​Multifamily housing syndications attract investors who want good returns without being burdened by traditional landlord duties. Individuals join syndications so that they can pool financial resources and purchase properties as a group. They receive their earnings passively because property management is handled by the syndicate's leader or leadership team, which frees the investors from the day-to-day demands of running rental housing. Investors collect their share of rental profits and the proceeds when a property is sold a few years later. [1] As with all investments, care must be taken when choosing a syndication. Both the property deals involved and the people running the syndication require vetting.
 
Who Can Invest in a Multifamily Syndication?
 
Investing within a multifamily syndication requires at least $20,000 or $25,000 to start with. Most syndications require $50,000 to $100,000 for entry. Regardless of minimum investment, the dollar amount is still far less than the price of almost any multifamily property on the market.
 
Some syndications are only open to accredited investors. These organizations have a 506(c) legal status. The U.S. Securities and Exchange Commission allows a person with an individual income of at least $200,000 annually and a net worth above $1 million to become an accredited investor. [2]
 
An non-accredited investor, also known as a sophisticated investor, may join a syndication with a 506(b) legal status. The financial requirements are not so strict for joining the ranks of sophisticated investors. People need only possess investing experience and have a relationship with the syndication's general partner. [3]
 
Some syndications welcome both accredited and non-accredited investors. Potential investors must know their status in this regard before investigating syndications.
 
How to Find Syndications
 
Word of mouth remains a big influence in multifamily investing. Potential investors can network with other like-minded people in their area to locate syndications. Of course, people may widen their search to the internet to find organizations unknown to their networks. The JOBS Act of 2012 created new opportunities for syndications to work with non-accredited investors, and they connect with new investors online. [4]
 
Top Considerations When Vetting a Syndication
 
Regardless of how a syndication is found, an investor must perform due diligence to ensure not only the legitimacy of the organization but its suitability for the investor's goals.
 
A top-level assessment of a syndication would look at:
 
Debt level
Cash on hand for property upkeep
Future goals [5]
 
Next-level scrutiny of the syndication requires investigation of:
 
Qualifications and experience of the syndication's leadership
Process for evaluating property deals
Target market
Timing of payments
Timing of property sales
Management fees [6]
 
Be Ready to Make an Investment
 
Although exploring and vetting syndication options takes time, once an investor chooses a direction to take, funds need to be readily accessible. An appropriate multifamily property deal could come up at any moment. A person interested in collecting passive income from multifamily real estate may only have a few days to join the investment.
 
References:
 
[1] https://www.medicaleconomics.com/view/how-to-invest-in-real-estate-without-being-a-landlord-
[2] https://highpeakscapital.com/multifamily-syndication-the-beginner-real-estate-investors-guide/
[3] https://www.mashvisor.com/blog/multifamily-syndication-beginner-investors-guide/
[4] https://www.benzinga.com/money/real-estate-syndication-an-introduction/
[5] https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/basics/
[6] https://mfiholding.com/starting-as-a-passive-investor-in-multifamily-apartments/

​Retirement plans mostly corral participants into investing in securities and bonds. Real estate investing, particularly investing in syndicated multifamily real estate, is beyond the scope of employer-sponsored 401(k) plans and standard IRAs. However, a self-directed IRA and a solo 401(k) can be set up for real estate investing. [1] These specialized accounts can unlock multifamily real estate's potential for higher returns. They appeal to people because a typical IRA might only earn a mere 1% to 2% annually. [2]
 
Self-Directed IRA Custodians
 
A custodian for a self-directed IRA is a third party organization. The U.S. tax code requires the custodial structure when people want to self-direct their investments. Although many custodians are available to the investing public, not all of them are prepared to handle real estate investing. [3]
 
How to Select a Custodian for Real Estate Transactions
 
Investors will have to search for custodial organizations that specifically allow for real estate investing. Upon finding prospective custodians in this category, an investor should ask specifically if a self-directed IRA can be set up to invest in a multifamily syndication.
 
