Real Estate Syndications – How To Tell If They Are Right For You

Real Estate Syndications -
How To Tell If They Are Right For You

So you’ve been devouring all the information possible and have become enamored with the power of passively investing in real estate syndications. How could you not?! 

The ability to invest in real, physical assets without the hassle of being a landlord, getting a share of the majority returns, and reaping amazing tax benefits is pretty irresistible. Plus, the diversification opportunities with minimal legwork while making an impact on local communities just about seals the deal. 

Even though these traits seem impossible to pass up, real estate syndications aren’t for everyone. Each investor is in a different stage of life, has a different level of risk tolerance, and maintains different goals. 

Before investing in a real estate syndication, see if one or more of the below describes you and your current situation.

#1 You Have More Than $50K of “Play” Money

While there are some real estate investment platforms that will accept smaller investment amounts, most private real estate syndications begin at a minimum investment of $50,000.

You want to make sure you have the minimum investment of $50,000, plus your standard emergency fund, plus any other savings for your life’s aspirations. Think about it – a new car, fluffy retirement savings, this year’s vacation to Cabo, and college education funds, to list a few.

 

Of course, there are lots of contingencies in place in syndications, but they are an investment and as such, come with risks.  And just as with any investment, if you aren’t prepared to lose your investment in its entirety and be okay financially, then syndications may not be your jam…yet. You may want to head back to the drawing board with some serious savings plans and re-visit real estate syndications down the road once you have any key needs covered.. 

 

On the other hand, if you have your potential cash-needing scenarios covered with savings, by all means, invest with confidence! 

#2 You’re Okay Having Someone Else Take the Reins

If you’re short on time, but heavy on cash, and want someone else (a professional team) to manage the property while you reap the rewards, you’ve found the right investment. 

 

Passive investing in real estate syndications is much less hands-on than your typical residential real estate rental property, in fact, you’ll probably never see the property in person and won’t be involved in any day-to-day decisions. 

 

You don’t have to be in contact with the broker, monitor the property manager’s performance, or receive and decipher between contractors’ bids. Instead, you get a few emails, sign a legal doc or two, and carry on with your life while the checks show up. As a passive investor, you’re a passenger on a plane ride. So, sit back and have a cocktail.

#3 You’re Looking for a Long-Term Investment

Maybe you’ve done your research and know not to look for some get-rich-quick scheme, but rather, are interested in a steady longer-term approach to wealth. Unlike stocks or something you can flip in the two-year range, real estate syndications typically have a hold period for five or more years. 

 

If you’re more of a “set it and forget it” type investor, and can plan for your investment capital to go earn you cash flow and appreciation for set periods of time, then passively investing in real estate syndications may be your new obsession.

#4 Sharing Returns In Exchange for Less Work is Attractive to You

Fix-and-flips and standard rental property approaches to investing allow 100% of the profits in your pocket. Mostly because they are smaller deals, require plenty of sweat-equity, and often have only one party (you) financing and managing the deal. But that also means you are liable for 100% of the expenses – be they in the form of time and/or money!

 

Multifamily real estate syndications are completely different as there could be tens or even hundreds of individuals involved – thus some profit sharing. Usually, the passive investors get the larger portion of a 70/30 or 80/20 split, with the general partners getting the smaller percentage and also enjoy what’s called a “preferred return”, meaning some amount of the initial returns go to the passive investors before the general partners’ returns kick in. 

 

Group investments like this take a “team” or collaboration mentality versus a competitive mindset. The general partners have done the upfront work to find and secure a deal; are actively managing the property; making any decisions and management toward renovations; and handling marketing and financial reporting. So, it only makes sense that they are compensated for their efforts. If profit sharing and the concept of “a rising tide lifts all boats” makes sense to you, you’re in the right place.

#5 You Don’t Need the Money for a While

It’s possible you’re in a season of life where your kids’ vehicle purchases or college decisions are either several years in front of or behind you, that you’re in a home that doesn’t need a massive kitchen renovation, or just that you have spent some time planning well, establishing some financial surplus, and minding your expenses. 

 

If this is the case, you also likely met the criteria in #1, and you are going to be okay having your money “locked-up” for a bit. You’ve worked hard to save, budget, and build a little nest egg, and you’re just looking for somewhere to park it for a few years with the possibility of earning some interest. 

 

Having expenses covered for the foreseeable future is a fantastic feeling, and if this describes you…well, investing passively in a real estate syndication hopefully captures your interest even more after realizing how well-positioned you are for this type of investment opportunity. 

 

Recap

You’ll absolutely love being able to invest your money in real estate without the hassles of being a landlord, all while having the chance to invest with different sponsors in different markets and different asset classes. And bonus – the tax benefits and returns from passive investing can surpass those from personal rental properties.

But, being a passive investor isn’t for everyone. So, if you…

  • Have more than $50k of “play” money

  • Are okay earning returns while NOT having an active role

  • Are good with a longer-term investment

  • Find collaboration and sharing big returns attractive

  • Are comfortable putting your cash to work for 5+ years

 

…then investing passively in real estate syndications likely could be the best fit for you. 

 

The beauty of real estate investing is that it’s so incredibly diverse. Perhaps some of the above doesn’t describe you and you’d rather roll up your sleeves and do the work yourself. Or perhaps you’re looking for a more liquid or a shorter-term investment. That’s totally okay. Life is not “one size fits all”.

 

There are so many opportunities out there to invest in great projects and impact local communities. Commercial real estate syndications are just one avenue, but if you meet a few of the criteria above, you might have found your match. 

 

And if that’s the case or you’d like to explore more, then make sure you’ve signed up for our Deaton Equity Partners Passive Income Investor’s Group and check out our Resources section as well as YouTube and social channels.  We’re committed to bringing as much great passive income investing content to our community and give them the tools to fuel life’s adventures!


Until next time, we’ll see you on the path to Passive Income…for life!

Dissecting the Investor Summary – How to Know a Deal Is Good

Dissecting Investor Summaries

What To Look For And
How To Tell When A Deal Is “Good”

Investment summaries. 

I have yet to see one that leads with an intro “this isn’t a very good investment, but we still hope you’ll invest in it because we really like it.”  They are all packaged up with slick graphics, colorful charts and punchy lingo.  And in a world where our attention is perhaps the most valuable commodity and investment opportunities compete with one another, how could you expect anything less. 

However, given that, how are investors supposed to separate the wheat from the chaff, as they say, to take away the essential points and make an informed decision?

And while each investment summary inherently unique (some are image heavy while others more like an economics textbook), they do all target to portray the same fundamental information; and that’s where we can apply focus to pull out those essential details to see and understand the real investment opportunity.

just how are investors supposed to separate the wheat from the chaff?

So if you decide to invest because the investment summary looks pretty, you are putting yourself at risk, especially if you haven’t done proper due diligence on the deal and the team.

Likewise, if you pass on a deal because the investment summary looks like Elon Musk’s tax returns from last year and the material causes your eyes to glaze over, you might be missing out on a great opportunity.

So what exactly should you look for?  Good question.

Let’s take a look at a sample investment summary.  I’ll walk you through the thought process I go through when I first review an investment summary, so you’ll know what to look for the next time one lands in your inbox.

**Please note: For simplicity’s sake in this example, I’m assuming the summary is a very brief document, rather than a full-blown investment summary, which could be dozens of pages long.

The Investment Summary At A Glance

Even though every investment summary is different, there are some basic elements that are common across all multifamily real estate syndication investment summaries:

  • Project name (often the name of the apartment complex)
  • Photos of the property and area
  • Overview of the submarket
  • Overview of the investment
  • Details of the business plan
  • Projected returns and exit strategies
  • Detailed numbers and analyses
  • Team biographies

In a one-page executive summary, you usually get a little bit of each of these elements. It’s a first date.  If going forward, you definitely want to get the full investment summary and review all the details as well as ideally attend a webinar to have the opportunity to ask questions.

If this executive summary landed in my inbox, I’d start with a quick read-through.

In skimming this executive summary, here are the things that would jump out at me:

  • Off-market
  • Value-add
  • Reference to a track record
  • Strong submarket
  • Proven model
  • Equity multiple
  • Unit count

Off-Market

When an asset is acquired off-market, it means that the seller chose not to list the asset publicly. Maybe the seller didn’t want the tenants to know that the building was being sold (this is quite common). Maybe the seller needed to sell within a set timeline. Or maybe the seller already had a buyer in mind. 

Regardless, off-market is almost always a good thing. This means the deal sponsor team did not have to compete with other potential buyers on price. Thus, there’s a good chance that the purchase price is low, or at least reasonably below the market value.

