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With the corrosive effect of inflation front and center of today’s headlines, we shared in earlier posts how private real estate has historically been an effective hedge against high inflation. We also illustrated how the multifamily sector might be better positioned compared to other property types with or without inflation, but especially when inflation is high and rising.

What is the most effective investment approach for allocating to multifamily real estate in client portfolios? The answer depends on the client and their objectives, risk profile, return targets, and liquidity needs.. This post should help provide direction for you.

You Have Options

The good news is that you have a variety of structures and approaches when accessing multifamily real estate. 

  • Syndications and partnerships might appeal to clients with a long-term investment horizon and who have less need for liquidity. However, fees and expenses may be higher. 
  • Real estate mutual funds are easily accessible and real estate ETFs can be low-cost alternatives for clients seeking multifamily exposure. But, as publicly-traded securities, these investments may be more subject to market volatility than less-correlated private investments.
  • Publicly-traded REITs are another popular approach for diversifying client portfolios into real estate, including multifamily. Many public REITs can offer diversification by property type and geography, but are subject to stock market volatility.
  • Private REITs are compelling for a variety of investment advisors because they can provide many of the favorable characteristics of the investment structures mentioned above plus a few unique advantages. Therefore, a closer look is warranted.

The User-Friendly Private REIT

The private REIT structure has been an attractive option for many accredited investors seeking income and growth through private real estate. Private REITs, like their public counterparts, are available for various strategies. This allows you to identify the REIT that best meets your clients’ investment objectives. 

As you consider your private REIT options, note that other investment advisors historically prefer multifamily REITs with specific benefits:

  • A diversified portfolio of stable multifamily assets across different regions—to reduce the concentration risk inherent in single property or single location programs.
  • A vertically integrated management team with complete in-house capabilities—to help ensure business plan execution and continuity through a property’s lifecycle.
  • A structure utilizing 1099 tax reporting—to eliminate the cumbersome and time-consuming process of completing and filing tax returns with K-1s.
  • Transparency and regular reporting—providing investors with a clear view of properties, cost, and performance.
  • Limited liability—less investor liability compared to direct ownership or general partnerships structures.
  • Lower minimum investment—provides easier access to institutional-quality private real estate.
  • Liquidity features—periodic liquidity terms may be available for select private REITs, unlike many private investment structures.

A private multifamily REIT with the above characteristics can simplify your investment and management process, while providing your clients with the real estate exposure that can potentially enhance their portfolios.

If you’d like to learn more about the multifamily investment option, download our FREE eBook, A Potential Inflation Hedge for Today: Private Multifamily Real Estate.

You can also conveniently schedule a one-on-one meeting with me HERE.

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Topics: Insights, Multifamily

Offering Disclosure:

The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by the issuer, or any affiliate, or partner thereof ("Issuer"). All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to any “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified. Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

Real Estate Risk Disclosure:

• There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
• Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
• Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
• Potential for foreclosure – All financed real estate investments have potential for foreclosure; 
• Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
•Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
• Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
• Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.

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