Savvy wealth managers often recommend multifamily investment funds for the powerful benefits they can deliver to accredited investors, including portfolio diversification and passive income. Here we provide a brief overview of multifamily investment funds as well as links to helpful resources for those looking for more detailed information.
What is a multifamily investment fund?
A multifamily investment fund pools together capital from many investors to be managed by a sponsor responsible for investing in multifamily properties. Although any property with two or more dwellings can be considered multifamily, the professional investment community generally thinks of multifamily real estate as apartment buildings or complexes comprised of numerous rental units.
Multifamily funds invest according to the sponsor’s particular strategy, which defines the target property type, tenant profile and location. For example, one fund may focus on student housing in a particular metropolitan center, while another fund may renovate older complexes across several suburban areas.
Commercial real estate investments—including multifamily—are often divided into four segments that broadly reflect their risk-return characteristics. The strategies are typically defined as:
- Core – The newest properties with stable occupancy in extremely desirable areas. As such, they have the lowest risk and yield modest returns for investors, equivalent to approximately 7-9% internal rate of return (IRR).
- Core-Plus – High-quality investments with slightly more risk than core properties, given that the buildings tend to be around 10-15 years old. With small improvements to units and management, cash flows can be upgraded while attracting better tenants. Investors can expect a 10-12% return.
- Value-Add – Value-add properties can be ideal for investors with a moderate to high-risk tolerance seeking high returns. These properties aren’t being used to their fullest potential and commonly have issues with management, repairs, and outdated units. The buildings often have amazing potential for improvement in cash flow once renovations are complete and provide investors with returns in the range of 13-17% over a period of a few years.
- Opportunistic – The highest level of risk. Investment in opportunistic properties usually entails the complete renovation of very old buildings or building up from the ground up. Investors may see returns of 19% and above, but they risk the most with these projects.
The Trion Properties approach
We offer private multifamily real estate funds to accredited investors. As specialists in value-add projects, we acquire underutilized assets in improving areas and convert them to modern, attractive places to live. Through extensive renovations and hands-on management, our team optimizes net operating income (NOI) and adds economic value to each investment.
We complete value-add renovations customized to each property’s age, condition, facilities, and surrounding neighborhood, then adjust rents accordingly, manage the property and begin to pay investor dividends. As these properties are eventually sold, the initial investment and accrued profits are paid to investors.
Our funds are typically diversified by including properties dispersed across a region. Our past investments have been in the West and we are now adding properties in the Southeast. Regardless of the market, we complete intense due diligence during acquisition and tenant lease-up. Our rigorous investment approach helps us meet our long-term objective of delivering outsized returns without taking outsized risks. Since its inception in 2005, Trion Properties has generated an average IRR in excess of 25%.
To learn more about the mechanics of real estate funds and see how they compare to REITs, we invite you to check out this guide.
You can also learn more about our investment philosophy and process and get up to speed on the benefits of multifamily investments.
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