Value-Add

A value-add investment is exactly what it sounds like – an asset that presents an opportunity to add value in some way. Maybe the rents are significantly below market rates because the previous owner hasn’t raised rents in 10 years. Maybe the kitchens & fixtures are still from the ’80s and could use some updating. Maybe there’s an opportunity to add some brand-new additional units.

Whatever the case may be, value-add means more control is in the hands of the deal sponsor team. Rather than relying solely on market appreciation, there are things they can do to create additional equity, even if the market stagnates.  This is known as forced appreciation.

One of the most common value-add scenarios is one in which the units need to be updated. Let’s say the apartments haven’t been updated in 10 years, and the current rents are $1,000 per month. Even if the team were to stay the course, that $1,000 per unit would still be able to cover the mortgage and fetch a modest profit.

But, who gets excited to make a “modest” profit?

Because there’s a chance to add value through improved living conditions, as well as increase the returns for investors, this is a true value-add. The team will go in, complete the renovations, then rent out the updated units for, let’s say, $1,200 per month.

When you add up the $200 per month increases across all 250 units, that creates so much value for all parties involved.  When residents see the updated spaces, they’re often happy to pay slightly higher rents for a nicer home and they start to take more pride in their community.  For the investors, they get to share in a tremendous amount of increased equity from those improvements.

Property values for commercial real estate are driven by income.  That extra $200 across 250 units across 12 months amounts to an additional $600,000 in revenue!  Not bad at all.  And the kicker?  That increased revenue multiplies the property value with a constant known as the cap rate.  Cap rates fluctuate by market, but even if we use one that’s very conservate, like 10% (easy math 😊), the actual increased value in the property is $6,000,000!  That’s the beauty of value-add.

Track Record

The next thing that catches my eye is, “Similar to Beta Apartments (acquired just last year and currently undergoing renovations)…” This tells me that this is not this team’s first rodeo. They’ve done this before and are currently in the trenches with another asset nearby.

I also see, in the Investment Highlights section, that they’ve started implementing their business plan at Beta Apartments and that they’re surpassing their original projections. This tells me that their business plan is working and that they would likely be able to continue to strengthen their track record through Omega Apartments.

Further, this tells me that they’ve likely built up a strong reputation in the area, amongst brokers, property managers, and other apartment owners. Otherwise, they wouldn’t have been awarded this off-market deal.

Strong Submarket

I don’t know about you, but if I’m going to invest in an apartment building, I want it to be in a growing and developing area.

The fact that this submarket is the “#1 fastest growing” within this fictional metropolitan area tells me that things are moving and shaking here. I would likely open a new browser tab and immediately google that metro area and that particular submarket, to learn more about them.

What am I looking for? Things like proximity to major employers in the area, shopping centers, decent schools, any news about developments in the area, what it looks like on Google street view, what nearby houses are selling for, and anything else I can find.

Much of this will be in the full investment summary, but it’s always a great idea to do a little independent research on your own as well.  Trust, but verify…especially when we’re talking investment amounts like these.

Proven Model

Did you catch it? “Ten units have already been updated and are achieving rent premiums of $150.”  Jackpot.

Why is this so important? This takes much of the guesswork and assumptions out of the value-add proposal. The previous owner already created the proof of concept. They updated a set amount of units, and they were able to get the higher rents.

This is great news. This means that all we have to do is go in and continue those renovations to achieve those same rental increases. To me, this signals much lower risk in a value-add opportunity.

Equity Multiple

There are certainly lots of numbers in any investment summary, and they can be overwhelming. Percentages, splits, projected returns, waterfalls…what do they all mean?

One metric I’ve come to rely on is the equity multiple. For me, the equity multiple is the real bottom line return that cuts through the other figures.  In this case, the projected equity multiple is 2.1x. This means that during the life of this project, my money will be more than doubled.

That is, if you were to invest $100,000, you would come out of this project with $210,000.

This $210,000 would include your original $100,000 investment, as well as $110,000 of profits. This $110,000 would include the quarterly cash-on-cash returns you would be getting as long as the asset is held, as well as your portion of the profits from the sale of the asset.

Typically, I look for an equity multiple around 2x over 5 years, so this one passes my test.

Unit Count

I always like to know how many units I’m investing in. In this case, Omega Apartments consists of 250 units. This is a pretty decent size. This means that the team would be able to take advantage of economies of scale (i.e., increasing efficiencies by leveraging shared resources across the many units).

I will typically look at anything above 75 units. Ideally, to maximize economies of scale, I like to see over 100 units.

Next Steps…

Now that I’ve taken the initial look through the executive summary, my immediate next step would be to decide whether or not to request the full investment summary.

In this case, I would go ahead and request the full investment summary, as this opportunity ticks off most, if not all, of the things I look for in a multifamily investment opportunity – strong team, strong submarket, opportunity to add value and a >2x equity multiple.

In the meantime, I would do some more research on both the submarket and the deal sponsor team. I would definitely google Alpha Investments and read about the core people on their team, learn about other assets in their portfolio, and see if I can find any negative reviews or stories out there about the individuals or the team.

Be Ready to Move Quickly

Once you find an investment summary that meets your investment criteria, it’s critical that you move quickly. Why? Because these opportunities fill up on a first-come, first-served basis.

Chances are, if this investment opportunity met your criteria, it likely met others’ criteria as well. In that case, you’ll want to be ready to make a soft commitment to reserve your spot, then take that additional time to review the investment summary in detail.

Pro tip: There’s no penalty for backing out of an investment down the road, so it’s to your benefit to reserve early, to ensure you get a spot in the deal. If you wait around to be 110% sure, others will have jumped in front of you in line, and you may be left on the backup list.

Request a Full Investment Summary Sample

If you’re interested in seeing a sample of a full investment summary, or to gain access to the deals in our pipeline, consider signing up for the Deaton Equity Partners Passive Investor’s Group.

We are here to support you in your investment journey and will never pressure you to invest. Our goal is to help you gain the knowledge you need to invest with confidence (whether in our deals or someone else’s), so that together, we can change the world, one investment at a time.

Passive Income…for life!

Behind-the-Scenes: A Look at the Returns on 3 Multifamily Deals

Behind the Scenes

An Insider’s Look at the Returns on 3 Multifamily Deals

When it comes to investing, as with many of life’s major paths, it’s easy to look back and see the best choices, what should have been done, and what would have been a smart decision. Harnessing the ability to thoroughly understand your financial situation, identify actual financial goals, and commit to a plan of action are all easier said than done.

By looking at the past performance of three multifamily real estate investment projects, how much they returned to investors, and the impact they’ve had in their respective communities, it might help you understand what real estate syndications could add to your portfolio.

Keep in mind that, although these are based on actual projects and data, some identifying information has been adjusted to protect the privacy of the deals, partners, and investors.

Ready to dive in? Let’s go…!

looking at the past performance of three multifamily real estate investment projects…it might help you understand what real estate syndications could add to your portfolio

 

Case Study #1:

 

320-Unit Apartment Community

 

In May of 2016, a 320-unit apartment was acquired for $26.6 million. The class B apartment community was built in ‘83 and in a rapidly growing submarket of DFW (in Texas).

The business plan included on-site operations improvement and renovations for each unit for a full value-add deal. Upon acquisition, a professional property management team was placed. They maximized operational efficiencies and executed each phase of the business plan beautifully.

Within 18 months, the renovations were completed, and, since the market was favorable, the team sold the property for $35.2 million. This means by the time the property sold and everything was finalized, which actually took 22 months total, they’d exited the value-add real estate syndication with a profit of $8.6 million dollars.

What does this mean for investors?

Let’s pretend you’d invested $100,000 into this particular deal as a passive partner. You would have wound up with $170,000 in less than two years from your initial investment date. 70K profit in 22 months with zero work? Yes, please!

 

Case Study #2:

 

216-Unit Apartment Community

 

Our next example is also in DFW but only had 216 units and was built in ‘81. Although dated, it was a nice class B asset in a growing submarket of the metroplex.

One key difference between this example and the last one is that this apartment complex hadn’t been publicly listed. It was acquired off-market because of a partner/broker relationship established prior. They had a great track record and were able to make a quick, favorable deal without the challenge of competing against other potential buyers.

For $12.2 million the deal was done. The team rebranded and repositioned the property and invested several thousand per unit for renovations.

In just 18 months, the property sold for $18.25 million. They exited this particular real estate syndication deal with an over $6 million dollar profit.

If you were an investor in this deal with a $100,000 buy-in, you would have exited the deal with $200,000 just a year and a half later. I don’t know many places you can double your money that quickly.

 

Case Study #3:

 

200-Unit Apartment Community

Our third example is a more current project that was acquired off-market in December of 2017 for $16million. This 200-unit apartment community, also a class B asset, is in the DFW area like the others examined in this article.

