs to create operational efficiency. Property improvements, demand for housing, and economic factors impact property appreciation.
Flexible exit strategy: Most syndications allow the managing partners to adjust the exit based on market conditions. Strategies could result in selling the property sooner or holding the asset for a longer duration. Exit flexibility allows the sponsor to adjust the business strategy to account for economic changes and maximize the profitability of the investment.
Tax benefits: Real Estate offers unique tax benefits that can increase profitability and defer taxation on profits. Depreciation of the property, accelerated depreciation of assets, and a 1031 exchange are tax strategies experienced real estate investors employ to lower tax bills and increase the profitability of an investment.
Passive investment with market rate returns: Real estate syndications are among the few investments that earn above-average returns while being passive. You vet the property and managing partners and invest in the deal. The sponsor does the rest.
The managing partners vet the property, negotiate the terms of the deal, and secure financing. Once under management, the sponsor deals with operational decisions and capital improvements that drive appreciation and increase profits. In most cases, you receive quarterly distributions based on earnings and the preferred return and participate in the profits when the property sells.
There is no perfect investment or one best suited for every investor. However, multifamily syndications are an excellent way to passively earn above market rates while reducing risk and improving diversification. If you are interested in learning more about how to parent with McKee Capital Group, watch our introductory video here.