Top 5 Concerns for First-Time Multifamily Syndication Investors (and How to Overcome Them)

15 Ways to Address Them So Fear Doesn’t Stop You from Starting

Investing in multifamily syndications can be an excellent way to grow wealth. However, for new investors, the process often raises significant fears.

Let’s explore the five greatest fears of new multifamily syndication investors, along with practical strategies to address them.

#1  FEAR OF LOSS OF CAPITAL

For many investors considering making an investment in an apartment complex for the first time, the greatest fear is losing all the money they put into the investment.   This is possible, and total loss of invested capital can be a significant, scary risk for any investor.

Most multifamily syndications require a minimum investment of $50,000 or more. If this is someone’s first investment in a syndication, it is a huge decision filled with significant anxiety. 

They likely spent years accumulating this much capital.  They are used to more traditional investments and now they are fearful of stepping into something new. 

Imagine a new investor, Sarah, who recently considered putting some of her savings into a multifamily syndication deal. She did her research and realized multifamily as an asset class has been an excellent investment for many. 

Despite doing some research, she was constantly worried about losing her hard-earned money. When she heard that a similar property in a nearby area wasn’t performing well, her anxiety skyrocketed. She began to question her decision, fearing that she might lose everything.

As Mark Zuckerberg once said, “The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risk.” 

How to Address the Fear of Losing Capital: To overcome the fear of losing capital, new investors might:

• Do Thorough Due Diligence: Before investing, research the syndicator’s track record, analyze the property’s financials, and understand the market conditions.  Mike and I would be honored to help you understand best practices with this due diligence.

• Diversify Investments: Diversify across multiple properties and syndication deals to spread risk and reduce the chance of a complete loss.  As an example, I am currently invested in three multifamily syndications in three different markets with three different operators.

• Invest Only What You Can Afford to Lose: Ensure that the money invested does not put your financial stability at risk if it doesn’t perform as expected.

#2  FEAR OF LACK OF CONTROL

John, another new investor, was used to handling all his investments independently. When he joined a multifamily syndication, he quickly realized he had very little control over the decision-making process. This made him uneasy as he had to trust the syndicator to make the best decisions for the property.

As a Limited Partner in a syndication, you will have little real control. The sponsor or operator will make most of the significant decisions. 

If being in control is important to you, consider whether this is a good fit for you. We know many passive investors who are used to being in control in other areas of their lives. They have been able to reframe this investment and see the benefits of trusting and delegating decisions to others.

How to Address this Fear of Losing Control: Addressing the fear of lack of control involves:

• Trust the Team: Research the syndicator’s background, experience, and history of successful deals to build justifiable confidence in their decision-making abilities.  Mike and I have a long list of questions we ask syndication sponsors before we invest with them.  We get to know, like, and trust the teams with whom we invest.

• Understand the Business Plan: Know the syndicator’s strategy and how they plan to increase property value. This will help align your expectations with the project’s goals and timelines.

• Communicate Regularly: Engage with the syndicator and ask questions to stay updated on the property’s progress and performance. Before investing, clarify how and when you will be informed during the life of your investment.

#3   FEAR OF MARKET VOLATILITY

The third biggest fear is the fear of market volatility.  

Every market, including stocks, bonds, gold, crypto, and collectables, has a measure of volatility. Some have significant ups and downs in short periods of time. Over the past decades, multifamily has also experienced volatility. Because it meets a real need that many people have, providing safe, clean, affordable shelter, the demand has smoothed out the volatility spikes. 

But, multifamily market volatility is a true concern.

Maria invested in her first multifamily property just before a recent sudden shift in the economy. Interest rates increased, and property values in her area started to decline. Her fear of market volatility became a reality, and she was unsure how to handle the downturn.

Other investors hear the stories from people like Maria.  Recent market volatility is the number two concern of most new multifamily investors.

“In investing, what is comfortable is rarely profitable,” noted Robert Arnott, chairman of Research Affiliates, who has published extensively in the field of asset allocation, risk management, and portfolio construction.

How to Address Your Concern about Market Volatility: To manage fears related to market volatility:

• Invest for the Long Term: Real estate syndications are typically long-term investments.  Most have a life of 3 to 7 years.   Focus on the potential for property appreciation and income generation over several years.  This asset class has the ability to ride out market volatility.