The next consideration is whether the custodian will require documents to be executed in ink or if digital signatures are acceptable. Ideally, a custodian will also move funds electronically instead of with paper checks. These issues may matter due to the tight timelines on some investment opportunities. All investment paperwork must go through the custodian. This means investors must coordinate the paperwork between the real estate syndicate and the custodian. A custodian with a slow institutional process could struggle to meet all deadlines for committing to an investment. [4]
 
Real Estate Investing With a Solo 401(k)
 
Individuals and business owners have the option of establishing what is known as a solo 401(k). Unlike an employer-sponsored 401(k), a solo plan only has a single participant. An investor needs to find a 401(k) service provider that writes plans that specifically allow for investing in a multifamily syndicate. [5]
 
A very appealing feature of the solo 401(k) is that the plan participant controls the account. No custodian is necessary. The account holder creates an account to hold the plan's funds and can transfer funds from the plan as needed to make investments. The person saving for retirement signs all of the paperwork directly, which eliminates the hassle of working with a third-party custodian. [6] However, to prevent unexpected taxation, a person investing in real estate with a solo 401(k) must never mix personal funds outside of the retirement account in the transaction. [7]
 
Plan Ahead for Retirement Account Real Estate Investing
 
Investors cannot expect to supercharge retirement plan returns with real estate on a whim. Establishing a self-directed IRA or solo 401(k) could take up to eight weeks. Custodians and plan providers must be screened. Consultations with a tax accountant are needed to understand all issues before choosing a service provider. An investor must execute paperwork, set up an account, and pay necessary service provider fees. This timeline often will not accommodate the schedule for investing in a multifamily property. People interested in diversifying their retirement investing should have an appropriate account ready to go before exploring real estate deals. [8]
 
Although the upfront paperwork is substantial, the possibility of higher returns warrants the effort. Many people have significant funds in regular IRAs or 401(k) plans that they cannot use for real estate. With the right preparation, self-directed plans remove this restriction.
 
References:
 
[1] [6] [8] https://www.ezfiuniversity.com/blogs/2021/2/28/what-to-expect-when-investing-in-syndications-with-alternative-retirement-plans
[2] [3] [4] https://themichaelblank.com/getting-started/how-to-invest-using-retirement-funds/
[5] https://www.mysolo401k.net/solo-401k/solo-401k-real-estate-investment-faqs/
[7] https://www.biggerpockets.com/blog/solo-401k-to-invest-in-real-estate
 
 

​Multifamily real estate presents tremendous opportunities for investors to make money. Rental rates and operating expenses determine the Net Operating Income (NOI), which is total rent collected minus expenses. Savvy investors have the ability to improve both of these variables by identifying value add opportunities. The best value add opportunities arise from relatively small problems or shortcomings that investors can fix in a short amount of time. [1]
 
Increase Cash Flow
 
Cash flow derives primarily from rent. When analyzing a property prior to a purchase, an investor looks for a location where rents lag behind current market rates. This situation creates an immediate opportunity to increase cash flow by raising rents.
 
Property owners and managers measure the local rental market by using online tools like Zillow, Trulia, or RentBits to study data about current rents. When the market shows that people will pay more for a comparable unit, then landlords can write new leases that reflect these market rates and thereby boost revenue. [2]
 
Even when rents match the current market, investors may have viable opportunities to raise rents through upgrades. Wiring units with smart technology presents a quick way to attract higher-paying tenants. Schlage and Wakefield Research reported that 86% of Millennials would pay 20% more for a smart apartment. Among Baby Boomers, 65% would consider paying more. [3]
 
On other occasions, upgrades, like nicer kitchen appliances or washers and dryers in an apartment that previously lacked a laundry facility, empower landlords to ask for more rent. Expanding amenities at a property attracts more renters as well who may pay a higher rent. Popular amenities that could be cost-effective additions include barbecue areas, playgrounds, or patios. [4]
 
Decrease Operating Expenses
 
Investors serious about upping their NOI apply bean-counting scrutiny to their expenses. The process starts by identifying problem areas that chronically cost money or are likely to cost more money in the future. For example, placing cheap water heaters in units results in more breakdowns, more labor, and more frequent replacement costs. Choosing higher-quality water heaters could cut costs over time despite a larger upfront cost. Similarly, aging heating and cooling equipment creates frequent service calls. Managers either need to invest more in preventative maintenance or modern, efficient equipment. [5]
 
