Multifamily passive investing

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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y

@Don Scott passive investing is a great way to achieve diversification in an investment portfolio and achieve exposure to real estate without having to do all of the work.

That said, it doesn't mean that there is no work involved. All real estate investments involve some degree of risk.  Passive real estate investments are no exception, but in addition to the real estate risk you also have an additional risk factor--the sponsor of the investment. It's critically important that you do your due diligence on the sponsor. 

You need to evaluate the deal.  Is it located in a good market?  Do the sponsor's projections make sense?  Is there enough of a budget to correct any deferred maintenance and upgrade the property?  Is the business plan logical and appropriate for where we are in the cycle?  

You also need to look at the sponsor's track record. How much experience does the sponsor have?  Have any of their deals fully cycled?  How did those deals perform versus the sponsor's original projections?  Can they provide references that have invested in other offerings?

A bad sponsor can destroy a great deal, but a great sponsor can produce a decent outcome from a deal that encounters unexpected challenges.  Stack the deck in your favor by aligning yourself with a good investment sponsor for your passive investments.

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  • Trevon Peracca
    Wholesaler · Chicago, IL · Member since 2015 · 245 posts · 102 votes
    10y
    Originally posted by @Don Scott:

    What are your thoughts on investing as a passive in Multifamily?

     I think its Great! It also, depends on how passive. Are you holding a note, overseeing a PM? Please elaborate.

    1Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    10y
    Trevon Peracca I mean investing as a JV, a partner, and even as a passive investor to own a % of the LLC that will own the business.
    1Reply
  • Trevon Peracca
    Wholesaler · Chicago, IL · Member since 2015 · 245 posts · 102 votes
    10y
    Originally posted by @Don Scott:

    Trevon Peracca I mean investing as a JV, a partner, and even as a passive investor to own a % of the LLC that will own the business.

     That being said, what would you bring to the table in the partnership?

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    10y
    Trevon Peracca Capital
    0Reply
  • Trevon Peracca
    Wholesaler · Chicago, IL · Member since 2015 · 245 posts · 102 votes
    10y

    @Don Scott I think that you can do some great things if you are bringing capital to the table. Are you open to investing out of state?

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    10y
    Trevon Peracca that is definitely something I am open to in the future... As I continue to get comfortable investing in both SF and MF here in Texas.
    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    If I had enough capital that is how I would invest. Let other people do the work and let my money work for me. 

    That said Multifamily tends to be in high demand and priced high right now. That may not generate the best returns.

    2Reply
  • Trevon Peracca
    Wholesaler · Chicago, IL · Member since 2015 · 245 posts · 102 votes
    10y

    @Don Scott, Fantastic! Well please let me know if you are ever looking to do business in the Chicagoland area. I am currently only wholesaling, but i would like to start in 5+ multifamily  Buy and Holds once i can secure good financing.

    1Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    10y

    @Don Scott passive investing is a great way to achieve diversification in an investment portfolio and achieve exposure to real estate without having to do all of the work.

    That said, it doesn't mean that there is no work involved. All real estate investments involve some degree of risk.  Passive real estate investments are no exception, but in addition to the real estate risk you also have an additional risk factor--the sponsor of the investment. It's critically important that you do your due diligence on the sponsor. 

    You need to evaluate the deal.  Is it located in a good market?  Do the sponsor's projections make sense?  Is there enough of a budget to correct any deferred maintenance and upgrade the property?  Is the business plan logical and appropriate for where we are in the cycle?  

    You also need to look at the sponsor's track record. How much experience does the sponsor have?  Have any of their deals fully cycled?  How did those deals perform versus the sponsor's original projections?  Can they provide references that have invested in other offerings?

    A bad sponsor can destroy a great deal, but a great sponsor can produce a decent outcome from a deal that encounters unexpected challenges.  Stack the deck in your favor by aligning yourself with a good investment sponsor for your passive investments.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    7Reply
  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    Passive in multi-family?  Are you kidding me?  Fantastic!  Growth market.

    0Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    9y

    @Brian Burke I am a newbie in this arena. 

    Two questions. 

    1. How do you evaluate market  if you are an out of state investor?

    2. How do you determine cycle of that market? What parameters should I look for?

    0Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    9y

    @Jay Bhatt evaluating a market involves studying data on job growth, population growth, household formation, construction/absorption ratio, rent growth, vacancy trends, wage growth, etc.  Then you talk with brokers and property managers to learn what they are seeing on the ground.  This can be done from anywhere online and on the phone, no need to visit until you've studied the data and narrowed down the markets that are most interesting. 

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    1Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    9y

    @Brian Burke Thank you for your reply.I am planning to invest in multi family syndication deal as a sophisticated investor. I use following resources but struggling to get latest and most updated data.

