Benefits of Passive Investing

Cash Flow

We purchase properties that cash flow on Day 1. This not only helps protect the principal investment of our investors but provides a good foundation to grow the bottom line and augment the income stream for our investors. 

Tax Efficiencies

There are numerous tax deferral and tax mitigation strategies, including bonus depreciation/cost segregation, 1031 exchange, etc that provide additional enhancement to real returns.

Building Wealth

Building wealth comes not only from the additional income streams but also via equity growth due to the value add execution strategy and debt reduction. Inflation also contributes to the property appreciation over time.

Limited Liability

As a limited partner, you are not involved in the day to day property management, rigorous diligence and acquisition or disposition process, or financing of the property. As such you are protected from personal liability.

Risks of Passive Investing

To mitigate the risk investors should perform deep diligence on the sponsor, the market, the deal underwrite, and deal structure.

Capital Loss Risk

Real estate investments are subject to market, operational, and financing risks, and there is no guarantee of returns. Investors should be prepared for the possibility of partial or full loss of invested capital.

Illiquid In Nature

Syndicated real estate investments are generally illiquid and cannot be easily sold or redeemed prior to a liquidity event. Investors should be prepared to hold their investment for the full projected term.

Complexity

Private real estate investments involve financial, legal, tax, and operational complexities with less day-to-day transparency than public markets. Investors rely on sponsor reporting to monitor performance.

Lack of Control

As a limited partner, you do not participate in day-to-day management or major operational decisions. Strategic decisions are made by the general partner in accordance with the governing documents.

Why Multifamily

Stable Asset Class On A Risk Adjusted Basis

Multifamily has historically outperformed other asset classes, including during recessions. Check out our article on the topic with additional data support.

Potential For Multiple Sources Of Return, Including Forced Appreciation

While there are many market factors driving apartment values, as an owner-operator one has the opportunity to force appreciation by improving the profitability of the property – either through revenue growth or through expense reduction or through capital improvements.

Economies Of Scale

Economies of scale are created as there are multiple units under one roof or a portfolio of properties in proximity to one another.

Tax Efficiencies

Investing in multifamily comes with the power of depreciation and other tax deferral strategies. This non-cash expense could often result in a paper loss that can either help offset current taxable income or carry over the paper losses to offset future capital gains and thereby defer the tax liability. The benefit of such deferral is the time value of money. If in the end there is still a gain, there may be an opportunity to further defer such again into the future.

Inflation Hedge

On top of the cash flow being generated by the property, improving the property net operating income (assuming all else equal) results in improved property valuation. Over time such real estate appreciation could serve as a hedge against inflation. Other hard assets share the same benefit. In contrast, keeping cash in the bank earning 1-5% or less in interest over time loses value as that cash loses its purchasing power with inflation.

Stable Long-Term Outlook

Multifamily (apartments) are serving a basic human need for shelter with increasing demand driven by population growth, declining homeownership trends, and increasing share of renters (millennials and boomers). The most recent housing statistics suggest there is still a 4MM apartment shortage.

Low Volatility

As an asset class apartments tend to be less volatile due to diversified tenant base & ability to adjust rents to market (due to one year or shorter leases). Each lease represents a small share of the total units thereby creating less risk should one tenant decide not to renew their lease.

Passive Income

Multifamily investment income is generally treated as passive income for tax purposes, which may allow it to offset other passive gains depending on an investor’s individual situation. While distributions are not guaranteed, passive investors participate in potential cash flow and appreciation without engaging in day-to-day operations, and their liability is typically limited to their invested capital.
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