How I Raised 1 Million Dollars for My First Multifamily Deal

Are you an aspiring apartment syndicator looking to raise equity for your first multifamily deal? I know how daunting it can be to secure equity for your first deal especially when you, and the potential investors, know you just don’t have the track record, yet. However, with the right approach and strategies, it is possible to raise the necessary funds to get your first multifamily deal closed.

In this article, I will share my experience on how I managed to raise 1 million dollars for my first deal.

Here are some tips that could help you too:

1. Leverage The Track Record Of A Mentor

When approaching potential investors, it can be helpful to leverage the track record of a mentor. If you have a mentor who has successfully completed similar deals, you can point to their success as evidence of your own potential. You could also consider partnering with a more experienced investor who can provide guidance throughout the process. This is exactly what I did in the beginning by having a mentor, who at the time had about $100MM Asset Under Management (AUM).

2. Create A Big Company Aura

At first glance, the sentence above may leave you feeling confused and unsure. I agree that it is not immediately clear. However, I will never forget what my father-in-law said when he saw the newly launched Dwellynn website. He exclaimed, "Wow, this looks like a big company!" This initial impression is crucial. Potential partners, investors, and lenders who visit your site for the first time should feel the same way. It is important to pay attention to every detail. Perception is reality, so make sure to appear big from the get-go. And when reaching out to stakeholders, avoid using an email address with "@gmail.com" at the end.

More to come about this in the Apps and Software we use at Dwellynn module.

3. Build a Strong Network

Now that you have created a “big company” aura, it is time to go out with confidence into the world. Networking is crucial when it comes to finding equity for your first multifamily deal. You need to build a strong network of passive investors, mentors, and partners who can help you fund your next deal. Attend real estate conferences, events, join business associations, and participate in online forums such as BiggerPockets, LinkedIn or even Instagram to expand your network.

Personally, this is where I was able to find my partners who were out-of-state but needed a boots on the ground partner in Texas and someone who can find good assets, control the deal, and take it to closing. This is how I did it.

In conclusion, raising equity for your first deal can be challenging, but not impossible. By adding your mentor’s track record to your team’s section on your website, creating a professional look for potential stakeholders, and continually building a strong network.

That classic, though corny, line of Your Network is your Net Worth is true!

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Questions to Ask When Evaluating an Apartment Building Deal

Let's discuss how to quickly evaluate an apartment building deal. With so many deals available, it's crucial to determine which ones are worth your time. Here are five essential questions you should always ask:

1. What is the net operating income (NOI)?
2. What is the asking price?
3. What is the upside potential?
4. What is the deferred maintenance?
5. Why is the seller looking to sell?

Let's delve into a bit more detail about these questions:

First, it's important to find out the NOI. This is crucial information because it helps determine what type of income the property generates and what expenses are being incurred. You will need to verify their income and expenses later, but for now, use the figures they provide.

Next, take the NOI and divide it by the asking price to determine the cap rate (the financial return of the property if you paid all cash).

For example, if the NOI is $35,935 and the asking price is $650,000, then the cap rate is 5.5%. This is a good rate for a property located in a desirable area.

If you don't know the asking price or are attempting to determine what you should offer, then you will need to find the market cap rate for similar properties in that area. One option is to ask brokers or property management companies.

For example, if the NOI is $550,000 and the market cap rate is 9%, then a fair price would be $6,111,111.

Here are some rule-of-thumb assumptions that can help you run some numbers if you don't have all the information:

• Assume between $3,000-$3,500 expense per unit per year if no expenses are given.
• Assume a 25% down payment, 5.5% interest rate, amortized over 25 years with a 10-year balloon payment if you have no idea about debt service.

NOTE: these assumptions are not always accurate, and should be used initially to run some numbers and determine if the deal meets your buying guidelines. To truly analyze the deal, you will need to obtain concrete information from the seller.

Now that you know the basic financials of the property, it's time to dig deeper. Here are the top three questions that you must always ask about the property:

• What is the upside potential?
• What is the deferred maintenance?
• What is the seller's motivation?

Here's what we didn't cover in this post: Market fundamentals. Investing in the right market is the most important variable for success. Buying in a bad market can result in failure. This is a longer conversation for another day, but it's important to know that the above post assumes that your market is performing well.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Negotiating Tips that have Worked Against Me

Throughout my career, I’ve been involved in many negotiations, both in real estate and in general full-time job circumstances. In this article, I'll share three negotiating tactics that were used against me and worked. But don't worry, I'm not here to scare you! I just want to give you some pointers so you can be better prepared for your next negotiation.

They are so damn likable.

Problem: Do you find it tough to negotiate against someone you really like? It can be awkward at first because you may not want to offend them, but there’s some serious business that needs to be addressed.

Solution: Stick to the facts. Facts are emotionless. They do not contain trigger phrases like “this is unacceptable,” “but it’s not fair,” “but I’ve worked really hard on this,” “but I’ve been here so long,” or curse words. When you maintain a calculated and logical approach to the negotiation, your stance cannot be disputed.

They demonstrate they have more knowledge on the topic than you (and gray hair helps)

Problem: The opposition may have more experience in the industry, more knowledge about the topic, and may be older. When they talk, it’s clear they know more about the topic than you do. This can be a daunting situation.

Solution: Align yourself with people who have the knowledge and experience you lack, and bring them in to actively participate with you. If that’s not possible, dismiss any irrelevant information and focus only on the outcome. Think of yourself going 1000 mph and all the stuff they are saying are the blurry objects. They might say a lot of stuff, but only focus on the info that will get you to your outcome. It requires concentration, but it works.

They devalue your contribution (e.g. payment, time, thoughts)

Problem: The opposition may undervalue your contribution and indicate that they are losing money on the deal. However, they still go through with the transaction and somehow stay in business and are happy with the outcome.

Solution: Create a list of five reasons why the opposition should do the deal. This helps you understand from their perspective why it is favorable. You can choose to bring up those points or just keep them in your head. Regardless, remind yourself of the value you’re bringing to the table. They wouldn’t be having this conversation with you if they didn’t agree you bring value. Whether it’s money or time, you are adding tremendous value to this arrangement, and don’t let them tell you otherwise.

What are some negotiating tactics that you’ve seen work?

How to Find a Property Management Company for Your Real Estate Investing Team

Real estate investing can be a lucrative business, but managing properties can be a hassle. That's why many investors hire a property management company to help them with the day-to-day operations of their rental properties. However, finding the right company can be a daunting task. Here are two ways to find a property management company for your real estate investing team.

Referrals from Other Investors

One of the best ways to find a property management company is to ask for referrals from other investors. Real estate investing is a tight-knit community, and many investors are more than happy to share their experience with property management companies. Reach out to local real estate investment clubs or associations and ask for recommendations. You can also ask for referrals from real estate agents or brokers who specialize in investment properties.

When asking for a referral, be sure to ask about the company's experience, their fees, and their communication style. It's also a good idea to ask for references from current or past clients. Once you have a few referrals, do your due diligence and research the companies further. Check their reviews online and ask for a copy of their contract to review.

Online Directories

Another way to find a property management company is to use online directories. There are several directories available that specialize in connecting investors with property management companies. These directories allow you to search for companies based on location, services offered, and fees.

Some popular directories include All Property Management, Buildium, and Cozy. These directories typically have a vetting process for the companies listed, so you can be assured that the companies you find are reputable. However, it's still important to do your own research and read reviews before making a final decision.

Conclusion

Finding the right property management company for your real estate investing team can take some time and effort. However, by asking for referrals from other investors and using online directories, you can narrow down your options and find a company that fits your needs. Remember to do your research and ask the right questions before making a final decision. With the right property management team in place, you can focus on growing your real estate portfolio and increasing your profits.