Other expenses could be corrected by replacing outdated office administration and record keeping systems that are driving up labor costs. Improving water use efficiency offers another cost-cutting strategy for landlords who pay water bills. The installation of low flow shower heads produces savings. [6]
 
At times, landlords need to shop for new service providers. Not all property management companies are created equal. A good one can cut costs. [7]
 
Improve the Occupancy Rate
 
A constrained supply of housing across most of the nation means that properties should have strong occupancy. However, a poor turnover process robs investors of revenue when units stand empty due to slow repair and leasing processes. An efficient property manager gets maintenance done as soon as a unit empties and engages in effective marketing. A strong online advertising strategy that reaches ideal tenants increases the pool of prospective renters. Of course, applicants must be vetted carefully to avoid the revenue killer of non-paying tenants and evictions. [8]
 
The application of strategies that increase the NOI allows investors to make more money. Keeping rents in line with the market and efficient spending can transform a modestly profitable property into a highly profitable one with an increasing overall value.
 
References:
 
[1] https://themultifamilymindset.com/value-add-opportunities-how-do-we-make-money-in-the-multifamily-world/
[2] [3] https://www.visiolending.com/blog/ideas-for-increasing-noi-at-multifamily-properties
[4] https://willowdaleequity.com/blog/14-ways-to-add-value-to-an-apartment-building/
[5] https://managecasa.com/articles/control-costs-permanently/
[6] [7] [8] https://www.powellpropertymgt.com/seattle-area-property-management-blog/ways-reduce-apartment-expenses-operating-costs-washington

A good economic outlook as people recover from pandemic-related challenges and low interest rates have contributed to the boom in multifamily housing investment. However, these two things on their own would not likely cause a boom, but a constrained housing supply and rising rents across the country have made multifamily housing nearly irresistible to investors.
 
Transaction Volume Proves the Boom
 
A Real Capital Analytics report identified the third quarter of 2021 as record breaking for the volume of apartment building deals. Total apartment transactions in that quarter exceeded annual volumes for the years 2008 to 2011. [1]
 
The accelerating rate at which lenders approve loans for multifamily properties proves that they agree on the value of these purchases. An August 2021 projection from the Mortgage Bankers Association estimated that 2021 lending volume in this sector would beat the previous year by 31%. [2]
 
Two Forces Constraining Housing Supply
 
Rising prices for single-family homes have dominated real estate news for years now. In August 2021, Realtor.com reported that the national median list price for a home reached a record-breaking $385,000. First-time buyers often cannot cope with these home prices. The presence of first-time buyers shopping for houses dropped to a 30-year low in May 2021. At that time, they made up only 31% of home shoppers, which means that many people are continuing to rent. [3]
 
The chances that builders will increase the supply of homes or apartment buildings in a meaningful way are low. Although the chief economist at the National Association of Home Builders said that new home construction has picked up, it will not put a dent in the problem. Experts expect persistent labor shortages, material shortages, and low buildable land inventory to prevent resolution of the problem any time soon. [4]
 
Rising Rents Attract Investors
 
Multifamily real estate investors are not driven by inventory shortages alone. The fact that rents are rising greatly increases the viability and attractiveness of investments. The Freddie Mac Multifamily Midyear Outlook cited rising rents and low vacancy rates as the forces behind big investor demand in this sector. Freddie Mac predicted that the vast majority of metropolitan markets would experience rent growth. Las Vegas, Memphis, and Fort Worth were projected to have the strongest rent growth. For the country as a whole, rent increases of 2.5% are predicted for 2021. [5]
 
Data collected in June 2021 bears out the projections from Freddie Mac in a big way. Data from Realtor.com showed that the median rent had gone up 8.1% compared to a year ago. [6]
 
