- What is the most beneficial aspect of investing in multi-family?
There are a couple things, first being the tax advantages. There are tax advantages in investing in multi family that you will not get with most other investment vehicles. Secondly, you get to control the value of the asset that you purchased. If you buy a single family rental home, you don’t get to do that. Your rental house is going to be valued the same way that the houses around it are valued at. If your neighbor’s house is $100,000, no matter what you really do to your rental house, it is still going to be valued at about $100,000. If I buy an apartment complex that has $100,000 in profitability, but if I increase the profitability by $50,000, the property will increase in value by ~ 600-800k depending upon what the end buyer expects in the way of return on their investment.. It’s all based on profitability because when people buy apartment complexes they are buying a stream of income. The more income that I can get the apartment complex to create, the more people are willing to pay for it because they are looking for a return. So unlike single family, I can increase the value in multifamily by making it more profitable.
- What are the tax advantages that investing in multi family offers?
The tax advantages are basically broken down into three main parts:
- Because of depreciation expense you will often, if not most of the time, pay no taxes unless you become so profitable that you outstrip the amount of depreciation you generate annually. While paying taxes may not be great it does mean that you likely were extremely profitable, celebrate that.
- When you sell a piece of real estate, you are allowed to take the profit and roll into another property through a 1031 like-kind Exchange. By doing this you again defer the taxes that were to be paid had you taken the money and not reinvested it.
- Finally, when you die and if you still haven’t “cashed-out” and will the real estate to someone, the day you pass your portfolio is revalued as of the day of your passing. This effectively wipes away any tax liability you had accrued throughout you investing career.
As you can see, like magic and totally legit and legal, if you play your cards right you could go through your entire real estate investing career having paid nothing in taxes. This is one of the main reasons we invest in real estate.
Disclaimer: I am neither a CPA nor Tax Professional, these examples are based solely on my real estate investing experience and may not be the same for you. You should consult your own professionals for your specific situation as everyone’s experience could be different and tax laws may change.
- How do you go about establishing lasting relationships with brokers in a target area?
The easiest way to do that is to go on their websites. Start by doing a basic Google search for commercial or multi-family brokers in your specific area, city, market, etc. Go to all those websites, there are usually about 4 to 8 websites in any big city, and sign up to be on the emailing list. Once you do that their website is going to ask parameters (where are you looking, what are you looking for, how many units, what age, what price, etc.). After putting in filter criteria they start sending you emails when they have things that fit your target.
Once that’s done you are going to start looking at these deals coming to your email, and then start scheduling appointments with these guys to go to the properties. I would suggest to read everything! Whether you think you are going to buy it or not, as long as it is something that a broker (knowing you are a first time buyer) will take you serious to tour, go for it! Even if you think a 24 unit is not going to work for you, it doesn’t matter at this point. You are trying to get out there and learn the process of walking these units/properties, but also getting your face in front of the brokers. The more you can get your face in front of brokers in a pleasant interaction. (Do not come in and big shot people; be respectful of their time because you’re a nobody in their eyes at the moment.) Get to know people and they will start remembering you so when they have some off market deals they will send those to you. That is the best way to me, just start touring properties after you get them sent to you because you got on their mailing list.
- What is your approach regarding investor reporting? Can you describe to me how you keep investors thoroughly informed from syndication to disposition?
Communication- its simple and basic, but it’s the most important thing you will do as a syndicator. Some syndicators are not good at this and it hurts them going forward trying to get people to invest with them again. We send out a monthly update packet, which includes a narrative, something I have personally typed out that explains what happened on the property that month. Was there a fun party? Did occupancy go way up? Did occupancy go down? Did we have a fire? I’m going to give them a written account of what happened, a story of what happened. In this same monthly update I’m also going to include full financials including a P&L statement (also known as an income statement), a balance sheet, and a rent roll so they can see what the financials of the property look like. It is one thing for me to tell them what’s going on, but another thing to show them in writing the narrative of what happened on the property that month, a P&L statement, a balance sheet, and a rent roll.
- What are the main skills/habits that separate an average syndicator from an outstanding syndicator?
Other than the obvious, it is performing. If you say you were going to deliver an 8% return, you need to deliver an 8% return or better. Other than that, it’s transparency and communication. Be upfront with people about everything that’s going on. If you are someone that is going to hide from the tough things that happened during this process then you shouldn’t be doing it. Struggles are going to happen, so don’t try to hide from the ugliness. Be upfront with people. Let people know the struggles that are having on day today and just deal with it. Tell them what happened, why it happened, and what you are going to do to make sure it won’t happen again. That’s the biggest thing is just be approachable and transparent. There is always going to be ugliness, so don’t only get out and beat your chest when you are performing. Let people know when you are not performing, why you are not, and how you are going to better the situation.