4 Reasons Apartment Syndications may NOT be the right fit for you

We love the benefits of apartment syndications. We loved syndications so much that we started our apartment investment company. We love the cash flow, equity growth and tax efficiencies of apartment investing. That may make this next statement a bit odd. We don’t believe syndications are the right choice for every investor. We firmly believe there is no one-size-fits-all approach when it comes to investing. It’s about the investor finding the right match. Here’s 4 reasons why apartment syndications may not be the right investment for you

You want a completely liquid investment

An investment in an apartment syndication is illiquid. Although there are some rare exceptions, you cannot deposit and withdraw your money in and out of an apartment syndication. It’s not like mutual funds, stocks, or money market accounts. You also cannot sell your stake in an apartment syndication to another investor and exit before the property is sold. At New Sight Capital, we always let our investors know syndications are illiquid before they invest. We encourage investors to always maintain a certain amount of liquidity in their arsenal. A person investing in an apartment syndication needs to be financially comfortable with an investment cycle that lasts 4 to 6 years. Despite all the cash flow, asset stability, and tax efficiency benefits of apartment syndications, it may not be the right investment for you if liquidity is the highest priority–or a necessity.

You’re expecting exponential growth in a short period of time

While we advocate holding a certain amount of your investment capital in the stock market, we worry about this expectation of rapid, exponential return on investment that has pervaded online forums. Meme stocks have muddied the water a bit to where people confuse speculative bets with sound investment strategy. Certain stock investors are riding waves of volatility to achieve 200-500% returns that make 15-20% annual returns seem like a waste of time. However, the stock market proves again and again that volatility is a two way street. Investments in apartment real estate just don’t have that kind of volatility. They are historically stable assets–even times of recession. Quality apartment syndications typically provide average annual total returns in the 17 to 25% range, depending on the investment. We think that’s great, but if you are targeting high-risk, high-volatility-type returns, apartment syndications may not be the best fit for your investing objectives.

You want control over asset operations

We work with a lot of eye doctors who want passive investments that produce supplemental cash flow. Many of them value the passive nature of apartment syndications. They evaluate which opportunities meet their needs, invest money, and sit back and receive returns. That’s it. Investors in syndications do not contribute to the management of the asset. While many people love that feature of syndications, others may not. If you are the type of active investor who wants to have control and influence over the operations of your investment, apartment syndications may not be the right fit.

You can’t afford a relatively large investment

Most apartment syndications require a relatively large initial investment. Unlike funds which may allow smaller amounts, syndications typically have an entry point anywhere from $25k to $100k. The average minimum investment seems to be around $50k. Obviously, that is a lot of money for anyone to invest. If you don’t have $50k to invest in an offering, waiting for one that has a minimum of $25k may be an option. Even if you do have $50k to invest, we suggest you evaluate if that amount of investment still leaves you with ample cash reserves to support you in any times of financial crisis.

If you’ve made it to the end of this article and still think apartment syndications may be a good fit for you, please register here so that we can reach out and learn more about your investing objectives.