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.

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.

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.

🧠 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.

✍🏾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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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.

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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3 Steps To A Successful House Hacking

See main article on Biggerpockets: https://www.biggerpockets.com/member-blogs/10359/87977 

Buy Real Estate with Little or No Money Down

This catchphrase, Buy Real Estate with Little or No Money Down, is pretty ubiquitous in the Real Estate Investing world and there is some truth to it. The truth is that you are able to buy real estate with little money down, and what I am referring to here is to do with House Hacking.

First, you may ask: what is House Hacking any way?

House Hacking basically means that you can buy a small multifamily property to live in (Duplex, Triplex, or Fourplex) and rent the other units out to tenants. As a result, you pay a subsidized mortgage, as the rents from the units cover all or most of your mortgage.

Since you are occupying one of the units and if you are buying a property for the first time, there are incentives from the government to help first time homeowners. There is a provision for the first time buyers to put little money down: 3.5% as a downpayment to purchase a property (note: there are other instances in which you can use FHA loans that we would not go into here).

So, hooray! You are able to use a little bit of money to be a Landlord and start collecting rent checks (or Venmo alerts). Not quite. There are 3 QUICK METRICS to look out for when analyzing small multifamily properties.

1. CRIME

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LOW CRIME This may sound pretty obvious; however, during your excitement of buying your first property, you might not take this account for a variety of reasons.

Or you might make a big mistake some investors make by trying to make an "educated" guess of the crime in the area during a visit to the area and think "hmm.., it seems to be a safe area". This isn't going to cut it. Moreover, what is safe to one person might not be safe to another.

TIP: Use the property address on websites such as Trulia or similar sites to get intel on the crime status of an area. For Trulia, it is best to choose an area with the LOWEST CRIME.

2. RENT TO VALUE [RTV] RATIO

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1% RULE As you start looking at a lot of properties, it can become increasingly difficult to analyze a lot of deals quickly. Consequently, you want to look at these deals quickly and make a decision about whether you want to take a deep dive or not.

TIP: The Rent To Value [RTV] ratio is dividing the total monthly rental income over the total value (or asking price). For instance, if the total rental income from a duplex is $2,000 per month and the Seller is asking $200,000, then this might be a deal you want to take a closer look at because the RTV is >= 1%. Hold on before you go putting in an offer, there is ONE last metric to look out for.

3. RENTERS TO OWNERS [RTO] RATIO

Normal 1574802370 Max Bottinger Gup8 M Cv Ssf0 Unsplash 50% RULE After buying your property, you want to ensure that you are able to get your units rented as quickly as possible. Not surprisingly, there is a direct correlation between how many renters are in a particular area to how quickly you can rent your unit.

In order to mitigate any risks of having your property sit on the market for any longer than needed, it is best to have the Renters To Owners [RTO] metric at the forefront of your mind when evaluating your next small multifamily or your first multifamily property.

TIP: Use your zip on a website called City Data to find out the ratio of renters in your particular zip code. Typically, my rule of thumb is to be above 50%. That said, you should remain somewhat flexible and pay attention to your local markets.

SUMMARY

You are able to start your Real Estate Investing with little money down by House Hacking. However, you want to increase your chances of success and mitigate any risks by using the three metrics:

Crime Rent To Value [RTV] ratio Renters To Owners [RTO] ratio Normal 1574803117 3 Metrics

If you are currently House Hacking or learning about it, what are your tips and tricks to a successful #HouseHack?