The belief that real estate requires a substantial upfront investment can be true for many high-value properties in desirable locations. While real estate often requires significant upfront investment, lenders generally view multifamily properties as a lower-risk asset class, making financing options more accessible for experienced investors or those acquiring stabilized assets with strong cash flow. 

Active investors are partners who participate in renovation, construction, property management, or labor acquisition in a deal. This article will cover two common ways to invest actively in multifamily real estate: direct ownership and joint ventures.

DIRECT OWNERSHIP

Direct ownership in multifamily real estate is when an individual or company independently buys and manages a multifamily property, such as an apartment building. This gives the individual or company complete control over the property but requires taking on all the risks and responsibilities. [1] In contrast, in a syndication (private placement), the individual or company managing the property or investment typically plays the general partner (GP) role; the GP is in charge of finding, acquiring, and managing real estate property on behalf of passive investors (limited partners). A general partner is sometimes called a sponsor or owner/operator.

Direct ownership involves buying, managing, financing, and deciding which direction to take regarding upgrades, leasing, tax obligations, acquisition, and more. This active investment path offers complete control to owners/operators. They are afforded tax advantages, like depreciation and interest, from which investors can benefit. Owners/operators are also responsible for screening potential residents, identifying high-performing markets, and building teams to oversee operations. While finding a property management team can be prohibitive due to high costs, vertical integration offers a solution but requires deep expertise in property management to be a successful strategy.

Vertical integration is when a company takes direct ownership of various stages of production to streamline operations. Instead of outsourcing and relying on external contractors or suppliers, these companies acquire suppliers, distributors, manufacturers, and any other third party they need to support the deal.  

In multifamily real estate, vertical integration often means that a direct owner takes complete control of property acquisition, management, and operation instead of relying on third-party operators, property managers, or asset managers. By handling these functions in-house rather than outsourcing, the owner has complete authority over decision-making, cost structures, and long-term strategy. 

As with most business ventures, direct ownership can expose you to risk. This will be time-consuming as it requires 24/7/365 resident management, maintenance, and expert market knowledge to assess current and future market values. Owners/operators are also at a higher risk due to vacancies, unexpected expenses, and the significant upfront cost requirements when taking on debt (fees, mortgages, etc.). Although vertical integration can mitigate many of the challenges of direct ownership, it takes a great deal of business, real estate, and investing acumen to be a successful owner/operator. 

JOINT VENTURE

A joint venture is a partnership between two or more parties that pool resources,  share financial contributions, and split risks and profits per the JV partnership agreement. This can look like a development or value-add investment, whereas private placement deals have passive investors who contribute capital but have no control. A development deal, for example, is a partnership between investors and developers in which they pool resources and split risks, profits, and costs. [2] JVs usually require active participation from all partners. 

Joint ventures can result in complex partnerships, where a misalignment of goals among partners may lead to conflicts. Liability also increases with joint ventures because, although costs are shared, so are the risks. Each party may experience slower decision-making, as collaborative processes can inhibit timely execution. Finally, you may find a responsibility imbalance, wherein partners with varying experience and expertise take on more of the associated risks, costs, or labor in the deal. 

WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING

Being the general partner in a multifamily real estate deal requires significant time, energy, and resources. If you are interested in passive income, consider working with an established sponsor with a proven track record to arrange your deals.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

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SOURCES:

[1]: Nareit. (2024). “REITs Across America.” https://www.reitsacrossamerica.com/united-states

[2]: Nuveen. (n.d.). “Tax benefits and implications for REIT investors.” https://www.nuveen.com/global/insights/real-estate/tax-benefits-and-implications-for-reit-investors