InvestmentsPassive InvestingReal Estate

How Much Money Do I Allocate to A Multifamily Deal?

“The biggest room in the world is the room for improvement.”

– Helmut Schmidt

One of the best feelings in investing is when you find the deal that is just right. But often, this can be just the start to an even bigger conundrum. 

How much to invest. 

How much of my net worth do I put into multifamily deals?

How should I go about making this decision, and what sort of things should I consider?

This is a common thread that I have seen talking to over a thousand individual investors about their unique personal situation

Through hundreds of hours of phone conversations with these investors, I have found the 2 biggest factors that you should consider when deciding how much to invest. 

These are your investing experience and your net worth

Disclaimer – I am not your investment advisor, tax professional, or lawyer.  I cannot give you specific advice on how much you should invest.  This blog is meant to educate you on different factors that you can consider when making this decision.

But thankfully, I am here to help educate!  

Your Investing Experience

If you are brand new to multifamily syndication, a good practice is to invest a small amount or the minimum that the deal allows. 

Often the minimum for these deals is between $50,000 – $100,000. 

Putting in a small amount allows you to get a feel for this kind of investment. 

Not every investment is good for every investor. 

By getting involved, you learn whether you like the process, your comfort level, how involved you like to be in the investment, and so much more. 

Getting into a deal is a great education on how to build up your investment portfolio

Especially with people that have a lower net worth, investing the minimum allows you to get involved, get the advantages of investing, and still have that security of holding onto the rest of your capital. 

You can always invest more later! 

Your first deals are the chance to put in money, learn what you like, and find the operators that are best for you. 

Over time, you will be able to diversify your investments and make your investments work for you. 

Your Net Worth

Once you are comfortable with multifamily investing as an asset class, you will have the knowledge and comfort needed to make bigger investments. 

For people with a lower net worth, it still may make sense to invest small amounts. 

But for people that have a larger net worth, only putting in the minimum amount into a deal may not make a lot of sense. 

For example, if you have a net worth of $10 Million, putting the minimum of $50,000 into every deal doesn’t do a whole lot for you. 

With that little invested you would likely not get many of the tax advantages of real estate investing. 

Also, if you want to invest a higher percentage of your net worth – let’s say 30% of $10 Million – and still want to invest that same $50,000 minimum, you would have to be part of 60 deals

That is a heck of a lot of deals to keep track of! 

What makes more sense for people in this situation is to invest in fewer deals at a higher amount. Think something closer to $250K-$500k.  

This can allow you to still get the benefits of investing in multifamily deals while allowing you the opportunity to learn from these early investments. 

Other notable considerations

There are a few other factors that may come into play when deciding how much to invest. 

Needs for liquidity

How much of your money do you need to be liquid? What kind of expenses are you expecting? 

Do you need a large pool of ready cash? 

If you think you need more cash on hand, then a smaller investment could be right for you. 

Investment goals

This encompasses your long and short-term goals. 

What returns are you looking for? What total allocation of your net worth are you wanting? And in what kinds of deals

Family planning

This may be the most obvious one. Your family. 

Consider what you have planned for yourself and your family. 

Estate planning, kids, overall expenses; how will these be affected by your investment? 

Spouse’s comfort level

What does your spouse or partner feel about your investments? 

Keep an open dialogue, and find what is best for the both of you!

Conclusion

Obviously, this can’t be a fully comprehensive list. Only you know all the factors of your life and your investments. 

Think of this as your toolbox! These are the questions to ask yourself that will help you decide how much to invest. 

The goal here is to get comfortable with Multifamily Syndication. Getting involved will allow you to do more deals, allocate more, and get excited about your investments! 

Remember, you can always increase your allocation later! 

There is always room to improve your investment strategy. 

If you still aren’t sure about your decision, there are still more resources you can use. Talk with your family. Talk with your financial advisor. Consult an appropriate financial professional that will help you and take into account your unique personal situation. 

I may not be your financial advisor, but I can help educate you on many of the great aspects of passive investing. 

If you are interested in learning even more, we have a special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future. 

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch!

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