5 Signs That You Should Walk Away From a Property Deal

Real estate investing can be a lucrative business, but it's not without its challenges. One of the biggest challenges is knowing when to walk away from a property deal. It's important to recognize the signs that a deal may not be worth pursuing before investing your time and money. Here are five signs that you should walk away from a property deal.

1. The Property Has Serious Issues

If the property you're considering has serious issues like structural damage, mold, or a faulty foundation, it's best to walk away. These issues can be costly to repair and may make the property difficult to sell in the future. Unless you're prepared to take on a major renovation project, it's best to look for a property that's in better condition.

2. The Numbers Don't Add Up

Before investing in a property, it's important to crunch the numbers and make sure the deal makes financial sense. If the numbers don't add up, it's best to walk away. This could mean that the property is overpriced, the repairs are more expensive than anticipated, or the rental income won't cover the expenses. It's important to be realistic about the potential profit and make sure the deal is worth your investment.

3. The Seller Isn't Cooperative

If the seller isn't willing to provide the information you need, won't allow you to inspect the property, or is unresponsive, it's best to walk away. A lack of cooperation from the seller can be a red flag and may indicate that they're hiding something or aren't serious about selling the property. It's important to work with a seller who is transparent and willing to work with you.

4. The Property Is In a Bad Location

Location is key when it comes to real estate investing. If the property is in a bad location, it may be difficult to find tenants or sell the property in the future. Factors like high crime rates, poor school districts, and a lack of amenities can all make a property less desirable. It's important to consider the location carefully before investing in a property.

5. You Have a Bad Feeling About the Deal

Sometimes, your intuition can be a powerful tool in real estate investing. If you have a bad feeling about a deal, it's best to trust your instincts and walk away. This could be a sign that the deal is too good to be true, the seller isn't trustworthy, or there are hidden issues with the property. It's always better to err on the side of caution and avoid a deal that doesn't feel right.

Conclusion

Walking away from a property deal can be difficult, especially if you've invested time and money into the process. However, it's important to recognize the signs that a deal may not be worth pursuing and to trust your instincts. By avoiding bad deals, you can save yourself time, money, and headaches in the long run.

The Importance of Finding Lessons in Life's Challenges

I believe that within any situation, there is a valuable lesson to be learned. It's easy to feel helpless and discouraged when we face difficult or challenging circumstances, but we must remember that there is always something to be gained from these experiences.

Instead of thinking, "Why does this always happen to me?" we should try to identify the lesson and how it can help us and others. It may not always be easy, but it's worth the effort.

Life is short, and we should cherish every moment. It's important to be grateful for what we have and to focus on the journey, not just the destination. We've all been guilty of getting so caught up in our goals and aspirations that we forget to appreciate the present. Have you ever forgotten to enjoy the moment because you were too focused on the future?

Let's make a conscious effort to enjoy life more. Smile, laugh, be present, communicate, give, and love more. Remember that every experience, even the negative ones, has something to teach us. When we embrace these lessons, we can turn them into opportunities for growth and empowerment.

It's also important to take a step back and appreciate the beauty that surrounds us. Life is precious, and we should make the most of it. Let's not get so caught up in our goals and aspirations that we forget to enjoy the present moment. Take breaks from your routine, and try to find joy in the simple things.

In summary, let's strive to learn from every situation, cherish our time, enjoy the journey, embrace the lessons, appreciate the beauty around us, and make the most of every moment we have.

3 Ways to Raise $1,000,000 for Your First Apartment Syndication

If you're interested in raising money for real estate investment opportunities, it's important to understand why people invest passively. Don't worry, we've got you covered!

Before starting the process of raising over 1,000,000 for an apartment syndication deal, I thought people would invest in my deal primarily for the returns, whether cash-on-cash returns, internal rate of return, equity multiple, or simply an annual amount. Silly me! While returns are necessary, they're not the most important factor. People invest based on trust. They trust you as a person and as a businessperson. They trust you with their money because they know you or people who know you and can vouch for you.

If you want to successfully raise real estate investment capital, you need to gain potential investors' trust. Here are three ways to get started:

1. Time

Establishing a relationship with investors takes time, but don't worry, you got this! For your first syndicated deal, your investors will most likely have known you for at least a couple of years. You don't yet have a track record. Once you establish one, it will be easier to get strangers to invest with you because of your proven track record.

The more expertise you have (see way #2 below), the less time you'll need to establish relationships with those who provide real estate investment capital.

2. Expertise

The more expertise you can demonstrate, the easier it is to raise money. BUT, WAIT. There's a catch.

You must demonstrate your expertise in a way your potential investor understands. Your knowledge is irrelevant. What's important is what's relevant to your investors and how you communicate it to them.

A doctor needs information communicated differently than an engineer, a small business owner, or someone who has invested in real estate before. Your success lies in recognizing how to communicate the information to each audience based on their background and needs.

You can display expertise even if you haven't done the specific thing you're raising money for. Another way to build credibility as an expert (and gain more real estate investment capital) is to create a thought leadership platform. For example, Kathy Fettke leveraged her thought leadership platform, a podcast, to raise $5 million in one week! Other platforms besides a podcast can be a blog, a YouTube channel, a newsletter, an ebook, or a meetup, but there are numerous other ways to become a thought leader. Be creative and find something that complements your strengths, unique abilities, and of course, that you like to do!

3. Personal Connection

The idea that people only invest with their analytical mind is false. We invest with emotion. We go in with preconceived notions and tend to look for things that confirm those notions.

Try this exercise: look around your room and, for the next 30 seconds, find everything that's red. Look red. Find red. Look red. Find red.

Now, write down all the things you saw in the room that are blue.

While looking for red, you probably noticed things that were reddish-brown or orange-ish red but counted them as red. We don't find things we're not looking for.

The point is we find what we seek. Those who provide real estate investment capital do the same thing. If they have a preconceived notion about you and the investment, they'll look for ways to confirm it. So, it's important to establish a solid personal connection with them.

You can do this by finding out what they care about and seeing if you can align with that in a genuine way. If you don't know what they care about, ask them this magic question:

"What's been the highlight of your week (or weekend)?"

That will uncover some things that are top-of-mind for them. They might say "making a business transaction," which will tell you that it's important to focus on the numbers and profitability. Or, they might say, "finally being able to get away with my family," which will indicate that time is precious, and you should emphasize the "passive investment angle" with them.

Isn't Real Estate Investing Risky

I recently went out to eat with an old friend and was asked about my job. I shared that I work as a real estate investor, where I raise capital from investors to buy apartments. My friend asked if it was risky, and I agreed that it can be a lot of responsibility and carry some risk. However, upon reflection, I realized that I had not fully answered the question.

When it comes to risk, it's natural to focus on the potential negatives. But it's important to also consider the potential benefits and opportunities that may arise. In fact, taking risks can lead to great rewards and positive outcomes.

In my daily decision-making process, I weigh the pros and cons of each option and assess the potential outcomes. For instance, when deciding whether to indulge in a Snickers bar, I consider the fact that it's unhealthy but also that it tastes good and is free.

Similarly, when considering whether to pursue a business venture that involves raising funding from investors to purchase apartments, I evaluate the potential risks and rewards. While there is always a chance of failure, there are also great opportunities to provide investors with a conservative opportunity to earn more money, establish strong relationships with investors and team members, educate others about the real estate investment process, and have more time with my family. To mitigate risks, I ensure that I am surrounded by an experienced team and continue my education in the field.

When asked about the risks involved in my job, I emphasize that there is always a degree of risk, but there is also the potential for significant rewards.

10 Questions to Ask Before Purchasing An Apartment

When assessing an apartment complex, it's crucial to have access to details regarding income, expenses, and debt service. Furthermore, during a tour of the apartment, you should inquire about the following 10 items:

Why is the seller selling?

So, why are people selling their homes? Well, it really depends on the seller. Someone who's doing a 1031 exchange might have a different level of motivation than someone who's just "entertaining offers." And estate sales are different from those of someone who's retiring and moving to Florida. Make sure to ask this question a few times (at least three) because the answer could always change.