• Analyze Market Trends: Understand market cycles and choose investments in areas with stable or growing economies. Mike and I do this research, which helps us choose the locations in which we make our investments.

• Have a Contingency Plan: Work with syndicators who have strategies in place to handle economic downturns, like maintaining cash reserves or being able to adjust rent pricing.  We ask questions about this when we are vetting new syndicators.

#4  FEAR OF NOT BEING ABLE TO TRUST IN THE SYNDICATOR 

Write down this word:  trust.   The fourth of the big fears of making an investment in an apartment complex is about being able to trust the people managing the property.

“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” So says Stephen R. Covey, the author of The 7 Habits of Highly Effective People.

So true.  You know this. 

New investors in multifamily syndications must have settled this matter of trusting the operator before they invest. 

Do your values and their values align?  Are they ethical?  Do they have deep experience and a strong team capable of handling whatever might happen?  Are they committed to being transparent and communicating with you when things are good and when they aren’t? 

Do you trust them?

Kevin found a multifamily syndication opportunity but was hesitant because he didn’t know the sponsor well. He wondered if the sponsor had the right expertise and honesty to manage the investment correctly. This lack of trust made him delay his decision.  He was wise to do so. 

How to Address a Fear of Trust: Building trust with a syndicator can be achieved by:

• Verify Experience and Track Record: Check the syndicator’s background, past project successes, and reputation within the real estate community. We often focus our questions on the property and don’t spend enough effort in getting to know the syndicator.  Mike and I suggest focusing on the sponsor and team so we can settle this issue of trust in the people who will manage the investment.

• Speak with Other Investors: Talk to other investors who have worked with the syndicator to gather feedback on their experiences.

• Review Legal Documentation: Ensure that all agreements and disclosures are clear and transparent and protect your interests as an investor.

#5  FEAR OF YOUR OWN INEXPERIENCE

The fifth fear we address in this blog is fear of inexperience.  

Many new investors in syndications feel overwhelmed by all the terms, strategies, and legal requirements. Although they may have some experience with real estate investments or investing in general, this is a new asset class.

Lisa was new to multifamily syndications. Her lack of experience made her worry that she might miss important details or make costly mistakes.

She is not alone.

From my own experience, there is a lot to learn. I have been at this for decades and still can learn more. Each investor will need to decide the right amount of knowledge to feel comfortable investing in multifamily properties.

It is good and appropriate for a new investor to have some baseline knowledge. The question is how much you need.

How to Address this fear of not having enough knowledge or experience: To combat the fear of inexperience:

• Education is Key: Invest time in learning about multifamily syndications. Attend webinars, read books, and join real estate investment groups or masterminds.  Call Mike or me and ask what we suggest for your education before you invest.

• Start Small: To gain experience and confidence, consider beginning with a smaller investment or as a passive investor in a syndication. Mike and I have learned so much through the years by actually starting small and being investors, with skin in the game. As with learning to ride a bicycle, one can only learn so much by reading about it. Getting on a bike speeds up learning.

• Leverage Mentorship: Seek advice from seasoned investors or join communities where you can learn from others’ experiences.

FINAL THOUGHTS

While fears are a natural part of entering multifamily syndications, they can be managed effectively with the right strategies. Understanding the risks, doing thorough research, and taking steps to mitigate those risks can turn these fears into stepping stones toward financial growth.

Mark Twain once said, “The secret of getting ahead is getting started.”  

So often, we allow our fears to keep us from starting.  If you have read this far, you have likely identified some of your fears and some ways of effectively addressing them. Let your concerns inform you, but not stop you.

To succeed in multifamily real estate investing, empower yourself with knowledge, trust in the process, and take calculated risks. 

Mike and I stand ready to assist you.  Reach out.  Let’s talk.

HELP US GET TO KNOW YOU BETTER.

Attune Investments provides a better return for our investors. And we make a positive impact on people’s lives and our world.

If you want to learn more about how others invest with us, we invite you to join our club and talk with us. See below.

You can own multifamily assets through a syndication partnership with other investors like you, working with managing partners experienced in apartment complexes.

CONNECT WITH US. Subscribe to our blog. Subscribing now can increase your knowledge and comfort with this asset class. It’s free.

We publish an article every week.

Take one more step: Join our ATTUNE INVESTORS CLUB to gain more personal access to us. JOIN HERE.