Since it’s an ongoing deal, let’s dive a little deeper and study the progress.

May 2018 (6 months after purchase)

By then 38 units had been remodeled and new rental rates were $20 more than original projections. So, basically, the project was ahead of schedule – both renovations-wise and rental rate-wise, which is what you want to hear!

And $20 per unit might not sound like much, but when you talk about raising the rent per unit not only to a projected value, but $20 more than that??!!  Well, it really adds up!

38 renovated units x $20 = $760 per month and $9,120 per year. At a conservative cap rate of 10%, this added $91,200 of unexpected, positive equity to the property.

Cha-ching!

Other projects completed within the first 6 months included an outdoor kitchen, a new dog park, rebranding with new signage, and construction of over 40 carports. That’s some serious progress!

December 2018

Renovations continued to run smoothly and new units were achieving rental premiums beyond projections. In fact, as a result of the increased rental rates, investors received an additional 2% in returns this month.

That means investors who put $100,000 in are receiving an extra $2,000 above and beyond the standard returns which have been about 0.67% or $667/month. Nice holiday bonus, right?

February 2019

This property and the team continued to outperform projections. In fact, within the first year, we experienced a 26.4% surplus which will allowed a refinance deal to go through at the end of the month.

That’s exciting news because, with these kinds of numbers, investors received 40% of their capital back while still maintaining the same cash-on-cash returns based on the original value invested.

What that means is the property is performing so well that the team is okay pulling some of the originally invested capital out of the project.

If you’d originally invested $100,000, not only would you have been receiving your $667 each month, plus the $2,000 bonus back in December, but now you’d have received a check for $40,000 of your original investment back with no change to your monthly returns.

Life. Changing.

August 2019

Renovations including eco-friendly toilets and showerheads were completed on 135 out of 200 units. Not only did the renovated units rent for an astounding $80 over projections, but we saved lots of cash on the overall utility costs for the property.

Future Outlook

All renovations necessary to complete the value-add process were scheduled for completions in just a few months. At that point, the team will either choose to sell or hold the asset until market conditions are most favorable.

Either way, this real estate syndication deal has been a huge success already, and residents and investors alike are both very happy.

 

Conclusion

 

 

The number one thing holding back potential investors is syndication education.  These real estate syndications sound great and you see peers making great returns, but it can be super scary to invest your own $50,000 or $100,000.

Self-education toward understanding real estate syndications can be time-consuming and require a lot of energy upfront before you feel comfortable. The case studies here are all real projects that we and our partners have been a part of. None of the returns or the performance of the projects have been fabricated.

What can you do today, that your future self will thank you for? Investing in your financial education is one of the best ways to jump-start the progress toward your success two, five, or ten years from now. Look back at the deals mentioned here. Within 2-3 years the amount of income these investments have generated is absolutely impactful, to anyone’s life.  

It’s why we absolutely love helping people generate Passive Income…for life!

In addition to the ideas just presented, you can amplify your journey with the following resources: 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

7 Steps to Investing in Your First Real Estate Syndication

7 Steps to Investing in Your First
Real Estate Syndication

For many of us, the process of buying a house is fairly familiar.

  • decide you want to buy a house
  • think about the neighborhood you want to be in
  • list out the features in your must-have versus nice-to-have columns
  • check with a lender to see how big a loan they’re willing to give you
  • consequently, move some things from your must-have to your nice-to-have column after you get your lender’s pre-approval letter
  • find an agent to tour properties until you find the home of your dreams
  • finally…put in that offer package that the seller would be crazy to turn down

[Insert your own variations and “fun” experiences here] 😊

While the timeline varies from deal to deal, the overall steps of investing in a real estate syndication are essentially the same

Similarly, other traditional types of real estate investing that involve buying a house and making some sort of profit on it, are also pretty easy to understand.

Fix-and-flip: buy a house, renovate it, sell it for a profit.
Buy and hold: buy a house, rent it out, get monthly rent checks.

Beyond that, the edges can start to become a little fuzzy, especially when you start talking about things like group investments (aka, syndications), in which you invest passively alongside several, sometimes hundreds of, other investors to purchase a large asset, like an apartment building.

In this post, I will walk you through that process at a very high level, from start to finish, so you have a clear understanding of all the steps involved in investing passively in your first real estate syndication.

While the timeline varies from deal to deal, the overall steps of investing in a real estate syndication are essentially the same:

  1. Decide that you want to invest in real estate
  2. Understand your investing goals
  3. Find an investment opportunity that aligns with your goals
  4. Reserve your spot in the deal
  5. Review & sign the PPM document (private placement memorandum)
  6. Send in your funds
  7. Celebrate & look forward to receiving your passive income deposits!

The process behaves much like a funnel, with each step bringing more clarity on your goals, potential deals, and ultimately, that perfect deal.

Step #1 – Decide That You Want to Invest in Real Estate

This is your most important step in which you set your intention.  After all, there are many other things you could invest in, from gold to coffee plantations to stocks and bonds.

This is a decision that I won’t be able to make for you. You’ll have to look at your overall portfolio, reflect on your goals, and decide whether investing in real estate can help you reach those goals.

What I can tell you, is a bit about how we got into real estate investing.

We began investing in residential real estate in 2016.  We started with buying and selling rural, vacant land and upon selling it to others, we would owner finance the sale, thus building up a “passive” income stream. 

Then a few years later, while we loved the idea of passive income, we didn’t want to take the time and effort to build a rental property portfolio; manage the properties; or go through the hassles of finding and buying the properties.  We also really wanted to apply the lessons of other great real estate investors and leverage the huge tax savings that come with larger real estate assets.

Enter real estate syndications.

These investments presented the potential for greater returns than other investment types; could be totally passive; and brought us incredible tax savings.  Since then, we’ve invested in over 1,000 multifamily units and have continued to build our cash flow, net worth and network while virtually eliminating our tax bill.  Not too shabby!

Has every investment been a homerun? Absolutely not. But am I glad we made each and every investment that we did? Yes. 100% yes. Real estate has taught us about people, relationships & teams; leverage; tax benefits; passive income; and the power of giving back to the community. For us, real estate is a critical part of our lives and the cornerstone of our long-term strategy of building wealth for our family.

All that is to say, every person and every family is different, so you’ll need to do some research, thinking, and reflecting to decide if real estate investing is for you.

Step #2 – Understand Your Investing Goals

Once you decide that you want to invest in real estate, think about what you’re hoping to get out of it. Are you looking for a long-term or short-term investment? Are you hoping for a quick lump sum or a steady stream of passive income over time?  How much do you have to invest, both in terms of money and in terms of time?

If you’re not afraid to roll up your sleeves and put in some sweat equity, or you want to control the process to choose your own tenants or cabinets or flooring, you might consider trying a fix-and-flip, or buying and holding a small rental property.

If, on the other hand, you want more of a set-it-and-forget-it type of investment, one that you can scale very quickly and that delivers nice, big tax benefits, then a real estate syndication might be a better fit. You can invest your money alongside other investors, then have an asset manager execute the strategy, manage the asset, and carry out the business plan to update the units and maximize impact and returns while you focus on other things and deposit your distribution checks.

Step #3 – Find an Investment Opportunity That Aligns with Your Goals

If, at this point, you’ve decided that a real estate syndication is the best fit for you, the next step is to find a syndication opportunity that works for you.  Just as there are a variety of different real estate assets you can invest in personally, there are a variety of real estate syndication projects available as well, from ground-up construction to value-add assets, and even turnkey syndications.

To help investors learn about investment opportunities, deal sponsors typically provide some variation on the following materials:

  • Executive summary
  • Full investment summary
  • Investor webinar

These are the core materials that will give you a full 360-degree view of the asset, market, deal sponsor team, business plan, and the projected financials.

Personally, when I review these materials, I’m looking first and foremost at the team who’s running the project.  I want to make sure they have a solid track record and that they’re good people.  As you know, you can give a great project to a terrible team, and they’ll drive it into the ground.  On the flip side, you can give a struggling project into a terrific team, and they’ll turn the whole thing around, delivering on the returns promised to investors.

Beyond the team, I look to see if the business plan makes sense, given the asset class, submarket, and where we are in the economic cycle.  I do my own research on the market, looking at job growth, population growth, and other trends.  I look at the minimum investment amount, projected hold time, and projected returns.  I look to make sure that the team has multiple exit strategies in place in case their Plan A doesn’t pan out.  I look for conservative underwriting.  I prepare for, attend and/or review the investor webinar and ask tough questions.

Basically, I look for any reason NOT to invest in the deal.

If, after all my research and analysis the investment still looks good, I consider investing in the deal.