How long has it been on the market?

This can give insight into the motivation factor and potentially reveal any issues.

Will the owner do seller financing?

Seller financing can be a valuable option for both parties when negotiating a deal. It allows the seller to finance part or all of the purchase price, enabling the buyer to make payments over time. This option is beneficial for buyers who may not qualify for traditional financing or may have difficulty securing a loan. It can also help sellers sell their property more quickly and potentially receive a higher return on investment.

When considering seller financing, make sure the terms are clear and mutually beneficial. Agree on the interest rate, payment schedule, and other relevant details.

Overall, "seller financing" is a useful tool that can lead to better terms and outcomes for both parties.

What is the screening process for new residents?

Do they take people out of homeless shelters or purchase with parking situations and give them an apartment? Make sure you know what you're getting into beforehand. Do they have rental history, house rules, co-ops, Cincinnati meetup groups, mortgage payment, down payment, income requirements, work history, credit score, criminal background, and sublet policy? Check qualifications.

What is occupancy?

Knowing the number of residents in an apartment building isn't enough. You need to know the effective occupancy, which tells you how many residents are paying.

What is the market rent for an apartment?

What is the rental rate for similar apartments in the area?

What is market occupancy?

The property management company or real estate broker can provide this information.

What type of work is needed on the property?

Take this information with a grain of salt. There will likely be more issues that you discover during due diligence.

When was the last time the AC units were cleaned?

This question is best asked in person. If they don't have an answer, it may indicate that regular maintenance isn't a priority, which means more money may need to be allocated for deferred maintenance.

When did they buy the property and what did they pay?

Ask your broker or co-op reserve fund. This information can tell you what the vendor is thinking in terms of what they will get out of a great deal.

🧠 The Smarter Way To Make 💵 $10,000/month: SFR Rentals vs Apartment Syndication

Real estate investing has been one of the main, preferred investment vehicles for thousands and thousands of years! Owning land and property has been an important principle that has been passed from generation to generation all over the world and it’s one of the major factors fueling the beloved American Dream.

Real estate will always have a seat at the table when it comes to investment strategies, and it’s more important to talk about real estate now more than ever, especially with the rapid population growth and the national shortage of affordable housing.

Just like in most industries, there are numerous ways to make money. You can develop properties from the ground up, get your hands dirty and start flipping houses, or put on your landlord hat and start building a portfolio of rental properties, amongst other viable methods. However, all real estate investing strategies are not created equal; some are more active than others and some more passive.

Most people are attracted to real estate investing for the potential of passive income. With this in mind, we’re going to put two real estate investing strategies toe-to-toe and see which one will come out on top.

The Race to $10,000/month: SFR Investing vs Apartment Investing

For our “case study”, we’re going to compare single-family residence (SFR) rentals to investing in apartments through apartment syndication. We’re going to assume that you want to build up an income of $10,000/month or $120,000/year in passive income. It is possible, and even realistic, to do this using either strategy, so we’re going to take a look at which one will get you to $10,000/month faster!

• SFR investing, for simplicity’s sake, will be characterized as buying single-family houses with your own money for down payments on loans and then renting the house out for income.

• Apartment investing will be defined as buying a property with 50 or more units through apartment syndication deals, in which you are a passive investor, and you and the rest of the partnership rents out the units for income.

The categories we’ll be comparing the two strategies on are risk, scalability, and barrier to entry.

1) Risk

With no risk, there is no reward! All investing strategies have some level of risk associated with it, and there will always be pros and cons list that comes with any investment. In real estate specifically, some investing strategies are considered riskier than others. For example, real estate development is considered riskier than SFR rental investing or apartment investing, and that is where you need to look yourself in the mirror and be honest in identifying your risk tolerance.

The typical monthly cash flow from a SFR rental property is $100-$200/month, which adds up to roughly $1,200-$2,4000/year in positive SFR rental cash flow per property. This profit margin can be very fragile, with the risk of it being depleted, or even going in the red and causing you to come out-of-pocket if there are any maintenance issues. An HVAC system can cause thousands of dollars, but even if you consider less severe issues such as plumbing, this can still cause a huge dent in your profits, with the typical job like repairing faucets, toilets, sinks, or bathtubs costing between $175 and $450 to fix.

Another profit-drainer that must be taken into consideration is any vacancy you may have due to a non-renewed lease or an eviction. When there is no one renting your single-family house, there is no one sending you checks each month, therefore, there is no profit being made. While you may have a heads-up about an upcoming vacancy, what can be somewhat unpredictable are the cases in which old tenants cause your turnover costs to skyrocket.

Just think how quickly costs can add up when you have to repair or repaint walls, get carpets cleaned or replaced, deodorize pet smells, etc. These profit-drainers, can not only impact your monthly profit but can potentially wipe out your entire cash flow for the year.

When you take a look at multi-family rentals and apartments, a major benefit is the risk distribution. You no longer have one unit that can only be rented to one family at a time, you now have multiple units that can help offset vacancies. Isolated instances of vacancies, evictions, and maintenance issues should have a significantly smaller impact on your cash flow, as the tens or hundreds of other units will be there to balance it out and protect the cash flow. This type of risk distribution would not be possible with SFRs until a larger portfolio of 10+ houses has been built.

In the category of risk, apartment investing through syndication better mitigates risk factors.

2) Scalability

The longer it takes you to scale your rental portfolio, the longer it will take you to build your cash flow, pretty simple and straightforward. Now, there’s no argument against the idea that both SFR investing and apartment investing can get you to your $10,000/month goal. The argument, again, is which one will get you there faster, in which the level of scalability will play a major role.

We know that a SFR will average $100-$200 in cash flow a month, and with some quick math, we realize that you’ll need somewhere between 50-100 SFRs to generate around $10,000 in monthly cash flow. There are two fundamental issues with this; the cap of conventional mortgage loans and the amount in down payments that you’ll need to fund these transactions.

The cap on traditional residential loans is set at 10, however, many banks will stop lending after the 4th loan, as this is associated with a higher risk of default. Of course, you can build strategic relationships with local banks and credit unions to get closer to 10 loans, however, after the 10th house, you’ll need to get creative and get private funding or find portfolio lenders.

This leads us to the next hurdle. In most cases, you’ll need at least a 20% down payment on each property, which adds up to around $1,000,000 needed in down payments if we keep it simple and assume you’re buying each house at $100,000. If you make $200,000/ year and invest $50,000 each year, or one-fourth of your yearly salary, to buy SFRs, it would take you 20-40 years to buy 50 to 100 SFRs that would bring in $10,000/month in cash flow at the average cash flow of $100-$200/month per SFR.

If you were to invest in apartment syndications with the same amount of money, you wouldn’t have a cap on the number of syndication deals you can have at one time, unlike the cap on traditional residential loans. Also, if you invested the same $50,000 into a syndication deal with a preferred rate of return of 8%, this would break down to $333/month in cash flow, which is above the average cash flow of a SFR. This doesn’t even take into account the profit you will receive once the apartment is sold in 5-7 years, which would make the average monthly cash flow throughout the life of the deal higher than $333/month.

It’s a clear winner in the category of scalability: apartment investing.

3) Barrier to Entry

The barrier to entry refers to the level of ease to start investing in either type of investing strategy; SFRs or apartment investing through syndications. To invest in SFRs by using conventional residential loans, you typically will need a 640 credit score and above, however, your income can vary as long as your debt-to-income ratio satisfies the lender’s requirements.

To invest in apartment syndication deals you either need to be an accredited investor or a sophisticated investor, with many syndication deals you run across requiring you to be an accredited investor. A sophisticated investor has to be able to prove extensive experience in real estate investing, which can take years to build. An accredited investor has a single net income of $200,000 or more per year, a joint net income of $300,000 or more per year, or a net worth of $1 million or more, not including the primary residence. This creates a higher barrier of entry either in experience or in income when it comes to participating in a syndication deal.

