One of the benefits or negatives, depending on your viewpoint, is that a Multifamily Real Estate Syndication investment is illiquid. Meaning the sponsors will plan on holding a property for at least five years and in many cases ten years.
As you know from my last article, I believe in Warren Buffett and Tony Robbins view that if we want to invest in the Stock Market we should use low cost, Exchange Traded Index Funds (ETF’s) since it is very difficult to beat the market averages and the ETF’s are significantly more tax efficient than actively managed funds.
So let’s look back at the S&P 500 returns over the last 30 years using different 10 year holding periods:
What we find is A LOT of Volatility that created great opportunity for certain periods of time (1989 & 2009) and a LOST DECADE where you would have lost over 4% per year if you made an investment in 1999. In addition, you would have to pay Long Term Capital Gains tax of 15% when you sell your fund.
When you compare these volatile stock market returns to the steady cash flow that comes from a well managed Multifamily syndication, you will see why I like this asset class so much. In addition, you don’t have to pay taxes on the majority of your cash flow from a Multifamily investment due to the depreciation shield that you can utilize with this type of investment.
A study by the National Council of Real Estate Investment Fiduciaries (NCREIF) showed that the average returns for Apartments during a 10 Year Holding Period was 9.35% during the thirty year period of 1987-2016. In addition, apartments had the lowest Standard Deviation (Volatility) of any commercial real estate class.
So investing in quality, Multifamily properties over the last thirty years would have provided significantly better returns for twenty of those thirty years vs. the S&P 500 Index.
In addition, you would be able to sleep at night 🙂
Here’s to your Wealth and Happiness!
Dan Engdahl, Co-Founder Multifamily Connections, LLC