But again, this is my personal philosophy and methodology.  As you review different investment summaries, you’ll come up with your own criteria of what you’re looking for.  And the more you review, the better you’ll start to understand exactly what you’re looking for.

Step #4 – Reserve Your Spot in the Deal

One thing to note about real estate syndications is that the opportunity to invest in the deal is on a first-come, first-served basis.

This can be especially important for deals in hot markets with strong deal sponsors.

I’ve seen multi-million-dollar investment opportunities fill up in a number of hours.

That’s why it’s important to do your research ahead of time, to know how much money you want to invest, and what you’re looking for in an investment opportunity.

That way, when the opportunity opens up, you can jump on it with confidence.

Often, there will be an opportunity to put in what’s known as a “soft reserve” amount.  This is a reservation that holds a spot for you in the deal while you take some time to review the investment materials. If you decide to back out or reduce your investment amount later, you can do so with no penalty.

The flip side is, if you don’t hold a place, but then later decide you want to invest, there may no longer be room for you in the deal, and you’ll have to join the backup list.

Not every deal offers a soft reserve, but when there is one, and I think I might be interested, I always put in a soft reserve to buy myself some more time to think about the deal, review the materials, and do my own research.

For deals with a soft reserve, this step and the previous step #3 might be flipped or more fluid, so I tend to review the executive summary, reserve my spot in the deal, then review the rest of the materials.

Step #5 – Review the PPM

Once you’ve decided to invest in a deal, the first “official” (aka, legal) step is the signing of the PPM (private placement memorandum).

This is a legal document (often quite lengthy) that goes into detail about the investment opportunity, the risks involved, and your role as an investor in the project.

The PPM is certainly not the most fun document to review, but it’s very important that you read through it so you fully understand all aspects of the investment opportunity – including the risks, subscription agreement, return structure, and operating agreement.

Step #6 – Send in Your Funds

Once you’ve completed the PPM, the next step will be to send in your funds (aka, the amount you’re investing into the deal).

Typically, you will have the option to either wire in your funds or to send in a check.  I’ve used both methods before and have had no issues with either method.

Pro tip: Before wiring in your funds, be sure to double check the wiring information, and let the deal sponsor know to expect your funds so they can be on the lookout.

Step #7 – Celebrate & Get Ready to Receive Your Distributions!

You did it!  By this point in the process, you’ve done your due diligence on the investment, reserved your spot in the deal, reviewed all the legal documents, and sent in your funds.

That means you’re done with all the “active” parts of your role as an investor. If we’re using the syndication-as-an-airplane-ride analogy, that means you’ve picked your destination, bought your ticket, checked your bags, reviewed the safety information, buckled your seat belt, and now you’re ready for a cocktail and a movie.

The next piece of communication you’ll likely receive is a note once the property has closed. Deal sponsors typically like to put lots of smiley emojis and exclamation points in these emails.

After that, expect monthly updates on the project, more detailed quarterly reports on the financials, quarterly cashflow distributions, and an annual K-1 Form for your tax returns.

Conclusion

So, there you have it. Hopefully, the process of investing in a real estate syndication is a bit clearer now, and…a little less intimidating.

Real estate syndications are more of a set-it-and-forget-it type of investment, so most of your active participation is up front. After you decide to invest in a syndication, you review the investor materials (executive summary, full investment summary, and investor webinar), reserve your spot in the deal, review and sign the PPM, and send in your funds.

The first time you do it, it might seem a bit confusing as to what to expect and what questions to ask.  However, as you review and invest in more deals, the process will become very familiar.  And after that?  Well, we’re pretty darn confident you’ll be hooked on generating more Passive Income…for life!

And in addition to the ideas just presented, you can amplify your journey with the following resources: 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

Why It’s Critical to Know Your Investing Goals

Why It's Critical to Know Your Investing Goals

Before You Invest in Your First Real Estate Syndication

Take a moment to think about the process that you used to find the home you’re currently living in.

You likely had a list, however large or small, that included a specific area, a particular school district, your desired commute, and/or the number of bedrooms you were looking for. If you were looking for a three-bedroom with a big yard for the kids to play and perhaps a pool, it’s very unlikely you would have settled for (or even looked at) a one-bedroom high-rise condo, even with an awesome view.

Well, it’s the same type of situation when you’re investing in real estate. Before you even begin to consider potential investment opportunities, it’s critical you know WHY you’re investing and WHAT you’re expecting to get out of it.

Without clear goals, you can easily be tempted by slick, marketing photos and well-polished investor presentations that don’t actually align with your investing goals.  Or even paralyzed by the overwhelming amount of investing options out there.

Let’s walk through a couple of examples and see if one resonates with you. With clear goals in mind, you’ll know just what to do when the right investment opportunity comes along.

Before you even begin to consider potential investment opportunities, it’s critical you know WHY you’re investing and WHAT you’re expecting to get out of it.

 

Investing Goal Example #1:

 

Investing for Cash Flow

 

Brian is a family man who works a corporate job full-time. While the income is great, the meetings, commute, travel and other daily (and nightly!) hassles dominate his time and takes him away from his fair share of opportunities with family and friends.

Brian wants to create and initial passive income steam of about $4,000 per month, which will help cover most of the family’s current expenses and that would give him the freedom to quit his job down the road. Finding investments that will provide steady cash flow now could eventually replace his income and allow him to be fully present with the wife and kids and enjoy a great lifestyle now.

If Brian requires $48,000 per year ($4,000 per month), he’d need to invest roughly $600,000 if expected returns are in the 8% range.

$600,000 invested x 8% cash flow returns

= $48,000 in passive income per year

With this knowledge and these numbers in mind, Brian should focus on cash flow first and foremost. That means that any investments with lower projected cash flow returns should automatically be discarded, and any opportunities reflecting 8% or higher should really command his attention.

 

Investing Goal Example #2:

 

Investing for Appreciation

 

Jesse, meanwhile, is single with no children, has excellent cash flow, isn’t necessarily interested in quitting his full-time job, and is more interested in potential appreciation.

He’s seen how property values have experienced huge upswings, and he loves the idea of investing in hidden gems or that are in growth areas like Austin, San Antonio or even Des Moines, Iowa. He’s aware of the higher risk and the longer amount of time he’ll have to wait until payout, but he’s okay with that since his current cash flow position is strong with a decent income and low expenses.

Even if his investment doesn’t appreciate as much as expected, that’s alright with him. He’s more interested in the “chance” that it might.

Common investment advice is that these types of investments are riskier and that you should always invest for cash flow. However, there are investors with a higher risk tolerance who will voluntarily take on the risk for the possibility of appreciation.

In this case, Jesse is aware of the pros and cons, knows that there are winners and losers in this game, and looks for deeply distressed deals in growing markets to increase his chance for high returns.

 

The Hybrid:

 

Investing for Cash Flow AND

 

Appreciation

 

But what if you didn’t really feel comfortable in either Brian’s or Jesse’s shoes, that’s okay! That just means you’re among the majority and that you’d like a mix of cash flow AND appreciation.

Hybrid investments that provide some cash flow throughout the project in addition to the potential for appreciation do exist! There are a lot of real estate investments out there located in markets with healthy appreciation (think Texas, the midwest, and even the southeast) and that present solid, value-add opportunities to ‘force’ additional appreciation.

Don’t be afraid to seek that sweet spot – where you get ongoing cash flow to cover living expenses, plus the potential for appreciation later on in the project. In many of the multifamily syndications we sponsor, investors easily achieve >8% cash flow on an annual basis and then also enjoy 150% to 200% return on your investment over 5 years.  So put $250,000 in just one of these deals and the hybrid investor receives ~$25,000/year in cash flow as well as another $125,000 in appreciation.  That’s a 20% average annualized return on your investment! Cha-ching!!

 

 

Know Your Goals!

 

Investment summaries and presentations for real estate syndication opportunities are purposely made to attract your attention with colorful graphics, nice charts and beautiful photos, which is exactly why it’s important to know your purpose for investing in the first place. You have to train yourself to see past the surface and understand the bones of the deal and your expected returns.

When a deal does come along that aligns with your goals, you’ll be able to confidently flip past those gorgeous pictures, focus on the numbers, act confidently & quickly, and start enjoy your returns…without second-guessing yourself.

Be sure to sign up for our newsletter and join the Deaton Equity Partners Passive Investor’s Group where we share even more education, investment opportunities and help you generate Passive Income…for life!

Redefining Retirement

Retirement...Redefined

If You Could Retire Today…Would You?

Tune in to a little sports on the weekend, maybe one of the golf majors, and you’ll quickly be inundated with commercials showing you glamorous couples in love and enjoying their golden years.  Ahh retirement.  Promises of travel, relaxation, hobbies and all the ways you’ll love spending that nest egg down the road.  Well, maybe way down the road.  Plenty of time to get there, right?  The 401k is doing ok.  At least it was the last time you checked.