In this case, SFRs win in the category of the barrier to entry.

The Final Score

With a 2 to 1 final score in the categories of risk, scalability, and barrier to entry, apartment syndication comes out on top as the better investment strategy when trying to get to $10,000/year in passive income. Once you’ve overcome either the experience or income hurdles, apartment investing through syndication proves to be the better investment strategy.

Want to learn more about how Dwellynn can help you get started? Sign up for our exclusive deal list or reach out at hello@dwellynn.com.

👏🏼 You Bought Your First Deal, So What’s Next 🤷🏽‍♀️?

BOUGHT YOUR FIRST DEAL, SO WHAT’S NEXT?

Finally 🙌! It seems as though all your hard work, long hours, and endless negotiations have finally come to an end. You’ve found a property with excellent investment potential, pooled together your investors, and now you’ve closed on your new apartment complex. You have drastically expanded your real estate portfolio and the rest should be a piece of cake, right?

Well, that all comes down to how well you and your team can jump into the day-to-day management of the newly-acquired asset. You’ve successfully convinced a group of people to give you their money to make them more money, and now it’s time to start using your knowledge and resources to bring the results (and the money) to the table.

You look up and all of a sudden you have multiple units and tenants to manage, and it’s new and exciting, but it may also seem slightly overwhelming. You’ve successfully planned this deal from top to bottom, and it’s all coming together. You’ve made it this far and now is not the time to get intimidated. So once the property keys have been handed over, what’s next?

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Check out these 5 quick tips to jump start your new real estate asset management position:

1) Numbers Talk, So What Does the Budget Say?

You’re no rookie to the numbers game. You analyzed this property’s projections forwards and backwards, but the analyzing is a never-ending job. Your main job is to protect your financial investment, as well as your investors’ financial investments.

This requires you to constantly be aware of the budget and performance of your property to ensure its financial success. You need to continuously compare your projected rental income with the projected monthly rental expenses, as well as your realized rental income and expenses.

Your expenses should not only include a mortgage payment (if applicable), taxes, utilities, and insurance, it should also include potential expenses for costs related to the property such as maintenance, emergency reserves, vacancy reserves, and a property management company fees.

2) Put Your Property Manager In Place?

Part of your deal package and presentation should have outlined who will manage the tenants and units, whether you will take on this role, or if you’ve chosen a property management company to assume these responsibilities.

If you’ve already put a property manager in place, you should establish a process to get updates on a consistent basis in regards to the performance of the property and any issues that need to be addressed. These updates should be passed along to your investors as well.

If you have not chosen a property management company yet, you should consider the benefits of hiring a property management company that can find and retain tenants, maintain the property, execute leases, and collect rent, amongst other things. When choosing a property management company, you should make sure they have experience managing properties similar to yours and ask for references to get a better idea of the quality of their services.

3) Inspections Never End

You may think that once you’ve closed on your property that all the inspections have ended, however, they’ve only just begun. Delegating tasks to your property management company will, undoubtedly, allow you to play a more passive role, but care should be taken to follow up on the tasks that you delegated to the management company to ensure that they are completing the tasks in a timely, efficient, and satisfactory manner.

Walking through apartments and doing property inspections during turnover periods can help you gauge how well your property management is maintaining the units and if there’s any deferred maintenance that is not being addressed.

4) First Impressions Only Happen Once

When you and your investors acquire your new apartment complex, it’s time to let everyone know that the complex is now under new and improved management and that things will soon be changing for the better. You will want to change the community’s opinion of the complex by advertising the new management and the improvements that will soon take place.

It’s important to have a new sign that announces the new management, as well as immediately focusing on improving and maintaining the exterior of the property with improved landscaping, lighting, etc. You and your investors will be aiming to raise the rents of your units to increase your overall bottom line, Net Operating Income (NOI).

5) Make A Dollar Go A Long Way

Just as important as raising rent, reducing unnecessary expenses and costs will also lead to higher cash flow. You will want to make sure you and your property management team is consistently evaluating the expenses and finding ways to reduce expenses and hidden costs, without impacting the quality of the operations.

Attention should also go towards finding other services to provide your tenants at additional costs to also increase cash flow. This could include offering rental insurance, valet trash service, or installing vending machines throughout the property.

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Watch the Best and Learn From the Best

Even though these are some important aspects to address when acting as a syndicator, or things to expect from your syndicator if you are acting as an investor, this is by far, not an exhaustive list of all the duties and responsibilities of asset management in apartment syndication.

It is recommended that first-time apartment syndicators gain the necessary knowledge and experience by working their first deal with an experienced apartment syndicator, who can provide resources, credibility and inspire confidence in the deal’s investors.

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Dwellynn is a multifamily syndication firm with experience in acquiring, repositioning, developing, and managing affordable, quality multifamily residential properties.

Here at Dwellynn, our reputation proceeds us, and we are recognized as a fast-growing firm that provides our capital partners with the opportunity to invest in real estate on a larger scale, while also providing better than market returns.

Click here to Get in touch with us today to become a capital investor in one of our upcoming projects, securing great returns and the necessary experience in multifamily syndication.

✍🏾The Top 3 Major Keys 🔑 to Know About Apartment Syndication Taxes

We’re just going to say it: Nobody likes thinking about taxes, let alone talking about taxes!

The more money you make, the more taxes you pay, and that’s not fun even for the most die-hard CPA. Taxes will never be the cool thing when it’s coming out of your bank account. They’ll never be “in style”. They’re always going to be just…taxes. Thinking about taxes can make your brain go from green light to red light faster than you can blink when all you want to do is imagine new money flowing into your account thanks to another great investment.

The good news is that unlike many types of asset classes, investing real estate can help you decrease the amount you owe in taxes. This is why real estate investing tends to be a favorite among the masses. The IRS views profits gained from real estate-related transactions differently than they view profits gained through, let’s say, stocks. The tax law favors real estate investors both passive investors and active investors. You can get perks from tax benefits due to debt write off and losses due to depreciation, amongst other things.

By investing in real estate, a taxpayer can take advantage of the write-offs, and apply those write-offs to other taxes they may owe, which decreases their overall tax bill, proving to be a great wealth-building strategy.

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Of Course We Have A Disclaimer

We are not tax professionals or tax attorneys at Dwellynn. We created this informational blog about taxes in relation to syndication deals based on our experiences. We will always refer you to speak to your personal tax professional and/or accountant to guide you about all tax-related questions.

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In this blog, we’re just going to scrape the surface of the numerous tax incentives that real estate investors can benefit from, but we’re going to focus on 3 major tax benefits that will have you 100% convinced that real estate investing is a smart financial move.

1. Depreciation

2. Cost Segregation

3. Depreciation Recapture & Capital Gains

Depreciation Is Your Very Powerful Friend

The basic concept behind real estate depreciation is that everything has a life span, and as time goes by everything will age and come to the end of its life span. This principle is then applied to the world of business and real estate. Everything that is used in real estate has an “expiration date”, whether it’s obvious or not. When something is nearing “expiration”, or coming close to the end of its life span, the government wants to encourage you to replace it with a new version. When you replace an item, you are contributing to the economy as a consumer, which contributes to multiple industries, and the overall economy.

The government encourages real estate investors to replace items and renovate their property by offering to deduct the cost of the expenses to replace items and renovate against the income generated by the property. Depreciation is a non-cash deduction that reduces the investor’s taxable income. Real estate depreciation assumes that the property is declining over time due to wear and tear, but often this is not the case. Thanks to real estate depreciation, an investor may see cash flow from their property but can show a tax loss on paper. Instead of taking one large deduction in the year that the investor purchases or improves the property, depreciation is split up over several years based on the useful life of the property.