Multifamily Boom Expected to Continue
 
The chief financial officer at RNC Capital told the Mortgage Professionals of America that demand for multifamily housing would remain robust for at least two more years. High home prices, shortage of housing supply, and impediments to new construction will continue to drive demand for multifamily housing by investors because so many people will have no choice but to rent. Strong rent growth coupled with low interest rates have increased investors ability to secure loans for multifamily housing. Under these conditions, the mortgage industry is not expecting demand for these properties to weaken for years. [7]
 
References:
 
[1] [2] https://www.wealthmanagement.com/multifamily/all-multifamily-apartment-boom-continues?NL=WM-056&Issue=WM-056_20211109_WM-056_90&sfvc4enews=42&cl=article_2&utm_rid=CPG09000028640659&utm_campaign=35066&utm_medium=email&elq2=dc4d044e18354727b4f2847b38298fbb&oly_enc_id=1127D5602390J7F&fbclid=IwAR3wfxpt-rwnXqWDQ4KkMC7yv5iKyCAF0QyA58YN4cFYI5GtzR6JhLrtYAs
[3] [4] [6] https://www.realtor.com/news/trends/the-new-housing-crisis-are-first-time-buyers-being-priced-out-of-homeownership/
[5] https://www.multihousingnews.com/freddie-mac-projects-return-to-pre-pandemic-trends/
[7] https://www.mpamag.com/us/specialty/commercial/boom-times-for-multifamily-space/311007
 

​With inflation dominating the news at the end of 2021, people with capital to invest need to protect their wealth from erosion. Savings accounts and bonds with rates of return below inflation result in losses. Although diversification and liquidity remain important considerations, finding investments that grow alongside inflation has become critical in the current inflationary environment. This situation increases the appeal of multifamily commercial real estate. The ability of landlords to routinely raise rents on top of a tight multifamily housing supply nationwide maintains returns for investors. [1]
 
Current Inflation Rate
 
For the past 20 years, the U.S. inflation rate was consistently in the 2% to 3% range, except for a downward blip during the 2008 financial crisis. Since April 2021, inflation has ballooned. As of October 2021, the nation recorded an inflation rate of 6.2%. [2]
 
For investors, the inflation alarm bell has officially gone off. The opinions of politicians and government officials about rising prices being transitory have not proven convincing. For example, the investment management firm Cadre has chosen to view inflation as a new normal for the time being. The firm's managing director and head of investments said that this perspective has resulted in a greater emphasis on multifamily real estate due to its positive relationship with inflation. [3]
 
How Multifamily Real Estate Combats Inflation
 
Multifamily real estate typically operates with one-year leases. Tenants renewing their leases or new tenants moving in create annual opportunities to raise rents. Lease agreements can even include automatic rent hikes each year. This reality allows property investors to increase their net operating income in relation to inflation. Higher NOI also improves the value of the property at the same time.
 
A tight supply of multifamily housing units across most markets also contributes to a landlord's power to maintain occupancy even with annual rent increases. The supply of rental homes and apartments does not meet demand. This means that even if current tenants cannot withstand a rent increase, people who can pay are waiting in line for those rental units. Real estate markets where housing shortages are particularly acute offer the most benefit to investors. [4]
 
Housing supply has been persistently low for multiple reasons. The chief economist with the National Association of Home Builders attributes the shortage to a lack of labor, land, and lumber as well as expensive loans for builders and zoning laws that prevent building rental units. Although reforms may emerge that alleviate these problems, especially in regards to zoning, changes will be slow and take time to have a meaningful impact on housing supply and rental rates. [5]
 
Research Shows Strength of Multifamily Assets During Inflation
 
Researchers from the commercial real estate services provider Berkadia studied the sensitivity of returns in relation to inflation. Since the 2008 financial crisis, privately held commercial real estate has had a positive rate of return even after factoring in inflation. Within the commercial real estate category, apartments enjoyed the best performance whether inflation was moderate or above 5%. [6]
 
Diversification With Real Assets
 
As investors consider their options amid inflation, real assets in the form of stocks, commodities, and real estate offer a realistic way to prevent inflation from eating away at capital. Stocks and commodities generally keep up with inflation but are prone to volatility. Real estate also responds positively to inflation with multifamily real estate having the greatest advantage. [7]
 