Maybe later next week you can set aside some time to review your investments and see what retirement looks like.  It’s certainly not urgent.  After all, retirement is decades down the road, so why think about it right now? 

What we need to think about is getting that weekly report in tonight, or pulling together that information for the CPA, or hanging that new light fixture the wife wants installed.  Or if there’s any time, maybe we think about mowing the yard.  But…there probably won’t be any extra time.

Sound familiar?

Retirement is a daunting concept. It’s that massive stage of life looming out there. We don’t know where we’ll be or what we’ll be doing when we reach retirement, but we sure get shown lots of pictures of happy people playing golf and lounging by the beach and driving along the coast. So, maybe that’s what retirement is all about.

Maybe you feel a little guilt for not doing more to plan for retirement, yet it’s so far in the future, and such an overwhelming task, that it’s always something to put off till tomorrow, or the weekend, or next month. One of these days, you’ll have it all figured out, you’re sure of it. Maybe once you hit middle age, or once you at least pay off your kids’ college tuitions.

But stop right there. Nothing deserves the right to make you feel guilty about your life, not even your retirement.

So instead, let’s flip this whole thing on its head. Let’s reframe the entire concept of retirement.

Retirement 1.0

Traditionally, retirement has been a stage of life that comes near the end, once your kids are grown and out of the house, and once you’re too old to keep working. By that time, you’ll have poured over forty years of your life into a career. Your paychecks will likely have paid for your home, cars, some nice vacations and good educations for the kiddos.

Along the way, you’ve saved, let’s say, ten percent of your income every year, to put toward retirement planning.

By the time you reach retirement, you’re supposed to have saved enough to stop working and live off your savings for the rest of your life.  How long will that be exactly?

What If You Run out of Money?

What happens if you inherited the longevity gene from your great aunt Mary, and you live to be over one hundred years old? That’s potentially another thirty-five years after retirement!

Even if you have enough to last through the end, that amount will likely be much smaller than the amount you started with when you entered retirement, because you’ll be spending your savings during that time. There will be very little, if any, additional income coming in during your retirement.

Rather than accumulate more money, the typical goal of retirement is simply to enjoy your life, while not running out of money.

But this is, in fact, one of the most common fears about retirement. People worry that they’ll run out of money before they run out of life.  They’ll have to spend even more time working and earning and missing out on those rounds of golf with buddies.

And this fear makes total sense, when you think about retirement in the frame of this traditional model.

Rethinking Retirement 1.0

Let’s examine this from another angle. You know that cautionary tale about the squirrel who stores up acorns for winter? While his friends play all day, the squirrel works hard all spring, summer, and fall to store up enough acorns to last through the winter.

When winter comes, the squirrel can relax and enjoy the acorns he’s worked so hard to store up, while his friends, who didn’t think ahead, go hungry.

This is essentially the model of retirement we’ve all been taught. Save first, then spend.

But what if winter lasts longer than the squirrel had anticipated? Then the squirrel has to go back out to scrounge for food, even in the dead of winter.

What if, instead of spending all that time gathering acorns himself, the squirrel had devised ways for the acorns to accumulate automatically? (Don’t get caught up on the practicality of this hypothetical situation, just humor me for a minute.) Then, he could play with his friends during the best seasons of the year, have enough to last all winter, and potentially end the winter with more than he started.

This is the model of retirement I’d like to explore. Let’s call it Retirement 2.0.

Retirement 2.0
For a moment, let’s set aside the traditional model of retirement we’ve all been taught and reimagine retirement as it should be.

What if . . . we didn’t have to wait until the end of our lives for retirement?

What if . . . retirement could be something we could enjoy right now?

What if . . . we could be retired AND still continue working, but do what we love, not merely what we have to do?

What if . . . retirement wasn’t merely a stage of life but rather, a state of mind?

Now, this seems like a model of retirement that’s worth spending time on. This seems like a retirement that’s exciting, rather than daunting. This is a model of retirement I could get behind and enjoy spending time creating…instead that weekly report.

In order for this model of retirement to work, you have to imagine that you could find a way to generate income without you having to do anything (i.e., passive income).  You find ways to put your money to work – working for you and your family.

This additional income would cover your living expenses, or perhaps even more, making it possible for you to quit your job and start a new adventure, or continue working your job, but with the mindset that you get to do it, rather than have to do it.

Retirement 2.0 is not a stage of life that comes at the end, a last hurrah. Rather, it’s an ongoing part of your life. Retirement 2.0 allows you to replace your active income (from working your job) with passive income (that you make even while you sleep), so that you get to live the life you’ve always wanted, while your kids are still young, while you’ve still got your health, and while you can really enjoy the essence of life.

And not only that, Retirement 2.0 allows you to create a cash-flowing engine for ongoing income and wealth accumulation, so that, regardless of what you do, you’re generating income for your family. That way, at the tail end of your life, you’re continuing to generate more income, rather than worrying about spending it all.

But, of course, Retirement 2.0 is not easy to achieve. It requires work, ingenuity, and courage. It requires you to think outside the box, to hustle, and to dare to create your own path.

Retirement 2.0 is certainly not for everyone.

But if you’re ready to take life by the horns and to make retirement an active part of your life, read on, to learn about how to make Retirement 2.0 a reality.

Achieving Retirement 2.0

Retirement 2.0 requires you to think outside the box, challenge the conventional wisdom you’ve been brought up with, and try new things in an effort to achieve financial freedom.

Start by working backwards from the amount of money you need to live each month.

This is your freedom number.

Your mission now is to discover ways to generate this amount of money passively each month. The keyword here is passive. You’re not looking for another job to replace your current one. That’s called a career change, not retirement.

What you’re looking for are ways to generate income while you sleep.

If you haven’t done this before, it can seem like a completely foreign concept. Generate income while I sleep? That sounds like something right out of a late-night infomercial.

But believe me, once you get the hang of it, it’ll open up a world of possibilities you never even knew existed.

There are countless ways to generate passive income. Some people write books, some people create online courses and businesses, …and some people invest in real estate.

It is, of course, the last of those that has brought us to where we are, and Deaton Equity Partners to where it is – helping others create Passive Income. For life!

Through investing in real estate, we generate income while we play!

Regardless of what we do that month – working overtime or hiking in the Rockies – that distribution check comes in regularly, like clockwork.  My fish keep piling up, and I don’t even need my fishing pole anymore.

Each piece of real estate I’ve invested in generates income on my behalf and contributes to my freedom number.

As long as I hold the real estate, it continues to generate income.  It’s money coming in each month, rather than money going out, which makes it possible for retirement to be part of my life now, rather than down the road.

To Retirement, and Beyond!

As I mentioned, there are many, many ways to generate passive income. It can be difficult to take that initial leap, to think outside the box, and to get started.

But once you do, that little passive income snowball will keep getting bigger and bigger, and soon, you’ll spend all your time on your retirement, and no time at all weekly reports.

If you’re interested in leveraging passive real estate investments on your journey to your Retirement 2.0, a great place to start is by joining the Deaton Equity Partners Passive Investor’s Group.  We provide additional resources and investment opportunities to accelerate your retirement and get you living your best life now.

Here’s to retirement!

Which Investor Type Are You

The Beginner’s Guide to Investing In Real Estate Part 2

Which Types Are Best for You?

There are TONS of ways in which to get started investing in real estate. Everything from crowdfunding sites to residential real estate fix and flips to commercial storage units and office buildings are at your fingertips if you know where to look.

This is also why, as a beginner in the whole wide world of real estate investing, you might feel overwhelmed. However, with a little guidance, you’ll be able to narrow down which types of investments suit your lifestyle, financial goals, and personality best.

In our last article, The Beginner’s Guide to Investing in Real Estate: How to Get Started, we walked through gaining a macro-view of your current life situation, determining your why, deciding how hands-on you desire to be, assessing your risk tolerance, and even learning how much money you’re ready to invest.

Ultimately, it’s likely that, after slogging through those six soul-searching steps, you fall into one of the groups below.

You Likely Fall Into 1

of These Categories

 

  • The Lots of Money / Little Time / Hands-off Investor
  • The Little Money / Little Time / Hands-off Investor
  • The Little Money / Plenty of Time / Hands-on Investor
  • The Lots of Money / Plenty of Time / Hands-on Investor

Ready to learn which investments fit each type of investor?

Let’s go!

The Lots of Money / Little Time / Hands-off Investor

 

If you’re someone who fits predominantly into this category, it’s likely you’ve been saving a while or investing in the stock market since the day you received your first paycheck. It’s also possible that the tax breaks, passive income, and potential positive impact your real estate investments can make on a community are attracting your attention.