The most popular form of depreciation is straight-line depreciation, which means that the deduction will be in equal amounts each year. The IRS currently determines the useful life of residential real estate at 27.5 years, and this applies to apartment buildings as well.

Example

If you bought a property for $1,000,000 with the land being valued at $100,000 and the building being valued at $900,000, then your depreciation would be $900,000/27.5 = $32,727/year. This is what your accountant will show as a deduction each year for this property. With this great tax advantage, passive investors typically won’t pay on their monthly, quarterly, or yearly cash flow from the syndication, but they will pay on the sale proceeds of the property at the end of the syndication.

The Tax Cuts and Jobs Acts of 2017 allow for 100% bonus depreciation on qualified properties that are purchased after September 27, 2017, creating an even greater tax advantage in the first year.

If You Like The Sound of Depreciation, You’ll Love Cost Segregation

Straight-line depreciation allows you to spread depreciation over the lifespan of a property, which is 27.5 years according to the IRS. However, in apartment syndication deals, the partnership typically holds an apartment community for 5-7 years. Consequently, this leaves a lot of unrealized tax benefits on the table, as the partnership would only get 5-7 years of the tax deduction benefits, leaving 20.5-22.5 years of tax deductions unutilized. Cost segregation enables property owners to accelerate depreciation to help them take advantage of these depreciations over a shorter property hold-time.

Cost segregations is a tax benefit that allows real estate investors who have developed, purchased, expanded, or renovated real estate to increase cash flow by accelerating their depreciation deductions and deferring their income taxes. The idea behind cost segregation is that different assets have different lifespans. The carpeting in apartment units will have a far shorter lifespan than the bricks that the apartment building is made of. Items that have shorter lifespans like fixtures, carpeting, windows, and wiring, can be depreciated over shorter timelines of 5, 7, or 15 years. A cost segregation specialist is hired to identify and reclassify the components of an apartment community that can be depreciated on an accelerated time frame.

The paper losses that are created through depreciation deductions can apply to the other taxes you pay on your salary and other income sources, not just the taxes on the income from the investment property from which the tax deductions came from. This can be different on a case-by-case basis, so verify this with a tax professional

The IRS Has To Get Paid: Depreciation Recapture & Capital Gains

There will be a time where you have to “pay up” to the IRS, no matter how much you want to live a tax-free life. As we all know, the IRS will get their money one way or another. In this case, it’s through depreciation recapture and capital gains once the property is sold at the end of the syndication cycle.

When the apartment community is sold at the end of the apartment syndication deal, the apartment community is considered a depreciable capital project. The gain from the sale of this depreciable capital property must be reported as income. When the assessed sales price of a property exceeds the adjusted cost basis, the difference between these two figures is reported as income to enable the IRS to “recapture” previous depreciation benefits. When the asset is sold at the end of the partnership, the initial equity and the profit distribution that the passive investors receive at the sale of the property is classified as a long-term capital gain by the IRS.

Example

In the previous example, you bought a property for $1,000,000, and the annual depreciation of your property, excluding the land, was $32,727/year. You decide to hold your property for 10 years and then sell it for $1,200,000. The adjusted cost basis will be $1,000,000 - ($32,727 x 10) = $672,730. The realized gain when you sale this property will be $1,200,000 - $672,730 = $527,270, the capital gain will be $527,270 - ($32,727 x 10) = $200,000, and the depreciation recapture gain will be $32,727 x 10 = $327,270.

In this example, the capital gains tax will be 15% and you’ll fall under the 28% income tax bracket. The capital gains you owe will be 0.15 x $200,000 = $30,000 and the depreciation recapture you owe will be 0.28 x $327,270 = $91,635. The total amount of tax you owe at the sale of this property will be $30,000 + $91,635 = $121,635.

Below are the tax brackets and percentages based on the new 2018 tax law:

• $0 to $77,220: 0% capital gains tax

• $77,221 to $479,000: 15% capital gains tax

• More than $479,000: 20% capital gains tax

The Best Part? You Don’t Have To Do Anything

As a passive investor, the depreciation and cost segregation tax advantages are already done for you by the professionals that the syndicator of the apartment communities hire. In this sense, being a passive investor has its perks. The only thing you have to do is get your K-1 from your apartment syndicator and hand it over to your accountant to take it from there. It doesn’t get any more simple than that.

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💡25 Tips and Questions To Make Sure Your Syndicator Is A Perfect Match 🔗

An apartment syndicator also referred to as the general partner (GP) or Sponsor, is a person or company that puts together an apartment syndication deal and manages it from inception to completion. The syndicator is the owner of the partnership, who has unlimited liability. The syndicator finds the deals, evaluates the deals, sources capital from investors, and manages the day-to-day activities of the project and business operations once the asset has been purchased.

Since the syndicator is in charge of the deal from start to finish, the success or failure of the syndication deal will rely heavily on the quality of the syndicator that you choose to partner with. For this very reason, you, as a passive investor, want to make sure to vet your syndicator as thoroughly as possible to get a clear and realistic idea of what it would be like to invest in one of their deals.

The good news is finding a great sponsor will reduce the majority of this due diligence work for future deals as you continue to grow and invest with the syndication company that you choose. This will give you more time to focus more on the actual details of each deal that they are presenting you and decreasing the time it takes you to say “yes” to a good syndication deal. Once a syndicator has a mission, formula, and model that works for them, they usually consistently use it over and over again for predictable success.

Do your research on the syndication company, as a whole, and do your research on the individual syndicators in the company.

1. Look at the company’s website, see how organized it is, look for the bios of the key partners, and identify a focused investment strategy.

2. Find out how long the company has been in business, and if it is a newer company, look at the experience and tenure of each of the individual syndicators to identify someone that has been in the industry at least 5-10 years. What is their educational background and do they have experience with similar investments?

3. Google the names of the syndicators, look at their LinkedIn account, their social media accounts, and content they have created. You want to be able to look at their internet presence and get a good idea of their character, credibility, and integrity. You don’t want to find anything that conflicts with their bios or mission statement. Look for red flags, such as bankruptcies, felonies, or SEC violations and inquire about anything that creates doubt.

4. Take a look at their marketing material and look for quality, professionalism, organization, and clarity. Review things like their videos, conference calls, webinars, and deal summary decks.

5. Ask the syndication company how many of their investors have invested with them multiples times and what percentage of their new investors are from referrals. This indicates how good the experience of past or current passive investors have been.

6. Research the team members during the acquisition or operation of the deal that receives any type of payment or fees (attorneys, CPAs, property managers, etc. )

Dive deeper into the company’s track record.

7. Look at the company’s website to take a look at previous and current deals that they were or are involved in, and if it’s not on their website, then request information about their previous and current deals. One of the major things you want to see is consistency in the type of deals they work on (like large value-add class C apartment properties). You want to see that they are focused on one strategy, not all over the place.

8. Have they taken a deal full circle from acquisition to sale using the same business plan as the business plan they are proposing for the deal you are interested in? How did the projected returns compare to the actual returns (cash on cash %, growth in NOI, consistency of distributions in preferred returns, etc.)

Talk to some real people and check the syndicator’s references.

9. Seek out a couple of investors who have been in the company’s current syndication deals for some time, who have previous experience in apartment syndication investing and have done a couple of deals.

10. Ask them how the deal(s) have performed. Did they meet or exceed their expectations?

11. Get a good idea from the references how frequently and to what degree the syndicators communicate with the passive investors. Do passive investors get consistent updates?

12. Were there any issues or concerns they have experienced and how were they handled? Were the issues or concerns handled promptly by the syndicators?

Take a look at investor relations.

13. Do the syndicators make themselves available to answer your questions or educate you? Are you able to ask the syndicator questions and get prompt quality responses?

14. Do they help educate you on technical areas? Sponsors want to have long term relationships with their investor so if they are not answering you could get a sense that they are not thinking long about this business.

