RCRE – Risks are Opportunities
Dylan Marma and Mike Taravella discuss the risks when investing in a multifamily syndication:
- Interest Rate Risk – This is the risk that as an investor you become less able or unable to cover your debt burden.
- Liquidity Risk: Risk that the investment is not able to be sold at the planned time. This is amplified in the event of a high point in the market, or being in a distressed position in need of a “fire sale”.
- Funding Risk: The risk that the general partner falls short on their raise. This is common in the event of a fund when investors are required to invest via a capital call.
- Concentration Risk: The risk of loss due to having all of your eggs in one basket or being overly concentrated in one asset/asset class.
- Credit Risk: This applies largely to debt investments or to real estate investors dependent on tenants. You run the risk of having a poor quality tenant and/or having their credit drop during the holding period.
- Inflation Risk: The risk of loss in purchasing power because the value of your investments does not keep up with inflation.
- Horizon Risk: The risk that your investment horizon is shortened due to an unforeseen circumstance, such as a fallout of the partnership.
- Political Risk: This is the risk that some level of political event/ordinance poses a threat on the operations or profitability of the business.
- Currency Risk: Currency risk is the potential risk of loss from fluctuating foreign exchange rates
- Operational Risk: The risk of loss as a result of inadequate processes and systems to support the organization.