However, you’re a very busy individual – maybe with a family or in the prime of your career or both! You haven’t got the time to research neighborhoods and markets or tour properties, much less to actively renovate or manage a property.

–> Recommendation: Become a Passive Investor

For investors with the money to invest but not enough time on their hands to manage the property and get the maximum returns, passive real estate investments are the ticket. You can invest passively through turnkey rental properties or commercial real estate syndications.

Turnkey Rental Properties

Turnkey rental properties are smaller scale and as simple as they sound. You purchase a to-be rental property, ready to go, with minimal involvement or work needed. It’s even possible to hire a small scale property manager and you can enjoy some cash flow, albeit usually small, very quickly.

Commercial Real Estate Syndications

Another opportunity lies in group investments where money is pooled together to buy a large piece of commercial real estate property – a.k.a. a syndication.

Syndicators do all heavy lifting from the research and analyzing markets to meeting brokers, hiring contractors, overseeing the business plan, communications and much more. They find commercial real estate properties they think would be an awesome investment and then orchestrate the deal, the renovations, operations of the property, and usually a few years down the road, the sale of the property.

This is where investors like you come in. You rely on the syndicators’ time, expertise, and partnership team. Meanwhile, your money is invested, and every quarter you receive a distribution check – your portion of the returns earned on the asset. Plus, when the property sells after the hold period, you receive a part of the sale’s profits.

Overview of These Types of Real Estate Investments

What you put in
Investment dollars

What you leverage
Other people’s time and expertise

What you get
Ongoing passive income, confidence knowing your money is being put to good use by an experienced team, tremendous tax advantages and an equity stake in real estate.

The Little Money / Little Time / Hands-off Investor

In contrast, if you don’t have a large pool of money or time to spend investing in real estate (yet!), but are attracted to real estate as a way to build such wealth, there are options for you too!

One of the best ways to get started investing in real estate with little capital is using crowdfunding sites.  Another clever way is to find some friends or family and pool your money into a larger sum in an LLC created to invest in a property.

–> Recommendation: Invest through a real estate crowdfunding site


Just as Kickstarter funds new products, there are real estate crowdfunding sites where people can pitch in low amounts of capital toward commercial real estate projects. The difference? Crowdfunded commercial real estate pays cash dividends instead of t-shirts and sneak peeks of the product’s prototype.

Real estate crowdfunding sites are open to public use, typically have low initial investment requirements, and are available to both accredited and non-accredited investors.

Overview of These Types of Real Estate Investments

What you put in
Your money (in small amounts)

What you leverage
Crowdfunding platforms, experienced deal sponsors, strength in numbers (i.e., lots of people all putting in small amounts of money)

What you get
A variety of choices on crowdfunding platforms and real estate projects, ability to invest with very little capital, various project types and project lengths to suit your investment goals

 

The Little Money / Lots of Time / Hands-on Investor

So, you’re interested in real estate, but cash isn’t exactly “flowing” in your life right now. That’s okay, because if you’re willing to roll up your sleeves, there are still ways you can make your first investment in real estate.

You still have something of value to bring to the table – sweat equity. This means you’re willing to spend the time and effort to find properties, devour the paperwork, rehab the property (maybe personally), and make your passion for real estate become create cash.

Your Strengths, Interests, and Goals

If the above describes you, take a moment to identify your strengths and passions. Does the thrill of hunting for deals interest you the most? Is the renovation planning and execution process exciting to you? Maybe you’re a numbers nerd and can’t wait to analyze the trends and markets of each neighborhood?

Additionally, what are you in it for? Long term equity or short-term capital?

Here are some of the most common ways you can invest in real estate with little money and lots of time.

–> Recommended Real Estate Investment Strategies

1) Fix and Flips

This is where you buy a run-down piece of property, fix it up, and then sell it for a profit – just like it sounds! Fix it.  Flip it.  If you don’t have cash for a down payment, short-term private loans might be an option. You just need a few months to a year or complete the renovations. Then when the property sells, you pay off your loans and pocket the profits.

2) The BRRRR Strategy

I hate to break it to you, but no, BRRRR doesn’t mean it’s cold in here. BRRRR stands for buy, renovate, rent, refinance, and repeat. It’s a lot like the fix and flip strategy except that you hold onto the asset for a longer term.

If you took out a private loan to cover the down payment, you pay off that loan during the refinance step of the process. If done correctly, the value of the property after renovations/repairs will be significantly higher than the purchase price. This abrupt upward appreciation will allow you to do a cash-out refinance and pay off any loans you took to buy the property.

3) Wholesaling

If you’re a good networker and are able to find “off-market” deals, you may be able to get a property under contract at a low price. Then, while under contract and before the purchase is complete, you wholesale it to another buyer at a higher price. The difference between the two purchase prices goes in your pocket.

4) House Hacking

Depending on your local market, you may be able to get your foot in the proverbial real estate door via house hacking. This is where you buy a property with 2-4 units, you live in one of them, and you rent out the other units. The rental income received from other tenants pays your mortgage. Sweet!

5) Real Estate Crowdfunding Sites

Crowdfunding sites are a great place to start learning about real estate syndications without the pressure of running one (yet!). You can learn to find and compare deals, research sponsor teams’ track records, and learn what to expect in a syndication deal as far as communication and returns for investors.

Overview of These Types of Real Estate Investments

What you put in
Your time

What you leverage
Other people’s money

What you get
Firsthand experience, potential for high returns on very little cash investment

The Lots of Money / Lots of Time / Hands-on Investor

Um, can we be best friends? 😊

You’re in a fantastic position to make your money grow exponentially.

–> Recommendation: Lead commercial real estate syndications


If you’d like to be an active investor, leading your own syndications puts you in the driver’s seat. You get to find the deals, assemble the team, raise the capital, and have a say in the day-to-day operations. The choice is yours to go it alone as the syndication lead or to partner with others and create a syndication business.

–> Recommendation: Become a passive investor in commercial real estate syndications


You also have the option to be a passive investor who’s extremely active in finding and vetting deals for real estate syndicators or private equity firms.

Savvy passive investors know the lingo and have some basics down about deal structures and underwriting. Any investment can look great in a fancy marketing packet, but only savvy investors will know the right questions to ask and be able to reveal details about the deal and the team.

Overview of These Types of Real Estate Investments

What you put in
Your money and your time

What you leverage
The power of others’ expertise, time, and money to help you go bigger, faster

What you get
The freedom to carve your own path and maximize how hard your money is working for you

 

 

Summary

 

This article just threw a ton of information at you, and even though it was separated into categories, an overview might do you some good.

Before reading this, we hope you took some time to identify your investing goals, your current life stage, your risk tolerance, and your investing goals, as outlined in The Beginner’s Guide to Investing In Real Estate: How to Get Started.

From there, it’s likely you fell into one of four categories. Within each group, beginner investors have multiple opportunities to get started on their real estate investment journey. Our suggestions for real estate investment opportunities per investor-type are as follows:

The Lots of Money / Little Time / Hands-off Investor

Consider investing passively in commercial real estate syndications

The Little Money / Little Time / Hands-off Investor

Consider investing small amounts through real estate crowdfunding sites

The Little Money / Lots of Time / Hands-on Investor

Lots of options: Fix and flip, BRRRR method, wholesaling, house hacking, crowdfunding, and more

The Lots of money / Lots of time / Hands-on Investor

Active: Consider leading your own commercial real estate syndication

Passive: Invest through real estate crowdfunding sites or directly through syndicators and private equity firms

 

Conclusion

 

All in all, there are real estate investment opportunities for every type of investor, at every stage of life, with any range of available capital and time freedom. Once you’re able to identify which investor type you are at this time in your life, you can see the opportunities within that category and how they make sense for you.

One common misconception is that you need a decent amount of capital saved up in order to get started investing in real estate. The options presented above, coupled with The Little Money investor type, debunked that myth!

Now, I encourage you, don’t wait a minute longer. Get started toward becoming a real estate investor by taking action on one of the passive or active investment opportunities described above, according to the category in which you best fit.

We look forward to chatting with you in the near future about our syndication opportunities. It’s a fabulous way to create Passive Income…for life!

 

In addition to the ideas just presented, you can amplify your journey with the following resources: 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

How to Get Started in Real Estate Investing

The Beginner’s Guide to Investing In Real Estate

– How to Get Started –

One of the most common questions I get when speaking to others about what I do is: “What’s the best way to get started investing in real estate?”

Let me tell you, there are near countless ways to invest in real estate and thinking about just how to get started can certainly be overwhelming.

