Passive Multifamily Investing Guide

Passive multifamily investing allows investors to preserve real estate exposure, generate income, and reduce management responsibilities without giving up the long-term benefits of ownership. Demographic growth, elevated homeownership costs, and persistent housing undersupply continue to support multifamily demand across many U.S. markets. At the same time, higher financing costs and slower development activity have constrained new supply in several regions.

The appropriate investment structure depends on factors such as tax position, liquidity needs, investment horizon, and whether capital is being redeployed from an existing property or allocated as new investment capital. Different structures also involve different trade-offs around control, diversification, tax treatment, and liquidity.

This guide analyzes four primary passive multifamily investing pathways: Delaware Statutory Trusts (DSTs), 721 UPREIT transactions, Bonaventure Multifamily Income Trust (BMIT®), and direct co-investments.

Comparing Four Passive Multifamily Investment Structures

The table below compares how Delaware Statutory Trusts (DSTs), 721 UPREIT contributions, private multifamily funds, and co-investments differ across key investor decision criteria:

Each structure serves distinct objectives, with optimal fit depending on tax situation, liquidity preferences, investment timeline, and net-of-fee returns. All figures are estimates or targets and are not guaranteed. Past performance is not indicative of future results.

Private Multifamily Fund (BMIT): Monthly Income With Quarterly Liquidity

Private multifamily funds, such as Bonaventure Multifamily Income Trust (BMIT), a perpetual NAV REIT, pool investor capital to acquire and operate a diversified portfolio of institutional-quality multifamily properties. The structure is designed to provide consistent income distributions with periodic liquidity following an initial holding period.

How It is Designed to Work:

• Investors commit capital through Common or Preferred shares, typically with lower minimums than single-asset co-investments or DST structures
• Capital is deployed across a diversified portfolio of multifamily properties in supply-constrained growth markets
• Monthly distributions are generated from portfolio cash flow, with depreciation potentially reducing taxable income
• Quarterly redemption opportunities are available after a 12-month holding period, subject to fund redemption limits (typically capped as a percentage of fund NAV per quarter) and the board’s ability to suspend redemptions under certain market conditions; this is periodic liquidity, not on-demand liquidity
• Designed for both non-1031 capital seeking taxable income and for property owners contributing through 721 UPREIT exchanges into the REIT structure

Why investors consider it:

BMIT offers institutional-quality multifamily exposure with a $25,000 minimum. Diversification across 24 properties and 4,498 units reduces exposure to individual asset performance, while historical monthly distributions provide consistent income.¹ A portion of distributions may be treated as Return of Capital, reducing currently taxable income, and certain REIT dividends may qualify for the Section 199A 20% QBI (Qualified Business Income) deduction.² As of March 31, 2026, BMIT Common had a 7.9% three-year annualized total return and a historical 5.3% annualized distribution yield.³ BMIT Preferred had a historical 8% cumulative annual distribution, historically paid monthly, and ranks senior to Common shares, with a 10:1 common-to-preferred equity ratio when the initial offering is fully subscribed. The ratio would adjust to 5:1 if the full offering is subscribed.⁴ The structure accommodates both new capital and the 721 UPREIT contribution.

Trade-offs:

Investors do not select individual properties or receive asset-level transparency. Performance reflects the overall portfolio rather than individual investments.

Best suited for:

Accredited investors (and, where applicable, qualified purchasers) seeking diversified, passive multifamily exposure with consistent income and periodic liquidity.

Direct Co-Investment: Single-Asset Ownership With Sponsor Alignment

Direct co-investments provide equity ownership in a specific multifamily asset alongside sponsor capital. Each investment is structured as a single-asset transaction with a defined business plan, hold period, and exit strategy. The 10-12% return figure reflects a target IRR over the full hold period, not a current distribution yield.

How It Works:

• Investors commit capital to a specific multifamily asset sourced and managed by the sponsor
• The sponsor invests principal capital alongside investors in each transaction
• Distributions are generated from asset-level cash flow, typically paid quarterly during the hold period
• Returns are realized through ongoing distributions and a capital event at sale or refinancing
• Designed for accredited investors with sufficient capital for single-asset commitments

Why investors consider it:

Direct co-investment provides transparency into underwriting, capital deployment, and asset-level performance throughout the hold period. Investors evaluate each opportunity individually and allocate capital selectively, with returns tied directly to the performance of the underlying asset.

Trade-offs:

Single-asset exposure increases concentration risk relative to diversified structures. Liquidity is typically limited until a capital event, often requiring a multi-year hold. Higher minimum investment thresholds may also limit accessibility.

Best suited for:

High-net-worth investors and family offices seeking direct exposure to individual multifamily assets, with the capital and time horizon to hold through a full investment cycle.

Delaware Statutory Trust (DST): Tax-Deferred Replacement Property for 1031 Exchanges

A Delaware Statutory Trust allows multiple investors to hold fractional interests in a single multifamily property. The structure is designed to qualify as like-kind replacement property under IRS Section 1031, enabling investors to reinvest proceeds from the sale of an investment property while preserving tax deferral.

