Getting Started in Passive Multifamily Investing

Oct 7

5 min read

Real estate investing can seem complicated from the outside. There are properties to find, markets to understand, financing to arrange, renovations to manage, and countless decisions to make along the way.

But passive multifamily real estate investing works differently.

Through a real estate syndication, a group of investors pools their capital to invest in a property alongside an experienced operating team. The operating team finds the property, puts together the investment, arranges financing, oversees the property, and executes the business plan. As a passive investor, you don't have to become a real estate professional to participate.

Your role is much simpler: connect with an experienced operating team, learn about the opportunities they present, and decide which investments are right for you.

Start by Finding an Operating Team You Trust

For a passive investor, the relationship with the operating team is an important place to start.

Look for a team with relevant experience, a professional approach, disciplined investment criteria, and a commitment to clear communication. You should feel comfortable asking questions and expect straightforward answers about both the potential of an investment and its risks.

It is also worth understanding how the operating team approaches its own investments. Do they invest alongside their investors? How do they evaluate opportunities? What is their role after a property is acquired? How often do they communicate with investors?

Finding an operating team can also be the beginning of a longer-term relationship. If you have a good experience with a team and become comfortable with the way they invest and communicate, you may choose to invest with them again when future opportunities fit your goals.

If you find an operating team you trust, you can invest with them again and again as opportunities make sense for you, building your real estate portfolio over time.

Understand What You're Potentially Investing In

Finding an operating team doesn't mean investing in every opportunity they present.

One of the benefits of passive multifamily real estate investing is that you decide which individual investments you want to participate in.

When an operating team has an opportunity available, they should provide the information you need to understand it. That typically includes information about the property, market, business plan, financing, projected returns, investment timeline, risks, and investment structure.

You aren't expected to uncover all of this information on your own. A professional operating team will have already spent significant time researching and evaluating the property before presenting it to investors and should organize the important information so you can review it easily.

Your job is to understand what you're looking at, ask questions, and decide whether the opportunity is a fit for you. Depending on your circumstances, you may also want to discuss the investment with your CPA, tax professional, financial advisor, attorney, or other trusted professional to better understand how it fits into your broader financial picture.

If you want to go deeper into what to look for when reviewing an investment, our article, How to Evaluate a Multifamily Investment Opportunity, walks through the major areas to consider.

You don't have to invest in every opportunity. You get to decide where, when, and how you put your capital to work.

Decide What Fits Your Financial Goals

Each syndication will generally have a minimum investment amount. From there, you decide how much you are comfortable investing based on your own financial situation and goals.

It is also important to understand how long your capital is expected to be invested. Real estate syndications are typically longer-term investments, often with estimated hold periods of three to seven years. Depending on the investment, you may receive cash distributions along the way, but the amount and timing can vary based on the property's performance and the investment structure.

Because these investments are generally illiquid, you typically cannot sell whenever you choose. Understanding the expected hold period, potential cash flow, and amount you are investing can help you decide whether an opportunity fits your financial goals and timeline.

The right investment is one that makes sense for your own financial goals, capital, and timeline.

Make Your Investment

Once you've reviewed an opportunity, had your questions answered, and decided you want to participate, the investment process itself is typically straightforward.

You'll review the investment documents, complete and sign a few forms, choose your investment amount, and then fund your investment according to the offering instructions.

Once the investment closes, you become a passive investor in the property.

The exact process can vary from one offering to another, but a professional operating team should guide you through each step and be available to answer questions along the way.

You don't need to know how to put together a real estate transaction. That's the operating team's job. You simply need to understand the investment you're making.

Then, Be Passive

Once the property has been acquired, the operating team goes to work executing the business plan.

Depending on the investment, that may include overseeing property management, making strategic property improvements, renovating apartments, managing expenses, monitoring financial performance, and making adjustments as conditions change.

As an investor, you aren't responsible for managing those day-to-day activities.

Instead, you should receive ongoing communication about the property's performance, progress on the business plan, distributions when available, and material developments that occur along the way.

That is what makes the investment passive: you can invest in real estate without taking on responsibility for operating the property yourself.

Final Thoughts: Getting Started Is Simple

You don't need to become an expert in apartment operations, underwriting, financing, property management, or renovations before you can consider passive multifamily real estate investing.

Find an experienced operating team you trust. Learn how to evaluate the opportunities they present. Ask questions. Decide which investments fit your goals. And when you find an opportunity that makes sense for you, decide how much you want to invest.

Over time, the process becomes more familiar. And if you find an operating team you enjoy investing with, you may choose to invest with them again in different properties and markets, gradually building a real estate portfolio that reflects your own goals.

Ready to Learn More?

If you’ve been thinking about investing in real estate but aren’t sure where to start, or want to explore how multifamily investing can fit into your long-term financial goals:

This material is for educational purposes only and is not an offer to sell or a solicitation to purchase any security. Any investment involves risk, including the potential loss of principal. Prospective investors should review the applicable offering documents and consider their individual financial circumstances before making an investment decision.