After being on our own journey for many years and doing massive amounts of research, study and networking, we decided to put together this quick guide that will help you understand your situation, uncover what you’re looking to achieve and reveal the best way to get started.

In this guide, we’ll explore:

 

  1. Your 50,000 foot View of Where You Are
  2. Your “Why”
  3. Just How Hands-on You Want To Be
  4. Your Risk Tolerance
  5. The Amount You Want To Invest
  6. Which Type of Real Estate Investor You Are

 

Step 1: Get a Bird’s-eye View of

 

Your Current Situation!

 

Prior to investing a sizeable amount of money into real estate, it’s critical to have a clear-eyed view of your situation – what you’ve been through, where you are currently and build an expectation of what is yet to come.

Life stages are significant and impactful factors in our lives.  You could be a young adult, just getting out on your own; a new graduate starting out in the workforce; mid-career with a growing family; or getting ready to retire.

What is your financial situation and what are you seeking from your investments? Perhaps you’re looking for a large, one-time payout, or maybe you’re interested in smaller, ongoing interest income. Do you have any amounts in mind like how much you want to invest, how much you’d like to earn, or what your financial freedom number is?

Getting a 50,000 foot view of your current situation and answering these potentially tough questions about yourself will help you assess the amount of risk you’re willing to face, how aggressive your investment strategy should be, and the timeframe in which you need to see returns.

 

Step 2: Know Your Why!

 

There are potentially thousands of ways you can get involved in real estate investing (house hacking, mobile home parks, syndications, Airbnb’s, corporate housing, just to name a few). In almost every opportunity, you stand to make some money.

Shiny object syndrome is real and can have you frantically leaping from one opportunity to the next, only to discover that this one takes too long, that one is too hands-on, and the one before that was too passive.

This is why it’s so important to drill in to your personal reasons for investing – your WHY. Take some time to really understand your motivations; be clear on what you want to do with the returns you’ll make; ID your personal and financial goals; and identify what you’re looking to get through investing.

Do you want to create passive income so you can quit your job and spend more time with your spouse and kids? Are you interested in becoming a landlord and managing property full time? Are the tax benefits of real estate most attractive to you? What do you really want?

Becoming firm in your reasoning and goals before investing will help you avoid shiny object syndrome and the stress it causes down the road.

 

Step 3: Decide How Hands-on

 

You Want to Be

 

I won’t believe you if you tell me you haven’t seen those HGTV shows where they take a broken-down junker of a house with mold and rotted floors and then, wa-lah!, they turn it into a magazine cover-worthy, gotta-have-it hot property with irresistible curb appeal.

If you’re vying to be the one busting drywall and exploring the crawl spaces, you are perhaps a more hands-on investor. It’s physically tough, yet gratifying work.

If meeting unexpected critters and wearing goggles while sloshing dirty toilet water on your shoes makes you cringe, thankfully, the world of real estate investing has passive, hands-off investment options for you.

This is a pivotal decision in the process, so take your time and really determine just how hands-on you prefer to be when it comes to your real estate investments. Be sure to consider your current situation, your why, the time you have on hand, and your financial goals.

 

Step 4: Assess Your

 

Risk Tolerance

 

All investments – stocks, mutual funds, real estate, and even gold – come with risk. Along these same lines, every bit of risk correlates with the potential reward. The adage is that high-risk investments come with higher potential payouts, and low-risk investments tend to have a lower opportunity for profit.

As an example, a new construction highrise in a transitioning area may be riskier while an existing apartment building with current tenants might present lower risk. Real estate investment components always include physical assets and tenants, along with many other moving parts, and there are often ways to mitigate risk. But, there is always the risk of a total loss.

If the idea of potential losses makes you wince, you should consider beginning with smaller amounts of money so you can learn the ropes and gain confidence. Your returns will come in the form of experience and education at first, and with time, as you grow your capital, the financial returns will come around.

 

 

Step 5: Determine the Amount

 

You Want to Invest

 

Now that you clearly understand your current life situation, financial and time-commitment goals, and the risks you’re willing to take, you can begin to think about just how much money you’re ready to invest.

Hopefully I don’t have to explain why you shouldn’t plop your entire life savings at any investment opportunity (I know someone who did and it didn’t go so well). Nonetheless, I will let you know you should begin with a modest amount you’re comfortable not being able to access for about five years. Your finances should be set up so that all your current living expenses are entirely covered, you have separate savings for emergencies, and that you have additional resources for income and expenses for at least six months into the future.

When you begin to review investment deals, you’ll also want to pay attention to the investment’s exit strategies, just in case you need to get your money out sooner than expected.

 

Step 6: Decide Which Type of

 

Real Estate Investor You Are

 

Finally, here’s where we get to put it all together. At this point, you’ve evaluated where you are, how hands-on you want to be, how risky you want to play, and how much money you’re willing to invest. With this information, you can narrow the types of investments that best fit your lifestyle and goals.

Most likely, you fit into one of these groups:

  • The Lots of Money / Little Time / Hands-off Investor
  • The Little Money / Little Time / Hands-off Investor
  • The Little Money / Plenty of Time / Hands-on Investor
  • The Lots of Money / Plenty of Time / Hands-on Investor

Within each of these groups, you might pursue a narrowed-down handful of opportunities that will allow you to best use the assets at your disposal – your time and your money. For example, hands-on investors with lots of time can invest in Fix and Flips, wholesales, house-hacks, or even leading their own syndication deal. In contrast, hands-off investors without much time are more suited for commercial real estate syndications and crowdfunding investment sites.

 

Conclusion

 

Investing in real estate is as big of an endeavor and as exciting as you thought it was, which means it can also be overwhelming. As you can see, there are many ways to begin investing in real estate. It will be easiest for you to determine your own, personalized approach by clearly answering the questions presented above, step-by-step.

We’ve also pulled together more about the investor group types and the investment opportunities that fit each investor’s category here in The Beginner’s Guide to Investing in Real Estate pt.2

You can begin investing in real estate with just a few hundred or a few thousand dollars, learning along the way, and slowly building up your knowledge about real estate investments and your capital. Don’t be afraid to fail, though, because even the most successful real estate investors have lost money somewhere. They are “successful” now, though, because they kept going.

Here’s to continued learning, doing and creating Passive Income…for life!

In addition to the ideas just presented, you can amplify your journey with the following resources: 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

5 Things Every New Investor Should Do Before Investing In Their First Real Estate Syndication

5 Must-Do Actions

– For The New Investor –

When you first begin considering real estate syndication as an investment option, it can feel intimidating, overwhelming, or like that first day on the new job.

I personally experienced fears around investing in a real estate investment property I’d never seen; had concerns about how I’d get my money back; and fought with doubts around the inability to log into an account and even see my “money”.

I addressed my fears head-on through research and education. Every article I read, podcast episode I listened to and each conversation I had, built up my confidence until I felt ready for action.

If you’re considering your first real estate syndication and feeling hesitant, I recommend taking time and action to do research, connect with other real estate investors, read through previous deals, and build up your knowledge base.  With education comes confidence! 

In addition to our amazing content, here are a few of our favorite resources to help you on your journey…

Do Your Homework

 

The best way to build your real estate investing confidence is through self-education and research. Listen to podcasts, read books, and find websites on real estate.

Books:

Rich Dad, Poor Dad, by Robert Kiyosaki – without a doubt this classic was fundamental in our mindset shift to making our money work for us with cash-flowing assets. A must-read!!

Tax-Free Wealth, by Tom Wheelwright – Tom is Robert Kiyosaki’s CPA and has an incredible wealth of knowledge about how to maximize your investments with the ultimate goal of reducing or eliminating your tax liability.

ABC’s of Real Estate Investing, by Ken McElroy – more of a behind the scenes look at finding, acquiring and running syndications, Ken delivers a great overview of the multifamily syndication process from the active partner’s perspective.

YouTube Channels We Love:

  • Ken McElroy
  • Bigger Pockets
  • Graham Stephan

Podcasts:

  • BiggerPockets Podcast – seemingly endless episodes across a wide variety of topics
  • Best Real Estate Investing Advice Ever with Joe Fairless – an insane amount of content from one of the biggest in the business
  • The Real Estate Radio Guys – these guys have been focused on real estate investing for about 15 years and have some great content

Ask Questions

You can find amazing, relevant Facebook groups and also forums like BiggerPockets can help answer questions…and even help you learn what questions you should be asking!

It’s likely that other real estate investors have asked about your same concerns and, just by reading through the forum’s questions and answers, you’ll gain clarity.

Remember there are no dumb questions and that you have the right to be diligent about gathering answers to your concerns.

