1. Fear of Losing Money

The risk of financial loss is a significant concern for any investment, and multi-family syndication is no exception. Investors often worry about market volatility, unexpected expenses, or simply the possibility that a property will underperform.

How to Overcome It: Education is key to alleviating this fear. Investors should understand the property market, have a clear idea of how risks are mitigated, and learn how professional syndicators manage assets and control costs. Ensuring there’s a reserve fund and a contingency plan for unexpected situations can also reassure investors.

2. Lack of Information and Trust in the GP Team’s Track Record

The success of a syndication deal largely depends on the experience and track record of the General Partners (GPs) who manage it. Investors may hesitate if they feel the GP team lacks sufficient expertise or proven results.

How to Overcome It: Research and transparency are essential. A credible GP team should be able to provide a history of previous deals, including outcomes and lessons learned. Checking for positive references and reviews from past investors can build trust, and attending webinars or in-person events hosted by the GP team can further reassure potential investors.

3. Lack of Information and Trust in the Person or Entity Bringing the Deal

In some cases, a third party brings the deal to the investor rather than the GP team itself. This middle layer can create mistrust if the investor is unfamiliar with the person or entity connecting them to the deal.

How to Overcome It: Investors should ask questions about the relationship between the deal sponsor and the person bringing the deal. Confirming that the intermediary is fully aligned with the investor’s best interests, possibly by seeking references or understanding their compensation structure, can help. Ideally, only well-established and trusted intermediaries should be relied upon to minimize uncertainty.

4. Lack of Trust in the Forecasted Returns (Understanding Underwriting)

Projected returns are one of the main attractions of any investment opportunity, but they can also be a source of skepticism. Many investors may not understand how underwriting works, making it hard for them to trust the numbers presented.

How to Overcome It: A solid underwriting process includes conservative estimates, stress tests, and clear assumptions. Investors should ask for a breakdown of how returns are calculated, ideally with conservative assumptions clearly stated. Transparency about the assumptions behind vacancy rates, rental income growth, and expenses can provide investors with more confidence in the forecasted returns.

5. Lack of Information Regarding Exit Strategy

An exit strategy is essential for investors to understand how and when they can expect returns on their investment. Without a clear exit plan, investors may worry about how or when they’ll receive their returns.

How to Overcome It: A transparent and well-defined exit strategy can ease these concerns. Investors should look for details on the expected hold period, potential sale, or refinancing options, and any anticipated market conditions that could influence the exit timeline. Asking about alternative exit options if the market shifts unexpectedly can also provide a better understanding of the strategy.

Conclusion

While multi-family syndication offers an exciting investment opportunity, understanding the potential barriers can help investors make informed decisions. By addressing common fears and seeking transparency from GP teams, third parties, and underwriting processes, investors can feel more confident as they move forward in the syndication space.