Multifamily Investment Funds:
Four Extraordinary Reasons to Consider Adding One to Your Portfolio
Investing in a multifamily real estate fund can be an excellent opportunity for individuals looking to diversify their portfolios and earn passive income. In addition, wealth managers often recommend investing in multifamily funds for their benefits over investing in just one or two syndications.
This article intends to give an overview of what a fund is and provide some of the advantages of investing in one.
What is a multifamily investment fund?
A multifamily investment fund is a real estate investment vehicle focusing on acquiring, owning, and managing multifamily properties, such as apartments. The goal of a multifamily investment fund is to generate stable and recurring income through rental income and appreciation of the properties.
Multifamily investment funds provide investors with a diversified portfolio of properties and sometimes markets, reducing the risk of investing in a single property. The fund is managed by professional real estate managers who handle the day-to-day operations of the properties, including overseeing the acquisition, asset management, construction management, and fund management and accounting.
Investors can participate in a multifamily investment fund by purchasing shares, similar to purchasing stocks in a mutual fund. However, the fund typically has a limited number of shares, and once all the shares are sold, the fund closes to new investors.
The shares may also come in different classes. For example, Class A shares may focus solely on cash flow and have a higher preferred return. In comparison, Class B shares are designed for the investor who prefers to maximize their overall return by taking a lower preferred return and is willing to wait to receive more of the equity upside in the later years of the fund.
Of note, one can usually invest in both classes as long as the minimum commitments are met.
Although the investment timeframe may vary for the fund, they typically range from 5-10 years, with the potential option of selling back the shares at some point during the investment. The timeframe usually depends on the size of the fund and the planned hold period of the properties within the fund.
Why invest in one?
Investing in a multifamily investment fund is an attractive option for individuals who want to invest in real estate but don’t have the time, expertise, or resources to invest in individual properties or like to diversify their investment across multiple properties and markets. The fund provides access to professionally managed real estate investment opportunities, with the potential for steady income and long-term capital appreciation.
Here are four key benefits of investing in funds:
- Diversification: investing in a multifamily real estate fund can help spread risk by diversifying an investor’s portfolio. This reduces the risk of having all assets tied to a single property or market.
- Reduced Costs: investing in a multifamily real estate fund can reduce the reserve balances and deal expenses associated with individual property purchases by spreading them across several acquisitions.
- Enhanced Returns: investing in a multifamily real estate fund provides the opportunity for passive income through rental income. These funds enable you to co-invest with a third-party equity structure that has the potential to accelerate returns at the sale.
- Accelerated Tax Benefits: Like other multifamily real estate investments, funds provide the opportunity to take advantage of accelerated depreciation.
Conclusion
Investing in a multifamily real estate fund can be an excellent opportunity for passive income and diversification. However, before making a decision, potential investors should carefully weigh the advantages and disadvantages and consider their investment goals, risk tolerance, and overall financial situation. Finally, as with any investment, it is essential to do your due diligence and seek professional advice before making a commitment.
If you want to learn more about multifamily real estate funds, set up a call using the contact us link.
Do You Want To Learn More?
RIZE Equity is a private multifamily investment firm, and we work with accredited investors to help them achieve their long-term investment goals through high-quality multifamily investments in the Southeastern U.S. If you would like to learn more about our investment strategy, we invite you to visit our website at www.rizeequity.com/invest and schedule a free no-obligation appointment with us. Also, check out our free passive investor’s guide on investing in multifamily at www.rizeequity.com/passive
About the author: Sean Cullen is the managing partner and Director of Business Operations at RIZE Equity Group LLC, a privately held real estate investment company that helps current/former professional athletes, veterans, and business professionals create generational wealth through smart multifamily investments.
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