15. Can you tour the property with the syndicator or property manager?

16. Get an example of investor communication schedules along with directions on how to contact the sponsor.

17. Quarterly, you should be able to get the full financial readout from the property manager on the actual vs budget figures.

Avoid aggressive underwriting, assumptions, and forecasts.

18. A good sponsor should be principled in being conservative in their numbers and assumptions that make up the business plan and investment performance projections.

19. Words like “capital preservation” and “conservative underwriting” should come out loud and clear on the company website, any projects you are reviewing, etc. 

20. Look for a sensitivity analysis to see how your investment returns will be impacted if the occupancy, rent, interest rates, and cap rates change.

Break down the payout structure for passive investors.

21. Review the payout structure and understand how the sponsor and you, the investor, gets paid for distributions, refinances and sales. Common industry splits can be 20–40% for the syndicator and 60–80% for the passive investors.

22. Look for a preferred return of around 8%. This usually means that any distribution, refinance or sale that creates cash to the investor, the first 8% (to equate to an 8% cash on cash yield) will be paid to the limited partners and the general partners gets nothing until they exceed that 8% threshold. Above 8%, then the payout reverts to the split agreed to, say, 70% to the investor and 30% to the sponsor. 

Look for the syndicators to have “skin in the game” and alignment of interests with you.

23. Syndicators can promote alignment of interests by investing their capital in the deal, whether that’s their funds, company funds or by allocating a portion or all of their acquisition fee into the deal. By not having money in the deal, the syndicator isn’t exposed to the same level of risks as you are, however, if they have money in the deal, they are more incentivized to maximize the returns.

24. One of the common fees syndicators charge is an ongoing asset management fee. If they put that fee in the second position to the preferred return, that promotes alignment of interests. If you don’t get paid, they don’t get paid.

25. Make sure any fees the syndicator charges do not impact the projections shown.

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🗞🚨 NEWS ALERT: Why Real Estate Investing is A Better Retirement Plan Than Your 401(k)

Probably, you grew up with your parents stressing the importance of you getting a good job with good benefits, and a retirement plan is always falling into the category of “good benefits”. Starting your 401(k) or IRA is a modern American right of passage. You are officially a responsible adult planning for your future 30 years in advance. This is top tier “adulting”.

News flash, we, at Dwellynn, are here to tell you that the traditional 401(k) retirement may be damaging your retirement plans of watching the sunrise on the beach or the sunset in the mountains, even before those plans are finalized.

Most articles or blogs that were written over the past 30 years that go over how to save for retirement, will encourage you to maximize the contributions that you make to your 401(k) to help ensure that you are saving, to receive tax deductions, and to possibly get the company you work for to match your 40(k) contributions (aka “free” money).

To be clear, we are not saying that 401(k)s are inherently bad retirement models; however, there are several major issues that we want to raise about 401(k)s.

• 2/3 of 401(k) accounts were directly or indirectly invested in equities at the end of 2015, according to the Employee Benefit Research Institute, consisting of mutual funds and other pooled investments. This means that more than likely, your retirement savings are tied to market volatility, political climates, and market sentiment, amongst other things.

• Your investment options may be fully valued or, even worse, overvalued at the time the contributions are made.

• It's highly unlikely that the portfolio managers who currently manage your investment options will be the same portfolio managers managing them 10 or more years from now, meaning the “long-term” investing strategy for your retirement savings may change as often as the portfolio manager changes.

• 401(k) plans come with many compliance issues that need to be monitored with constant oversight and administration costs, creating participant fees, asset-based charges, and other fees.

• You create an enormous tax liability on deferred taxes.

There are many perks of investing in real estate vs a 401(k): higher returns, appreciating tangible assets, no hidden fees, predictable cash, forced asset appreciation, and inflation hedging.

With a self-directed IRA, you have significantly more control over the type of investments that you fund through your retirement plan. With a self-directed IRA, you can passively invest in multi-family syndication deals by simply choosing a syndication deal and having the custodian of your IRA to invest the capital for you. The returns that you make from investing in multifamily syndication will be put right back into your IRA account, and you can roll it over into your next investment.

Two Different Scenarios: 401(k) vs Investing in Syndications

Scenario #1: You put $100,000 into your 401(k) and add $10,000/year for 30 years with average annual returns of 7%

• When you retire after 30 years you will have around $1.8 million in retirement savings

• When you take into consideration an average inflation rate of 3.22%/year, your retirement fund will be worth less than $900,000 in today’s money

Scenario #2: You put $100,000 into your self-directed IRA to invest in real estate syndication deals, with 5-year hold times and 2x equity multiples

• With a 2x equity multiple [EM] and a 5 year hold time, every 5 years you will have doubled your initial investment.

• When you retire after 30 years you will have around $6.4 million in retirement savings, without taking into account the additional $10,000/year that you put into your retirement savings. If you include the additional $10,000/year, you’d have an additional $50,000 to invest every 5 years, which will bring your total retirement savings to around $9.5 million.

The Winner: Real Estate Investing for Retirement

As you see, $100,000 + $10,000/year goes A LOT further if that money is invested in real estate syndications, as opposed to just sitting in a 401(k). The difference between the two scenarios is $7.7 million in retirement savings. Of course, this is a simple projection that doesn’t take into account major market shifts or failed syndication deals that may impact your earnings and annual returns, however, if you took just half of the $7.7 million difference between the two scenarios, you’d still be looking at $3,850,000 more in your retirement savings through investing in real estate syndications.

If you paid close attention to the scenarios, both scenarios assumed 30-year timeframes for investing in your retirement plan. This means the longer you wait to decide to invest in real estate, the older you will be when you reach your retirement plan goals. The difference between a few years can be hundreds of thousands of dollars, so it is very beneficial for you to do your research, ask as many questions as you need, and educate yourself on real estate investing and multifamily syndication deals so that you can jump-start your retirement savings plan.

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🛠 🔩 Building "Sweat Equity" with 🏚 Value-Add Apartment Syndications

Getting Your Hands Dirty with Value-Add

We have all seen the shows on TV where people will take a run-down or neglected house, renovate it, and put it back on the market to sell it at a higher price, oftentimes for a profit. As you know, this strategy is referred to as flipping houses, in which you find an opportunity to renovate a property to create additional “sweat equity”. This same strategy applies in the world of apartment investing, but on a much larger scale.

Using the value-add strategy in apartment investing, an investor, or investment group, will find an older apartment community, identify a shortfall in the asset to capitalize on, purchase the property, and renovate the property to increase the rents, lower expenses to increase the net income of the property, and eventually put it back on the market to sell it at a premium.

A value-add property will have cosmetic issues such as poor landscaping, outdated cabinets, peeling paint on the building, etc. Adding value can also come in the form of decreasing expenses and making adjustments to property management, driving some of the quickest growth in net operating income. One thing you don’t want to do is confuse deferred maintenance (extensive roofing issues, replacing all the siding, etc.) with value-add opportunities because even though these issues may make the property look less attractive and impact occupancy, fixing these issues may not result in a predictable and direct increase in rental rates. Addressing value-add issues that make financial sense, will not only provide the tenants with better housing, it will also increase the owner and investors’ bottom line.

How A Value-Add Apartment Syndication Works

1. Purchase the Property: The syndicator will start locating apartment communities in their target market with the help of local real estate professionals, do underwriting and due diligence on the apartment community of interest, propose the deal to investors and raise funds, and then acquire the asset.

2. Add Value: This is where the fun (and sometimes stress) begin. If a new property management team is part of the business plan, then they will be put in place and then the renovations will start. Renovations will start almost immediately after the property is purchased, starting with the vacant units and exterior and/or common areas, if that is part of the business plan.

   As leases on the occupied units come to an end, tenants will be offered an upgraded unit if available, however, the business plan and projection should take into account a temporary increase in vacancy during renovations. This process can last anywhere from a couple of months for lighter renovations, to 12-18 months for heavy value-add projects.

