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Investing in multifamily syndications can be an attractive opportunity for many, but certain ideas and frames of mind prevent many individuals from pursuing such investments. To be fair, investing in syndications is not common and when being first introduced to a syndication opportunity, it can be overwhelming.
At JP Acquisitions, we’re constantly having capital meetings and speaking to potential investors ranging from first-timers to other real estate investment groups. When it comes to investors ranging from no experience to a limited understanding, there are certain beliefs that we’ve noticed hinder them from having a realistic perspective on multifamily syndications (i.e., limiting beliefs). The goal of this post is to conceptualize some of the more common beliefs that make it difficult to accurately perceive the idea of investing in a syndication for the first time. The following three limiting beliefs we will discuss are ordered from most limiting to least and are based upon our experience from capital meetings with potential investors.
Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.
Lack of knowledge and Experience
Some potential investors may feel they don’t know enough about real estate or multifamily syndications to make informed decisions. The lack of knowledge, whether directly stated or not, is by far the most common limiting belief our team picks up on when talking to potential investors. Overcoming this barrier requires education and research to build confidence and understanding. However, the journey of learning is different for everyone and the thought of pouring time into one’s education when they already have so much going on does cause many people to never start. However, what is the alternative to never making the commitment to pursuing that education?
Admittedly, the traditional education system does a poor job of preparing people to make strong financial decisions which are critical to avoid the most common financial/lifestyle trap in America. This “trap” I refer to is the one in which people choose to level up their lifestyle as their income grows and as a result, they hinder themselves from building wealth. The cycle becomes most apparent after graduating from high school or college. The majority of people will get their first job and proceed to rent out a nice apartment, buy a car they can’t afford, and spend the majority of their remaining disposable income (if any) on vacations and materialistic things. As time goes on, they tend to find themselves in either a ton of debt or having little to no investments. At that point, they’ve either had children or are looking to do so, which leaves them with little room to realize opportunities beyond continuing to work their job. For context, according to a 2023 study by the Pew Research Center, 51% of workers were happy with their jobs but only 34% were satisfied with their pay. Let that sink in for a second.
I write all this not to scare you, but rather to make you think about the true cost of not educating yourself on financial topics. Perhaps you have sufficient knowledge about syndications and don’t want to invest, that’s fine. The important thing to remember is that continuing to seek an understanding of other ways of building wealth is important to actualize yourself, provide for your family, and make a strong impact on your community.
Lack of Trust in the Sponsor
Some investors struggle with trusting the syndication team or sponsor of any given project. That is to be expected because, at the end of the day, the sponsor team is responsible for what happens to your investment. I must say that this point on trust isn’t so much a limiting belief, but turns into when you do want to invest in a syndication but can’t get over the trust barrier. When it comes to small operators, to be extra cautious until that team builds a strong track record before investing with them makes complete sense and is a fair decision. However, there are many large and extremely experienced syndicators who manage millions of dollars and have proven to reliably provide consistent returns. When it comes to trusting a syndicator, let the team’s track record and way of doing business speak for itself. More so, it’s important to make sure your investment criteria and goals align with the service they provide. When you’re looking for the strongest risk-adjusted returns all the while looking to be as passive of a real estate investor as possible, trusting an experienced syndicator is one of the best options.
Risk Aversion
Whether you realize it or not, everything you do in life has an associated risk. From choosing to eat something to picking your partner in life, their is an opportunity cost. Hopefully you’ve gotten used to weighing risk and understanding what you can get comfortable with when it comes to financial decisions. If you’re someone who is extremely risk-averse and plays everything as safe as possible, it’s important to realize the the size of your success is proportional to the risk and stress you can tolerate. The beautiful thing about investing in a multifamily syndication is that every firm has a way of mitigating risk and making the investment relatively safe. In addition, as a passive investor, you have the benefit of being able to pick whichever strategy suits you best. However, accurately perceiving risk involves educating yourself first and foremost. Once you’ve established a knowledge base, your eyes open to the possibilities when investing in multifamily real estate.
Conclusion
Today we covered 3 ideas often held by first-time investors that stop them from investing in a multifamily syndication. The common aspect regarding all of the beliefs we touched on stems from education. Knowledge and understanding is the fundamental barrier that hinders any investor from truly seeing the bigger picture. If you’re a first time investor, don’t let that be the barrier that stops you from achieving wealth over the long-term.
If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, LinkedIn, or our investor portal to set up a meeting.
As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!
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About the Author
Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.
Sources:
- https://www.pewresearch.org/social-trends/2023/03/30/how-americans-view-their-jobs/
Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.
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