Do people actually lose money in MF syndications?

[Asa Hunt]

What scenarios lead to a LP investor losing their entire investment in a MF syndication? I've only heard stories of investments under-performing. Any examples of how you or someone you know of lost money would be helpful. I talk to a lot of folks that are afraid of losing their money and realized I don't know anyone who has lost money!

[Brian Burke]

A couple years after the great real estate collapse I bought a property for half of what the last guy paid. I bought it for the amount of his loan. His investors lost everything. 

Then shortly after I bought it the great financial collapse happened.  Jobs were lost, occupancy fell, delinquencies skyrocketed. It didn’t take long for the income to fall so far that there was not enough income left to service the debt. Because of the economy and the income, the property was now worth less than my loan.  My investors stood to lose 100% of their investment. The only thing that saved them—I started making the $15K monthly payment out of my own pocket, and did that for a few YEARS until the economy rebounded and eventually we sold.  Investors actually ended up with a small profit.  I wrote about the experience here:  https://www.biggerpockets.com/blog/colossal-fail/

So can investors lose it all?  Hell yes. Those of us that have lived through cycles appreciate this and treat real estate like a loaded firearm.  Those who haven’t tout “everybody needs a place to live,” and “multifamily is the safest investment because...”  Don’t be fooled.  If you are considering investing as a passive investor in a syndication, it is a great asset class and can be enormously successful.  Stack the deck in your favor and choose sponsors that fear the dangers with the same passion as they appreciate the upside.