3. Refinance (Optional): Once the majority of the value is added into the property, and revenues are increasing, sponsors will often seek a refinance. Based on the new revenues, the property will likely receive a higher appraisal value. A supplemental loan can then be put in place for that additional equity, which means investors get a chunk of their original capital returned.

   For instance, if you invest $75,000, and 20 months go by, and the property is refinanced, the passive investors receive 40% of their initial investment, which mean that you get $30,000 back out of your initial $75,000 investment within the first 20 months. The best part is that even after getting 40% of your initial investment back, you still get cash flow as if you still had $75,000 invested.

   Refinances are not guaranteed and many syndicators don’t include this in their business plan, using it as an added bonus if they do choose to refinance.

4. Hold the Property: In this stage, the partnership will “sit” on the asset and collect cash flow, as one would a regular, stabilized apartment. The typical hold period from acquisition to sale in multifamily syndication is 5-7 years, depending on the deal. The partnership will capitalize on the common 2-3% market rent increases to increase the revenue and appreciate the property.

5. Sell: The property is sold, either on the market or off the market, return the investor’s remaining initial capital and their distribution of any profit generated at the sale of the property. Investors will then have their initial investment plus profit to roll over into other syndication deals.

An Example of the Numbers Behind A Value-Add Deal

• Dwellynn buys a 130-unit apartment complex for $7.6 million

• Most of the units are rented out at $730/month

• Comps show market rent for similar newly-renovated apartments to be $850-$950/month

• We plan to renovate each unit for $5,500/unit and raise the rent to $830/month

• Once the units are renovated the gross income, taking into account vacancy, will be around $1,245,000 ($830 x 125 rented units x 12 months)

• If $560,250 or about 45%, of the gross income, goes to operating expenses, the net operating income (NOI) will be $684,750.

• If you divide the NOI by the average cap rate for a similar property in the same market, let’s say 7%, the new property value would be around $9.7 million, which is an increase of $2.1 million. If the cost of the renovations was about $720,000, the net profit would be $1.38 million.

Identifying the Risks and Limiting Your Exposure to the Risks

As with any investment, there are some risks associated with passively investing in value-add apartment syndications:

• Falling short of the target rents

• Higher vacancy rates than previously expected

• Renovations running behind schedule or going over the planned budget

How you limit your exposure to risk when you invest with Dwellynn

• We make capital preservation and protecting your initial investment our #1 priority

• We create plans for multiple exit strategies

• We collaborate and recruit experienced real estate and related professionals to be on our team

• We use conservative underwriting to evaluate our deals before we offer them to our investors to ensure that the deal won’t fall short of expectations, we don’t use aggressive projections, and we make sure to take into account the “worse case scenario”

• We use proven strategies and business models, such as focusing on affordable apartment communities and using renovated units at the subject apartment community to gauge the rental potential

• We raise the money needed to renovate the project upfront, instead of depending on the cash flow produced by the property

Let Us at Dwellynn Get Our Hands Dirty While You Collect the Checks

The team at Dwellynn makes it a priority to thoroughly analyze market data to identify markets and submarkets that have property values in which rental rates are affordable and projected to grow, by looking at population growth, job growth, income growth, and other factors. But value-add properties do not only rely upon continued rent growth. We know that the key to having successful value-add syndication deals is to have local, experienced team members and partners with strong market knowledge and proven track records to be the boots-on-the-ground.

We only take on deals that fit our overall business model and investing strategy and focus entirely on replicating and perfecting the process. The outcome is a value-add syndication deal in which the total project cost is lower than the purchase price of a similar newly-built or stabilized property. The renovated property will have comparable value to stabilized assets in the target market, resulting in value and profit being created for our investors.

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How Real Estate Investing Can Generate Cash Flow

Introduction

Real estate investing has become a popular way to generate passive income and build wealth. Unlike other investments, real estate offers various ways to generate cash flow. In this blog post, we will discuss three ways that real estate investing can generate cash flow.

Rental Properties

One of the most well-known ways to generate cash flow in real estate is through rental properties. This involves purchasing a property and renting it out to tenants. The rental income generated can provide a steady stream of cash flow each month. The amount of cash flow generated depends on various factors, including the location, size, and condition of the property, as well as the rental rates in the area.

To maximize cash flow from rental properties, investors should aim to keep the vacancy rates low and ensure that the rental income covers the expenses, such as mortgage payments, property taxes, maintenance costs, and property management fees. Investors can also consider making improvements to the property, such as upgrading the appliances or adding amenities, to attract more tenants and increase the rental income.

Fix-and-Flip Strategy

Another way to generate cash flow in real estate is through the fix-and-flip strategy. This involves purchasing a distressed property, renovating it, and selling it for a profit. The profit generated from the sale can provide a significant cash flow injection.

To ensure a successful fix-and-flip strategy, investors should conduct thorough research on the property's location, condition, and potential resale value. They should also have a solid renovation plan and a realistic budget to avoid overspending. Investors can also consider holding onto the property as a rental property after the renovation is complete to generate even more cash flow.

Commercial Properties

Investing in commercial properties is another way to generate cash flow in real estate. Commercial properties, such as office buildings, warehouses, and retail spaces, can provide higher rental income than residential properties. They also offer longer lease terms, which can provide a steady stream of cash flow for several years.

To maximize cash flow from commercial properties, investors should conduct extensive research on the location, market demand, and tenant quality. They should also ensure that the property is well-maintained and meets the tenants' needs. Investors can also consider diversifying their portfolio by investing in a mix of residential and commercial properties to generate multiple streams of cash flow.

Examples of Real Estate Investors Generating Cash Flow

Real estate investing has been a successful strategy for many investors. For example, Robert Kiyosaki, author of "Rich Dad Poor Dad," built his wealth through real estate investing, including rental properties and commercial real estate investments. Barbara Corcoran, a real estate mogul and investor, built her fortune by investing in and developing residential properties in New York City. John Jacob Astor, one of the wealthiest Americans of his time, made his fortune through real estate investments, including vast amounts of land in New York City.

Conclusion

Real estate investing can be a profitable way to generate cash flow. Investors can choose from various strategies, such as rental properties, fix-and-flip, and commercial properties, to generate passive income and build long-term wealth. However, real estate investing involves risks, and investors should conduct thorough research and due diligence before investing their money.

By following a solid investment plan and having a long-term outlook, real estate investors can generate significant cash flow and achieve their financial goals.

Additional Thoughts

In addition to the strategies mentioned above, real estate investors can consider other ways to generate cash flow. For example, they can invest in real estate investment trusts (REITs), which allow investors to own a share of a portfolio of properties. They can also participate in crowdfunding, which allows multiple investors to pool their funds to invest in a property. By diversifying their portfolio and considering different investment options, real estate investors can maximize their cash flow and achieve their financial objectives.

10 Current Trends of Multifamily Investing in Texas

Introduction

Multifamily investing in Texas has continued to grow and evolve in recent years, with investors constantly looking for new ways to maximize their returns. In this blog post, we will discuss the top 10 current trends of multifamily investing in Texas, including the rise of secondary markets, the impact of technology, and the growing importance of sustainability.

1. Rise of Secondary Markets

McAllen, Texas is a secondary market considered for multifamily investing.

While many investors tend to focus on the major markets such as Dallas, Houston, and Austin, there has been a growing interest in secondary markets such as San Antonio, Fort Worth, and El Paso. These markets offer investors more affordable entry points and potential for higher yields, as well as strong population growth and job markets.

Here are five secondary markets in Texas that are worth considering for multifamily investing:

1. San Antonio
2. Fort Worth
3. El Paso
4. Corpus Christi
5. McAllen

2. Impact of Technology

Virtual tours and 3D floor plans are used to give prospective tenants a realistic and immersive view of the property, even if they are not physically present.

