Why real estate syndications can be safer and less volatile than stocks

For many investors, the stock market has long been the default option when it comes to growing wealth. However, as volatility continues to shake the market, savvy investors are turning to real estate syndications as a safer and more stable alternative. When you invest in a real estate syndication, you're not just buying into an asset—you're gaining access to a well-structured deal where incentives are aligned, risks are mitigated, and volatility is far lower compared to the roller coaster of stock market fluctuations.

Here’s why investing in a real estate syndication can be a safer, more predictable investment choice than traditional stocks:

1. Tangible Asset Backing

Unlike stocks, which are often priced based on market sentiment and speculation, real estate investments are backed by tangible assets—the property itself. Multifamily properties, for example, provide a physical, income-generating asset that can be improved, stabilized, and repositioned for long-term growth. This creates a level of stability and predictability that stocks simply don’t offer.

When you invest in a real estate syndication, you know that your money is going into a physical property with a proven demand, whether it’s in the form of rental income or eventual property appreciation. While stock prices can drop dramatically based on factors outside your control (think corporate earnings misses or market corrections), a well-run multifamily property continues to generate rental income even in uncertain economic times.

2. Lower Volatility and Steady Cash Flow

The stock market is notorious for wild swings—one day your portfolio is up, the next it’s down. This constant volatility can be nerve-wracking, especially if you’re nearing retirement or looking for stable income. Real estate syndications, on the other hand, offer steady cash flow in the form of rental income, paid out on a regular basis (typically monthly or quarterly).

By investing in a syndication deal, you’re insulated from the day-to-day price fluctuations that plague the stock market. Multifamily real estate, in particular, is known for its ability to weather economic downturns because people will always need a place to live. This provides a consistent income stream, regardless of market conditions, helping you grow your wealth in a more stable, predictable way.

3. Aligned Incentives Through the GP Sponsor Waterfall Structure

One of the most attractive aspects of real estate syndications is the aligned incentives between the General Partner (GP) and Limited Partner (LP) investors, particularly through the waterfall structure. In a typical syndication deal, the GP sponsor only gets paid after the investors (LPs) have received a preferred return on their investment. This means that the sponsor is incentivized to perform well, as their own compensation depends on delivering strong results for investors.

The waterfall structure ensures that LPs are protected and prioritized. Here’s how it typically works:

• Preferred Return: LP investors receive a set percentage of returns (usually between 6-8%) before the GP sees any profit.

• Profit Split: After the preferred return is paid out, profits are split between the LPs and GP, often on a 70/30 or 80/20 basis. This ensures that the GP is motivated to maximize the property’s performance and profitability for both parties.

In this structure, there is no “guesswork” about how much the sponsor will earn. Their upside is directly tied to how well they perform for the investors, aligning everyone’s interests. Compare this to the stock market, where you have no control over company management or stock performance, and you’ll see why syndication deals are often far more secure for investors.

4. Control Over the Investment’s Performance

When you invest in a stock, you’re essentially betting on the management of a company you have no direct influence over. They could make a strategic misstep, face regulatory issues, or be subject to a market-wide correction, and your investment could take a significant hit.

In a real estate syndication, however, the sponsor team has direct control over the property’s performance. They can increase occupancy, reduce operating expenses, add value through renovations, and make decisions that improve the property’s cash flow and value. As an investor, you benefit from this level of hands-on management and strategic decision-making, which reduces risk and increases predictability compared to the passive nature of stock investing.

5. Built-in Equity Growth and Tax Advantages

One of the hidden benefits of investing in real estate syndications is the built-in equity growth and tax advantages that most investors overlook. Over time, as the property appreciates, the value of your investment grows—often at a rate higher than most stock market investments. And when value-add strategies (such as renovations) are implemented, the property’s equity can increase even further.

On top of that, real estate investors enjoy significant tax advantages, including depreciation, 1031 exchanges, and deductions for property expenses. These tax benefits reduce your overall taxable income, allowing you to keep more of your earnings—something that isn’t available with stock investments.

6. Hedge Against Inflation

Real estate is one of the best hedges against inflation. As inflation rises, so do property values and rental rates. This means that while inflation may eat into the purchasing power of stock-based portfolios, it actually increases the cash flow and asset value of real estate investments. In a syndication deal, you benefit from this natural inflation hedge, making your investment more resilient over time.

Conclusion: Real Estate Syndications Can Provide Stability and Profitability

While the stock market is fraught with uncertainty and volatility, real estate syndications offer a stable, profitable, and aligned investment structure that can outperform in the long run. With a tangible asset backing, steady cash flow, GP sponsor alignment through the waterfall structure, and tax benefits, syndications provide a safer and more predictable path to wealth generation.

At Ocean Ridge Capital, we’re committed to structuring syndication deals that prioritize investor returns and long-term success. Our aligned incentives ensure that we’re working just as hard as you are to make sure every investment performs. When compared to the wild ride of the stock market, the security and consistency of real estate syndications make them an excellent option for those seeking lower risk and higher returns.