    Population Migration: http://www.governing.com/gov-data/census/county-po...

    I try to look through US department of labor website.

    For data and demographies, https://datausa.io/

    However, I am sure experience investors use more sophisticated tools and resources that may not be known to newbie like me.

    Kindly suggest more resources if you can.

    0Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    9y

    We do, but those resources are expensive. If you are looking to invest as a passive investor, let your investment sponsor do all of that legwork and pay for that data. Then what you have to do as the passive investor is evaluate the data that the sponsor provides (hopefully it's third party data or else it's suspect) and determine if the sponsors business plan makes sense in light of the data. And, do the due diligence on the sponsor as I outlined earlier in this thread. If the sponsor's past performance checks out there is a higher likelihood that they use good data and interpret it correctly.

    If you are still inclined to do your own data mining, check out data from the census bureau, bureau of labor statistics, the Milken Institute, and the urban land institute. If you want to pay for data, there is REIS, Axiometrics, and Moody's economy.com in addition to many others but too numerous to mention them all.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    0Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    9y

    @Brian Burke Cannot thank you enough for providing such a wealth of information. 

    0Reply
  • David Thompson
    Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    9y

    Don,

    Syndication through multifamily investing as a passive investor is a great way to get your feet wet in owning and also learning about MF investing.  Heed Brian's comments as some good fundamental things to vet before getting started.  There are really 3 things to evaluate: 

    1) The Market - in a nutshell, you want to be in a growth market (jobs, population recent trends and expected future trends above natl averages).  Since you are in TX, Houston and Dallas typically in top 10.  Dallas has been and is usually top 5.  We've done 3 deals there this year and continue to cluster holdings especially in north Dallas.

    2) The Deal - in this market, you want value - add deals that are purchased at relatively good values compared to competing properties (like # units / age) check out cost per sq ft, per unit costs, rents, renovated / non-renovated. Since the market cycle is on the higher end right now for pricing, you don't want to by market deals where no or little value add is available to increase NOI. The beauty of MF investing and why more sophisticated investors usually migrate to commercial MFis that valuation is primarily driven by NOI and savvy investors who buy value add properties can significantly increase the valuation (concept called forced appreciation), quite different from residential < 4units valued at comps. The latter relying more on the market to drive up prices while the former excites owners of MF because of the creativity and ingenuity to drive up values by implementing solutions that improve the opportunity to drive up rents. Think adding ground floor privacy fences to push rents $50/mo.; or adding carports to push rents $30/mo; or retrofitting outdated plumbing to allow for low flow showers, toilets to save utilities.

    3) The Team - As Brian mentions, vet the sponsor of the deal.  Google their names, check out their website, get referrals of investors who've done deals w/them, ask for examples of how they communicate w/their investor base, track records, even property management companies that they hire to manage their properties can be consulted.  Ask for materials on their past deals including reviewing the PPM (Private Placement Memorandum) which outlines risks, partnership agreement and how that's structured between the General Partner and the Limited Partner (investor).

    1Reply
  • Chad AckermanBusiness Member
    Investor · Dublin, OH · Member since 2019 · 32 posts · 10 votes
    5y

    @Brian Burke LITERALLY wrote the book on passive investing.  Check it out.  It was extremely helpful for me to help guide the passive investing work that I've been doing over the past several months.  So I'll give your book a plug because I think its the best material I've found for those looking to invest in syndications.  Thanks for your work on this and sharing the knowledge.  

    [email protected]
    Chad Ackerman Real Estate511 Reviews
    WebsiteView Page
    1Reply
  • Joseph Bramante
    Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
    4y
    Originally posted by @Jay Bhatt:

    @Brian Burke Thank you for your reply.I am planning to invest in multi family syndication deal as a sophisticated investor. I use following resources but struggling to get latest and most updated data.

    Population Migration: http://www.governing.com/gov-data/census/county-po...

    I try to look through US department of labor website.

    For data and demographies, https://datausa.io/

    However, I am sure experience investors use more sophisticated tools and resources that may not be known to newbie like me.

    Kindly suggest more resources if you can.

    There is a lot more to it than just market. Reviewing the underwriting in depth is something most passives just don't know how to do. Just because the restaurant is located in the best part of town, doesn't mean the food will be any good. 

    And with the amount of newbie syndicators flooding the space thanks to an endless amount of weekend seminars and podcast encouraging everyone to become "financially free" by becoming an apartment syndicator using OPM (other peoples money) while getting rich on acquisition fees, its a win win situation for sponsors while passives struggle to invest in quality deals with experienced sponsors who actually know what they are doing. 

    0Reply
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