Why People Invest in Commercial Real Estate Syndications

3 Ways Multifamily Commercial Real Estate Delivers Profits to Investors

December 6, 2022

Key Takeaways

Accredited investors can diversify their portfolios through real estate syndications.
An investment not correlated with the stock market that can serve as a hedge against inflation is one of the top reasons investors choose real estate syndications.

Commercial real estate is a popular way to diversify your portfolio, earn passive income, and shelter money from taxes. Unfortunately, the acquisition cost is a barrier to entry for most investors. Real estate syndications are available to accredited investors, can mitigate investment risk, and add stability to your portfolio.

Syndications come to be when a real estate syndicator pools together money from multiple investors to purchase a commercial property. Profits are then divided among the contributors based on their ownership share. Syndications are attractive to investors because they diversify risks, are an asset that does not move in correlation to the stock market, serve as a hedge against inflation, and provide valuable tax benefits.

Risk Diversification

Diversification is a way to reduce risk by investing in different asset classes. Adding real estate to your traditional portfolio increases diversification. You can diversify your real estate portfolio by investing in property types that are not correlated with each other, such as industrial real estate and multifamily. Another way to diversify assets is by investing in different property classes and multiple regions. For example, owning assets in Dallas and Jacksonville or buying ownership in class B and C assets could add diversification to your real estate holdings.

Investment Returns Do Not Move in Tandem With the Stock Market

Real estate investments are less volatile and not tied to the stock market. Property can hold its value during declining markets, serving as a hedge in a bear market. Values tend to be regional, and some markets will see positive gains even when the stock market generates a negative return. The result is consistent cash flow and lower volatility in both up and down markets.

Inflation Hedge

Commercial real estate is a long-term investment that serves as a hedge against inflation. Values appreciate over time to mitigate rising inflation. The cash flow component also tends to increase with costs providing stable cash flow as prices rise. In most cases, appreciation and rents grow faster than the rate of inflation.

Tax Benefits

Real estate syndications come with the same tax benefits you receive as an individual property owner. The syndication forms a partnership or LLC, which deducts all expenses for owning and managing the property and deductions for interest and depreciation.

Final Thoughts

Syndications could diversify your portfolio and serve as a buffer during recessionary times. It can also hedge against inflation and reduce taxable income through generous tax benefits.

If you are interested in learning more about how multifamily real estate syndications can supplement your traditional investment portfolio, contact us today.

FAQ

1Should I invest in a multifamily real estate syndication?

Real estate can improve your portfolio’s diversification, be a hedge against inflation, and generate cash flow. However, it requires a long-term outlook because it is not a liquid asset.

2Can I build wealth using commercial real estate syndications?

Yes. Real estate syndications can build wealth faster than traditional investments because you can leverage assets to expand your portfolio more quickly. It also has less volatility than the stock market, producing additional benefits for those nearing or in retirement.