Technology has become increasingly important in the multifamily industry, with investors using platforms such as real estate crowdfunding, digital marketing, and virtual tours to streamline the investing process. As more renters rely on technology for their housing needs, investors must adapt to stay competitive and attract tenants.

3. Growing Importance of Sustainability

Sustainability has become a major factor in the multifamily industry, with investors looking for ways to reduce their carbon footprint and attract eco-conscious tenants. This includes implementing energy-efficient features such as solar panels and smart thermostats, as well as using sustainable building materials and promoting green living practices.

4. Focus on Affordable Housing

As the demand for affordable housing continues to rise, investors are looking for ways to provide quality housing options at affordable prices. This includes investing in workforce housing and partnering with government programs to provide subsidies and tax incentives.

5. Emphasis on Amenities

Amenities have become a key factor in attracting and retaining tenants, with investors offering a range of amenities such as fitness centers, pools, and coworking spaces. As the competition for tenants increases, investors must continue to innovate and offer unique amenities that align with their target demographic.

6. Importance of Property Management

Effective property management is crucial for the success of multifamily investments, with investors relying on experienced and reputable property management companies to oversee their properties. This includes ensuring high tenant satisfaction, minimizing turnover rates, and maximizing rental income.

7. Shift towards Value-Add Investing

Value-add investing has become increasingly popular in the multifamily industry, with investors looking for properties that offer potential for value appreciation through renovation and improvement projects. This strategy involves identifying properties with untapped potential and implementing improvements to increase their value and rental income.

8. Impact of COVID-19

The COVID-19 pandemic has had a significant impact on the multifamily industry, with investors facing challenges such as rent collection, tenant retention, and property maintenance. However, the pandemic has also highlighted the importance of multifamily investments as a stable and reliable asset class, with many investors continuing to see strong returns despite the economic uncertainty.

9. Growth of Co-living

Co-living has emerged as a popular housing option for young professionals and students, with investors recognizing the potential for high yields and low vacancy rates. Co-living involves renting out individual bedrooms in a shared living space, with communal areas such as kitchens and living rooms shared among the tenants.

10. Expansion of Student Housing

The student housing market has continued to grow in Texas, with investors targeting college towns such as Austin, College Station, and Lubbock. This market offers investors the potential for high yields and stable occupancy rates, as well as the opportunity to provide quality housing options for students.

Conclusion

Multifamily investing in Texas continues to evolve and adapt to changing market trends and demographic shifts. These 10 current trends highlight the importance of staying informed and flexible as an investor, and the potential for strong returns and long-term growth in this dynamic industry.

Top 10 Cities: U-Haul Migration 2020 Trends

A recent January ranking by U-Haul has us very excited about the markets we are focusing investments in. U-Haul you may ask? How do trucks have anything to do with real estate?

U-Haul was formed in 1945 and over the last 75 years has expanded to 22,000 locations across 50 states and 10 Canadian provinces. The company’s fleet not includes 176,000 trucks, 127,000 trailers, and 41,000 towing devices.

Each year, U-Haul ranks every state based on the net traffic gain of one-way U-Haul trucks entering a state vs. leaving a state. The company has access to over 2 million transactions that the list is based off of.  If a state has significant net gains, the data suggests more people are entering the market and staying. As multifamily investors, we are interested in population movement and strength when determining what markets to invest in.

For 2020, the top state was Tennessee whose arrivals jumped 12% year-over-year followed by perennial heavy dog Texas. Texas has now finished in the top two for 5 straight years beginning in 2016.

Top 10 States for U-Haul Net Migration

1.       Tennessee

2.       Texas

3.       Florida

4.       Ohio

5.       Arizona

6.       Colorado

7.       Missouri

8.       Nevada

9.       North Carolina

10.   Georgia

Reviewing the list, the Sunbelt clearly pops, highlighting the ongoing strength of the region. Economic trends, growing job opportunities, lifestyle, friendly government policies, and “southern hospitality”  are all reasons that attract individuals to this region. In fact, according to Newmark 6/10 top markets for rent growth in 2020 were located in the Sunbelt.

A second way of analyzing the U-Haul data is based upon the average premium or discount to take a truck to a city vs. returning the same truck. Below is a graphical display of these results, reviewing October 2020 vs. October 2019 changes.

The graphic clearly demonstrates the challenges gateway cities such as San Francisco, Chicago, and New York faced in 2020. Meanwhile, the majority of the Sunbelt and major Texas markets all demonstrated positive migration trends. We continue to be bullish on these markets and believe they are set for long term population growth which will support apartment demand.

Do you see your state on the list above? How about states you like to visit or have invested in? We would love to hear your thoughts or personal predictions for 2021!

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Strength of Multifamily Through a Pandemic

Today we are going to look at the resiliency and strength of multifamily thru the pandemic challenged 2020. As Covid-19 took root in Spring 2020, we were inundated with headlines about job loss, furloughs, and varying government regulations. Many investors and owners were concerned what may lay ahead and one could observe this in the drop in multifamily deal count. However, deal flow picked back up in the second half of the year as property owners began to observe stronger than expected tenant trends.

As we begin 2021, US apartment occupancy is still very strong, averaging 95.6% and only down 10 basis points y/y.

Our historical focus has been in Class B and Class C properties, both of which offer the highest sub-class occupancy rates. In our opinion, successful future investments will continue to target higher quality properties in these asset classes.

One may naturally ask, well the apartments may be occupied but isn’t there an eviction moratorium and thousands of tenants not paying? Your collected rents and income must be way down? Well, more good news on this front. Although there has been a decrease in rent payments y/y, drops have been very minimal at a 1-2% average.

Occupancy is still at historic highs and the majority of tenants are paying rents thanks to strong demand fundamentals, ongoing demographic trends, and government stimulus. The resiliency of apartment communities through one of the toughest years most of us have experienced is extremely promising. A strong response to macroeconomic pressures highlights the strength of multifamily investments. We believe this portends well for the future, and that any investor should own multifamily real estate as a cornerstone asset in their portfolio.

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The Power of a Multifamily Investment

Financial freedom. Generational wealth. Leaving the rat race. Taking control.

These are all sayings you frequently hear when it comes to real estate investing. If you are like me and more analytical in nature, you nod your head quickly and say “Sure, sure, show me the numbers”.

Today we look at a hypothetical investment over a 15-year period to show the competitive return profile of a representative multifamily real estate investment. Annual returns and cash yields displayed are approximate industry averages and used for demonstration purposes.

A typical real estate syndication will require a minimum investment of $50,000 – 100,000. For purposes of the exercise we have assumed a $75,000 initial investment. Cash on cash (CoC) is 8% and the assumed sales price yields a 10% return in addition to the annual cash.

In year one, you the investor make a $75,000 capital contribution in exchange for a share of the property. $6,000 is returned to you at 8% CoC (either on a quarterly or annual basis). Over the next four years the GPs work with a property management group to implement the business plan and optimize NOI. In year 5 an email arrives….”Great news! A buyer has made a strong offer for the property and we can sell at a nice profit thanks to the execution of our plan.” You receive a wire for $126,788 and have cumulatively now received $150,788. Subtracting your initial investment, we see that you doubled your capital and made $75,788 on the deal.

Now perhaps you celebrate with your fellow LPs and GPs, take your spouse to a nice dinner, maybe even fly to the Caribbean for a quick trip (please send recommendations this way). But by now you are an astute investor, aware of the power of real estate, and decide to roll the investment into a second property. Another 5 years go by and now we have $300,000.

Again, you could pocket this money, put it in savings, bet it all on $GME, but instead we decide to use the power of real estate to lever our returns.   

$609,509, all from an initial investment of $75,000. If you were 35 years old, you now have leveraged an initial investment into over half a million dollars by the age of 50.

Imagine if you did not just invest in one of these but could find the power to invest every couple years, or even every year. This is financial freedom, this is generational wealth, and in our opinion there is no better way to put money to work.

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