As private real estate continues to gain traction in high-net-worth and mass-affluent portfolios, RIAs are increasingly tasked with evaluating multifamily fund structures that fall outside traditional public REITs. Understanding how these structures work and how their risk and return profiles align with client goals is essential to making sound allocation decisions.
Whether you’re recommending a value-add opportunity with higher return potential or a more conservative core-plus approach, this article breaks down the primary structures used in multifamily private placements, including LP/GP partnerships, LLCs, and syndications, exploring the associated risks and projected returns across investment strategies. With clarity around terms like preferred return, promote, and the waterfall model, RIAs will be better positioned to assess whether a given fund fits their client’s liquidity needs, risk appetite, and return expectations.
STRUCTURES, RISKS, AND RETURNS
Along with REITs, there are various ways to structure a multifamily real estate fund, largely dependent on investment goals, liquidity preference, risk tolerance, and tax considerations. In addition to a REIT (review REITs here), below are three common multifamily real estate structures. [1]
[tabs slidertype=”top tabs”] [tabcontainer] [tabtext]LP/GP STRUCTURE[/tabtext] [tabtext]LLC STRUCTURE[/tabtext] [tabtext]SYNDICATION STRUCTURE[/tabtext] [/tabcontainer] [tabcontent] [tab]In a typical multifamily real estate fund or syndication, the general partner (GP), also referred to as the sponsor, structures the offering. The GP identifies the investment opportunity, arranges financing, and brings in limited partners (LPs)—passive investors who contribute capital in exchange for a share of the cash flow and equity upside, depending on the deal. [1]
A key advantage of this structure for LPs is the absence of active management duties. The GP assumes full responsibility for executing the business plan, which may involve direct property management or oversight of third-party operators. Once capital is raised and the asset is acquired, the GP manages all aspects of the investment lifecycle. This includes renovations or construction (if applicable), operational oversight, financial performance monitoring, lender and regulatory compliance, investor communications and reporting, distributions, tax document preparation, and ultimately, the execution of the exit strategy. [1]
Alignment of Interests: The LP/GP structure is designed to align the general partner’s incentives with those of the limited partners. By tying the GP’s compensation to the fund’s performance, through preferred returns, promote structures, and co-investment requirements, LPs can benefit from a sponsor who is financially motivated to maximize overall returns and effectively manage risk. [1][/tab] [tab]The Limited Liability Company (LLC) is a common entity structure in real estate investment, valued for its combination of liability protection and tax flexibility. While it shares similarities with a traditional limited partnership (LP), the LLC offers notable distinctions. Principally, it allows owners to elect their preferred tax treatment, typically as a partnership, C corporation, or S corporation. [1]
In the context of real estate funds, partnership taxation is often favored for its flexible profit allocation and pass-through tax treatment. A pass-through deduction is a tax provision in the United States tax code that allows business owners who operate as pass-through entities (such as sole proprietorships, partnerships, or LLCs) to deduct a portion of their business income from their taxable income. [1]
This deduction, known as the Qualified Business Income Deduction, was introduced as part of the Tax Cuts and Jobs Act of 2017 to reduce the tax burden on small business owners. The pass-through deduction allows eligible taxpayers to deduct up to 20% of their qualified business income, subject to certain limitations. [1]
Within this structure, the sponsor typically serves as the manager, assuming responsibilities similar to those of a general partner, while passive investors participate as members with limited involvement in day-to-day operations. [1][/tab] [tab]A private placement, also known as syndication, is a real estate deal in which multiple investors pool their funds to purchase a property, typically an apartment building (commercial). Passive investors are led by a sponsor who is responsible for identifying the property, facilitating the transaction, and managing the property after it is purchased. Other types of commercial real estate that may be structured as private placements include hotels, student housing, self-storage facilities, manufactured home parks, and warehouses. [1][/tab] [/tabcontent] [/tabs]
Risks & Returns
Some deal structures include a preferred return to the investor. The deal must hit a minimum return before the sponsor makes any money. This motivates sponsors to fulfill their role, ensuring they are incentivized to perform well. The limited partner also bears less asset-specific risk in this arrangement. [1]
A private placement memorandum (PPM) outlines the specific details of the investment, including all associated fees and risks. The required Securities and Exchange Commission (SEC) filings are then submitted. While multifamily assets are often viewed as relatively stable, each fund structure and strategy introduces unique risks. [1]
| Risk Type | Description [1] |
| Market Risk | Economic downturns, interest rate increases, or local job losses can result in reduced occupancy or rental rates. |
| Execution Risk | The sponsor may fail to deliver the business plan (e.g., renovations, leasing, refinancing). |
| Liquidity Risk | Especially high in closed-end funds, capital may be tied up for years. |
| Structural Risk | Poorly aligned GP incentives (e.g., high fees, low co-investment) can erode returns. |
| Concentration Risk | Syndications or smaller funds may expose investors to a single market or asset class. |
Multifamily real estate can offer both income and appreciation, but returns vary depending on the fund strategy. [1]
- Core Strategy:
- Stabilized assets in major markets; low leverage.
- 6–10% typical net IRR to LPs.
- Core-Plus Strategy:
- Light value-add; moderate leverage.
- 8–12% typical net IRR to LPs.
- Value-Add Strategy:
- Renovation, operational improvements, and higher risk.
- 11–15% typical net IRR to LPs. [1]
Returns are usually structured using a waterfall model, where:
- LPs receive a “pref” or preferred return (e.g., 8%).
- After the pref, profits are split (e.g., 70/30) between LP and GP.
- Promotes and catch-ups reward GPs for exceeding performance benchmarks. [1]
STRUCTURING MULTIFAMILY INVESTMENTS AROUND CLIENT OBJECTIVES
As with any alternative investment, the structure of a multifamily real estate fund plays a critical role in determining how and when returns are delivered to your clients. From alignment of interest between GP and LP to the liquidity limitations of closed-end offerings, understanding these nuances helps RIAs act as informed stewards of client capital.
The key is to match the fund structure and strategy to each client’s financial plan. Clients with a higher tolerance for illiquidity and a long-term horizon may benefit from value-add strategies with upside potential. Those seeking stability and tax efficiency may prefer core-plus or preferred equity offerings with a more predictable income stream.
BAM Capital’s fund offerings are designed with these investor profiles in mind, emphasizing transparency, operational excellence, and sponsor alignment. As you evaluate opportunities across the private real estate landscape, structure, risk, and return should remain central to your due diligence—not only to meet fiduciary standards but to deliver real value to your clients.
BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. The firm has been focusing on buying assets targeted as having strong profitability potential and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while helping to mitigate investor risk. To date, BAM Capital has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.
For additional multifamily real estate insights, visit Pathways to Passive Wealth, BAM Capital’s new platform designed to make real estate investing more accessible, transparent, and achievable for aspiring and experienced investors.
SOURCES
[1]: Multifamily Real Estate Funds: A Guide for RIAs. (2025). “Topic 2.1 | Anatomy of a Multifamily Real Estate Fund.”
