Lessons Learned from Partnering in 20 Multifamily Syndications
Have you ever considered investing in multifamily properties but worried about the risks? You’re not alone. Multifamily real estate presents incredible opportunities, but without the right approach, investors can face significant financial setbacks.
At Capitano Investing Group, we entered the multifamily market as General Partners (GPs) in 2021 and 2022, a time when the sector was thriving. However, as interest rates increased by approximately 5% over just 14 months, many properties with variable-rate debt faced severe financial challenges. Lenders tightened requirements, property taxes and insurance costs skyrocketed, and an oversupply of new apartment units drove down rental rates. Unfortunately, some of the properties we invested in during this period have struggled, leading to a loss of investor capital as well as my own personal capital.
These hard lessons reinforced the importance of market timing and reliable cash flow in investment decisions. As a result, Capitano Investing Group has pivoted toward sectors with stronger fundamentals in today’s economic climate—such as oil and gas, pre-IPO companies, private credit funds (being the bank), and real estate investments with better risk mitigation strategies. This shift allows us to provide our investors with more stable returns and protect their wealth more effectively.
With that in mind, here are the top 10 lessons we’ve learned to help investors avoid losing money in multifamily syndications.
1. Protect Investor Capital Above All Else
The #1 rule in multifamily investing is capital preservation. Before investing, analyze the deal’s risk factors, underwriting assumptions, and business plan. If a deal carries a high likelihood of losing investor money, walk away. As a GP, I prioritize avoiding deals with fatal flaws that could put investor capital at risk.
2. Understand That Capital Raising is Hard
Many investors underestimate how challenging it is to raise capital. Without adequate capital upfront, deals struggle from the start. Insufficient capital can lead to cash flow problems, delayed renovations, and difficulty covering unexpected expenses. Raising money isn’t just about numbers—it’s about building trust and relationships.
3. Budget for More Contingency Funds Than You Think
Most sponsors underestimate how much contingency capital is needed. Unforeseen expenses—such as higher-than-expected renovations, slow evictions, rising insurance costs, or economic downturns—can quickly erode profits. I’ve learned to ask tougher questions to ensure the investment has enough buffer capital.
4. Partner With an Established GP Team
Success in multifamily syndications depends on having a strong, experienced team. Deals often struggle when a single person is doing too much. I prefer working with teams that have been in business together for several years and have successfully navigated past challenges.
5. Prioritize Fixed Interest Rate Loans When Possible
One of the biggest pitfalls in multifamily investing is interest rate risk. Fixed-rate loans provide more stability, making it easier to plan for long-term cash flow and sustainability. The recent interest rate surge was a harsh reminder of how unpredictable financial markets can be.
6. If Using a Variable Rate Loan, Have a Strong Risk Mitigation Plan
Variable interest rate loans should only be used when absolutely necessary. If a variable rate loan is required, secure at least a three-year fixed-rate period and purchase a rate cap insurance policy to limit exposure to sudden rate increases.
7. Ensure the GP Team and Asset Manager Have a Strong Local Presence
A GP team with local market knowledge is crucial for successful asset management. Ideally, at least one GP or asset manager should live within a two-hour drive of the property to provide hands-on oversight and ensure smooth operations. A strong local presence also means better relationships with vendors, property managers, and local officials, all of which help improve property performance.
8. Understand Local Market Conditions and Eviction Laws
One of the biggest lessons we’ve learned is that some markets make it extremely difficult to evict non-paying tenants. In certain properties we’ve invested in, we’ve seen tenants remain for over a year without paying rent due to restrictive eviction laws. Before investing in a new market, make sure to understand:
- Eviction timelines and tenant protections
- Rent control laws
- Job and population growth trends
- Supply and demand of rental units
Markets with landlord-friendly laws, strong employment growth, and steady rent appreciation create a more stable investment environment.
9. Don’t Underwrite a Deal Based on a Future Refinance
Many deals look great on paper when a refinance is included in the underwriting. However, market conditions can change, and relying on a refinance event to generate returns is risky. I prefer underwriting that assumes the worst-case scenario and treats refinancing as an upside rather than a necessity.
10. Get Involved Early in the Deal
The earlier I get involved in a deal, the more influence I have over key decisions—like selecting the right loan structure, ensuring proper contingency funding, and overseeing due diligence. Being proactive allows me to mitigate risks before they become major issues.
Final Thoughts
Investing in multifamily real estate can be one of the most powerful ways to build long-term wealth, but it’s not without risks. By following these 10 key principles, you can avoid costly mistakes and position yourself for success.
At Capitano Investing Group, we help military veterans and engineers invest in private equity assets, including oil and gas, pre-IPO companies, private credit funds (being the bank), and real estate. If you’re interested in learning more about multifamily syndications and how to protect your investments, join our investor club today!
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