How It Works:

• An investor sells a directly owned investment property and identifies a qualifying DST within IRS-prescribed timelines (45 days to identify, 180 days to close)
• Sale proceeds are reinvested into the DST as replacement property, maintaining 1031 tax deferral
• The sponsor manages the underlying asset, including operations, financing, and capital improvements
• Distributions are generated from the property cash flow during the hold period
• At disposition, investors may pursue another 1031 exchange, a 721 UPREIT contribution, or a taxable exit

Structural Restrictions: Under IRS Revenue Ruling 2004-86, DST trustees operate under strict limitations for the life of the trust: no new cash contributions after closing, no renegotiation of existing debt, no acquisition of additional assets, and no capital improvements beyond routine maintenance. These restrictions mean investors have no ability to reposition the asset in response to market changes and are entirely dependent on the sponsor’s management and exit decisions.

Why investors consider it:

DSTs allow property owners to complete a 1031 exchange while stepping out of active management, with access to institutional-quality real estate at lower capital requirements than direct ownership.

Trade-offs:

Investors hold fractional interests with no control over property-level decisions and no secondary market for their interests. IRS deadlines can constrain replacement property selection.

Best suited for:

Property owners completing a 1031 exchange who want to preserve tax deferral while stepping out of active management, with the time horizon to hold through the full lifecycle of the investment.

721 UPREIT Exchange: Transition Into a Diversified Portfolio

A 721 UPREIT exchange involves contributing appreciated real estate into a REIT’s Operating Partnership in exchange for OP units. The contribution defers capital gains at the time of transition, while OP units provide ongoing exposure to a diversified portfolio and can support long-term estate planning objectives.

How It Works:

• An investor contributes a qualifying multifamily property into an Operating Partnership affiliated with the REIT; contributions are subject to operating partnership approval based on asset size, condition, and market criteria
• The investor receives OP units valued on the contributed equity, with the original cost basis carried over
• Within Bonaventure’s structure, OP units are redeemable through quarterly windows after an initial 12-month hold, subject to fund-level limits; this feature is specific to Bonaventure’s platform and is not a standard feature of all UPREIT programs
• Distributions are generated from the broader portfolio rather than the original contributed asset
• OP units held until death may receive a stepped-up cost basis under Section 1014, potentially eliminating the deferred liability for heirs

Tax Considerations: Section 721 deferral is not automatic in all scenarios. Gain may be recognized if the investor receives boot (including debt relief in excess of adjusted basis) or if Section 721(b) applies. Converting OP units to REIT shares is a separate taxable event. Investors should consult a qualified tax advisor before proceeding.

Why investors consider it:

A 721 UPREIT allows investors to transition a concentrated real estate position into diversified exposure without triggering an immediate taxable event. The structure can also support estate planning objectives by aligning tax deferral with long-term wealth transfer.

Trade-offs:

Following contribution, the investor relinquishes control over the asset. Performance, distributions, and exit timing are determined at the REIT level rather than the individual property level. Contributions are typically limited to institutional-quality assets that meet defined criteria for size, condition, and market.

Best suited for:

Property owners with appreciated multifamily assets who are seeking to transition out of active management while maintaining real estate exposure, particularly those with long-term investment horizons and estate planning considerations.

Matching Passive Multifamily Investing Structure to Investor Profile

The scenarios below illustrate common situations where each structure is most often considered, though investor circumstances vary and multiple structures may suit a given situation depending on tax position, liquidity needs, and long-term objectives. The table is intended as a starting point for evaluation rather than a prescriptive recommendation.

Choosing the Right Pathway With Bonaventure

Passive multifamily investing provides property owners and accredited investors with exposure to institutional-quality real estate, ongoing income, and reduced management responsibilities across four structures: Delaware Statutory Trusts, 721 UPREIT transactions, BMIT, and direct co-investments.

Bonaventure offers these pathways within a single platform, allowing investors to align structure with evolving objectives while maintaining sponsor alignment through more than $590 million of principal capital invested alongside clients. For investors whose circumstances require coordination across multiple strategies, Bonaventure works directly with CPAs, qualified intermediaries, and legal counsel throughout the process.

Find the right passive multifamily structure for your situation

Schedule a call with Bonaventure Investor Relations

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Footnotes

1) There can be no assurance provided that the offering will continue to provide distributions, execute investment plan, nor return investor’s principal. Consult PPM for full list of risk factors prior to investing. The percent of NAV is calculated based upon the annualized current monthly distribution of $0.08 per share divided by current share price. The distribution is comprised of earnings from the assets within the fund as well as loan proceeds. When loan proceeds are used to fund the distribution, the fund will have less capital to invest, which may lower its overall return. Distributions may be modified at the discretion of BMIT’s BOD.

2) REIT distributions may qualify for a 20% QBI deduction, subject to tax law conditions.

3) As of Q1 2026.

4) As of 06/30/26. 10:1 ratio reflects the initial $50,000,000.00 preferred offering. If the full $100,000,000.00 is raised, the ratio would adjust to 5:1. Preferred Shareholders are junior, however, to $615M in debt, which is paid before preferred shareholders.