Connect with Other Real Estate Investors

It’s a common refrain to hear that real estate investing is a team sport. And every successful real estate investor needs a supportive community.  Considering that a syndication is literally a group real estate investment, you’ll want to network with other like-minded investors.

New investors will share similar anxieties, questions, confusion, and excitement. Experienced real estate investors can provide invaluable firsthand accounts of their experience with various projects, including apartment complex investments, and sponsors.

Find other investors through online forums like BiggerPockets, local networking events, meetups, or by asking sponsors of other syndications if they’ll connect you to their current real estate investors.

Review Previous Real Estate Deals

Finding comfort with financial projections, summary data, and real estate investment lingo may feel overwhelming.

A great way to help understand the language and how investments play out is to review other investment summaries.  You’ll start to understand the flow of the deal packages, how each sponsor communicates, and exactly which real estate investments interest you.

Take Your Time…But Be Ready!

Simply due to the nature of the process, multifamily syndications usually have a limited time between becoming an official, approved deal and closing the deal.  As a result, each new real estate investment opportunity will fill up quickly. This can make new real estate investors anxious from the small window to decide and at the same time panic from fear they are missing the best deals. 

Stay calm.  Remember, there will always be another high-return investment opportunity.

Allow yourself time to complete the steps laid out here, so that when you make your real estate syndication choice, you are confident about the investment information provided.

Considering Everything…

If you take nothing else from this article, remember it’s completely normal to feel skeptical, anxious, and even timid when making your first real estate syndication commitment.

The ability to take action is what separates the successful from those who give up.

Your first real estate syndication deal is a huge milestone in your investing journey, and even though your head might be spinning now, this is a time to savor taking steps to control your future.

It is absolutely life-changing when you start generating Passive Income…for life!

In addition to the ideas just presented, you can amplify your journey with the following resources: 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

Value-Add Investment Strategy An In-Depth Look

The Value-Add Strategy

– An In-Depth Look –

Imagine driving down the street and spotting an old bookshelf sitting out on the curb. You pull over to check it out, and since it’s in pretty decent shape, you proceed to lug it home, clean it up and give it a fresh coat of paint.

A few years later, you sell the shelf to someone else who claims to have the perfect spot for it.

You took something that had been overlooked, committed some sweat equity, and breathed new life into it. This is the essence of a value-add investing strategy, and it’s a commonly used strategy in real estate investing.

The Basics of Value-Add Real Estate Investing

In the world of single-family homes, the process of buying a run-down property, remodeling it, and then selling it for a profit, is commonly referred to as “fix-and-flip”. Your ability to see a diamond in the rough along with your “sweat equity” is rewarded monetarily, and the new owner gets an updated, move-in ready home.

Value-add multifamily real estate deals follow a similar model, but on a big-time scale. Properties with hundreds of rental units get renovated over the course of a year or two instead of just one single-family home over several months.

A great value-add property may have peeling paint, outdated appliances, or overgrown landscaping, which all affect the curb appeal and the initial impression that a potential renter will have. Simple, cosmetic upgrades can attract more qualified renters and increase the income the property produces.

In value-add investments, improvements have two primary goals:

  • To improve the individual units, the overall property and the community (positively impact residents)
  • To increase the bottom line (and positively impact the investors)

Value-Add Examples

Common value-add renovations can include individual unit upgrades, such as:

  • Fresh paint
  • New cabinets
  • New countertops
  • New appliances
  • New flooring
  • Upgraded fixtures

In addition, adding value to exteriors and shared spaces often helps to increase the sense of community:

  • Fresh paint on building exteriors
  • New signage
  • Landscaping
  • Dog parks
  • Gyms
  • Pools
  • Clubhouse
  • Playgrounds
  • Covered parking
  • Shared spaces (BBQ pit, picnic area, etc.)

On top of all that, adding value can also take the form of increasing efficiencies:

  • Green initiatives, like water savings, to decrease utility costs
  • Shared cable and internet services
  • Reducing overhead and expenses

Coordinating a Multifamily Value-Add Strategy

The basic fix-and-flip of single-family homes is pretty familiar to most people, but when it comes to hundreds of units at once, the renovation schedule and execution of a complex business plan aren’t as intuitive. Questions arise around how to renovate the property while people are living there and how many units can be improved at a time.

When renovating a multifamily property, the vacant units usually proceed first – the low-hanging fruit. In a 100-unit complex, a 5% vacancy rate means there are five empty units, which is where renovations will begin. Oftentimes when acquiring a target property, the vacancy rates are much, much higher, like 10-20%, and a large portion of any renovations can happen more quickly.

Once those initial units are complete, those units can be leased at a more appropriate rental rate.  Additionally, as each existing tenant’s lease comes due for renewal, they are offered the opportunity to move into a freshly renovated unit.  Usually, tenants are more than happy with the upgraded space and happy to pay a little extra.

Once tenants vacate their old units, renovations on those units take place, and the process continues to repeat until most or all of the units have been updated.

During this process, some tenants do move away, and it’s important for projects to account for a temporary increase in vacancy rates due to turnover and new leases.  However, the property also begins to attract more new residents due to the improved appeal.

Why We Love Investing in Value-Add Properties

When done well, value-add strategies benefit all parties involved. Through renovations, we provide tenants a more aesthetically pleasing property, with updated appliances and a more attractive community space. By doing so, the property becomes more valuable (a concept known as ‘forced appreciation’), allowing higher rental rates and increased equity, which makes investors happy too.

The property-beautification process and the fact that renovated property is more attractive to tenants is probably straightforward. But let’s dive into why value-add investing is a great strategy for investors.

First, A Look at “Yield” Investment Strategies

To fully appreciate value-add investments, we must first understand their counterparts, yield plays. In a yield play, investors buy a stabilized asset and just aim to maintain steady operations for potential future profits.

Yield play investments are where a currently-cash-flowing property that is in decent shape is purchased and held in hopes to sell it for profit, without doing much, if anything, to improve it. Yield play investors hold property in anticipation of potential market increases, but there’s always the chance of experiencing a flat or down market instead.

In a yield play, everything is dependent upon the market.  And as such, the returns on the investment are typically much lower.

Now…Back to Value-Adds

 Value-add plays and yield plays are opposites. In a value-add investment, significant work (i.e., renovations and/or improved operations) takes place to improve the revenue and profit of a property, and thereby increase its value.  The implementation of such improvements carries a significant level of risk.

However, value-add investment deals also come with a ton of potential upside, since the investors hold all the cards (back to forced appreciation). Through physical actions that improve the property’s appeal and financials, its value increases exponentially.  Value-add investors don’t just hold the asset hoping for market increases.  They force appreciation by improving a business asset.

Through those property improvements, additional income is increased, thus also increasing the value of the asset and generating more equity in the deal (of note, commercial properties are valued based on how much income they generate, not on similar, nearby properties, like single-family homes), which allows investors much more control over the investment than in a yield play.

Of course, the best of both worlds is ideal. This is where an asset gets improved as the market increases simultaneously. Investors have control over the value-add renovation portion and the market growth adds appreciation.

Now, before you get all excited about the potential of this hybrid investment, there are risks associated with any value-add deal.

Examples of Risk in Value-Add Investments

In multifamily value-add investments, common risks include:

  • Not being able to achieve targeted rent growth
  • More tenants moving out than expected
  • Renovations running behind schedule
  • Renovation costs exceeding initial estimates (which can be a big deal when you’re renovating hundreds of units)

 

Risk Mitigation

When evaluating deals as potential investments, it is critical to find sponsors who have capital preservation at the forefront of the plan and who have a number of risk mitigation strategies in place. These may include:

  • Conservative underwriting (planning for rents less than maximum comps, padding the renovation budget, keeping a few improvement ideas in the back-pocket…)
  • A proven business model (e.g. some units have already been upgraded and are already achieving the projected rent increases)
  • An experienced team, particularly the project management team
  • Multiple exit strategies
  • The budget for renovations and capital expenditures is raised upfront, rather than through cash-flow

Value-add investments can be powerful vehicles of wealth, but, as mentioned, they also come with serious risks. This is why risk mitigation strategies are important – to protect investor capital at all costs.

Recap and Takeaways

No investment is risk-free. However, when something, despite its risks, provides great benefits to the community AND investors, it becomes quite attractive.

Properly leveraging investor capital in a value-add investment allows tremendous improvements in apartment communities, thereby creating cleaner, safer places to live and making resident families happier.

Because investors have control over how and when renovations are executed, rather than relying solely on market appreciation, they have more options when it comes to safeguarding capital and maximizing returns.

A real win-win-win!  It’s a key driver in why we love creating Passive Income…for life!

Interested to learn more? 

  • EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
  • SIGN UP for our newsletter for passive income-related content delivered right to your inbox
  • JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content