References:
 
[1] [4] https://www.forbes.com/sites/forbesbusinesscouncil/2021/10/15/three-ways-that-commercial-real-estate-protects-against-inflation/?sh=e2408ee55ffb
[2] https://tradingeconomics.com/united-states/inflation-cpi
[3] [6] https://www.wealthmanagement.com/investment-strategies/inflation-fears-are-driving-more-investors-towards-commercial-real-estate
[5] https://www.npr.org/2021/11/06/1052876271/democrats-are-seeking-largest-ever-investment-in-affordable-housing
[7] https://www.usbank.com/financialiq/invest-your-money/investment-strategies/effects-of-inflation-on-investments.html
 

Photo courtesy of Texas A&M University 

Migration to Texas has been robust for years. This influx of new people has forced up rents within the multifamily housing market, especially in major metropolitan areas. New arrivals tend to rent because they either lack the means to buy homes or want to get to know an area before buying.

Half Million New Arrivals Per Year

U.S. Census Bureau data, as reported by the Texas Relocation Report 2021, showed that over 500,000 people moved to Texas from out of state in 2019. In fact, since the last census in 2010, Texas welcomed 4.2 million new people for an overall growth rate of 16.4%. For seven years in a row, more than 500,000 entered the state annually. Even after taking people who move away into account, the state gained well over 100,000 people in 2019 alone. [1]

California and Florida Top Sources

According to the Texas Real Estate Research Center, California represented the number one source of new Texas residents for the previous 19 out of 20 years. Florida holds the number two position in regards to people moving to Texas. Even so, the numbers moving from Florida do not amount to half the number of people coming from California. 

As can be expected, the major cities within Texas received the bulk of transplants. Well over half of new arrivals, 60.7%, moved into just four of the state's Metropolitan Statistical Areas. [2]

Jobs and Lower Cost of Living Attract People

The strong Texas economy has created many new employment opportunities for both Texans and new arrivals. Successful oil and gas, technology, manufacturing, and business services sectors provide plenty of jobs. 

Wages are relatively appealing as well. As a whole, Texas has an average personal income of $38,000. Although modest, that number is still $9,000 higher than the national average. In big cities, salaries are much better. For example, the average yearly salary in Dallas is $67,500. 

The cost of living on the West and East coasts of the country still exceeds what people pay in Texas. Although rents are rising in big cities, people still enjoy lower prices for transportation and consumer goods. The state does not have a personal income tax either. 

Aside from good jobs and a lower cost of living, Texas has some qualities that also attract people, including:

Numerous recreational activities
Multiple large urban areas
Diverse population
Great educational systems [3] 

Texas Rental Outlook Strong As People Keep Moving In

Swelling numbers of newcomers mean strong demand for rental units. Although the pandemic caused some markets to dip in 2020, the rebound in demand and rents has been impressive. The Business Journals reported in September 2021 that:

Dallas-Fort Worth rents rose 9% 
Austin rents went up by 10.5%
Houston rents increased by 4.8%
San Antonio rents increased by 6.3% [4]

These days, the multifamily housing market responds quickly to increased demand. Apartment complex companies track demand with algorithms. If applications from renters jump in one week, then the management company will immediately raise rents. 

Builders have been working to provide new housing supply for years. For example, more than 5,000 new rental units have been built around Austin every year since 2014. Record-setting numbers of new units are expected to hit the market in 2021 and 2022. Despite new inventory, the number of people needing homes remains chronically higher than what they can find on the market. [5]

As a result, the coming years will allow multifamily real estate investors to keep both occupancy rates and rents high. 

References

[1] [3] https://apnews.com/article/texas-business-census-2020-science-0d436b250dc07111bff4b4f6cdd6682b
[2] https://www.recenter.tamu.edu/articles/research-article/Where-did-new-Texans-come-from-2324
[4] https://www.bizjournals.com/dallas/news/2021/09/01/apartment-rent-occupancy.html
[5] https://www.texasstandard.org/stories/the-average-monthly-rent-in-austin-is-now-1500-prices-are-rising-at-the-fastest-pace-ever/