Joseph Libkey is a real estate investor in the multifamily real estate arena. In the following article, Joe Libkey discusses the benefits of investing in these properties for income and portfolio diversification.
Real estate investments have always been a go-to wealth-building tactic, with multifamily properties rising in popularity. However, these investments often require significant resources, management responsibilities, and expertise — the makers of a very active investment. But individuals can utilize multifamily real estate funds to obtain the passive income they’ve yearned for.
These funds offer opportunities for multiple investors to pool their money and invest in a far-reaching market-spanning multifamily portfolio. With various risk profiles and property types, the benefits of such funds are just as wide-ranging.
Joseph Libkey on Portfolio Diversification
Putting different investors’ resources together ensures multifamily funds provide diversified portfolios filled with properties across various markets, risk levels, and building types.
But why does portfolio diversification matter?
Joe Libkey says that as any well-established investor understands, diversification ensures all risks are spread (i.e., if one type goes down, it won’t take the entire portfolio with it) and returns are increased.
In the same vein, Joseph Libkey notes that multifamily funds balance losses. A property will lose money at one point or another, but having a fully-fledged portfolio means it can cover such losses itself.
Passive Income
Managing traditional multifamily investments require time, dedication, resources, and expertise. But funds provide a passive investing option for those without the aforementioned necessities.
This way, investors can earn passive income while building long-term wealth with real estate but without the responsibility and stress of owning residential units.
Typically, fund-involved investors benefit from the management team’s expertise, helping them make well-informed decisions about the fund’s direction.
Lower Barriers to Entry
Active real estate approaches come with ultra-high costs that newbies may not be able to afford. However, passive investing solutions allow first timers to take advantage of the low barriers to entry.
Unlike traditional methods, individuals don’t require multifamily expertise to make a splash or have intimate knowledge of the systems that manage such assets. All they need is a transaction sponsor connection or fund group to receive floods of investment opportunities.
Depending on the type of passive method chosen, investors may also need to become an accredited investor, meaning they must meet a few net worth or income requirements.
Stability
Joseph Libkey reports that many passive investments aren’t publicly traded. Therefore, they boast some degree of price stability that isn’t afforded in debt and equity (i.e., publicly traded) markets.
That said, individuals should not forget to use these funds as part of a wide-reaching portfolio. As explained previously, diversification is the key to spreading risks and increasing returns.
Higher Property Quality
Perhaps one of the largest downsides to active multifamily investing is individuals are limited on resources, which restricts the quality and scale of the properties purchased. But this all changes with a fund.
Joe Libkey says that pooling resources unlocks access to higher quality buildings in nicer locations with more reliable cash flows. Generally speaking, it is even more beneficial for individual investors to own a fractional share of a high-quality block than the entirety of a lower-quality asset.
Leverage Experts
The teams providing multifamily real estate investment funds are industry experts — it’s what they do day in and day out. And those who invest in a fund can take advantage of this valuable expertise, time, software tools, and connections.
Naturally, these teams boost the positive impact felt by all investors contributing to the fund.
Tax Efficiencies
Multifamily transaction sponsor investments are structured with tax efficiency in mind, offering two brilliant tax benefits for involved individuals.
Firstly, the property is bought in a limited liability corporation. These companies are structured just like standard corporations but are taxed liked partnerships. Income and expenses from the multifamily building filter through the LLC, while the leftovers are distributed to each investor, reducing individual tax liability.
Secondly, Joe Libkey says that investors are able to defer capital gains taxes on profitable investments. To do this, they must use a specific transaction type dubbed the 1031 exchange.
Such exchanges have zero-time limits and can be repeated as many times as individuals like, allowing tax-free growth of capital while managing to defer taxes forever.
Multifamily Investment Funds: Creating Passive Income Streams and Diversification
Multifamily funds offer a myriad of benefits to individuals looking for a more easily accessible, diversified, passive investment opportunities. However, people must scrutinize funds thoroughly before opting in to ensure risk tolerances match.
