All Forum Posts by: David Thompson

Kevin,

You can certainly go straight into apartments and the faster you get into commercial the better. You can also work at it part-time so you can keep the lights on w/your day job especially if REI and MF is your passion because you will have unforeseen energy and enthusiasm to make that work. Several realistic ways. Go educate yourself (hang out here, read some books, attend some good MF meetups, solid conferences, etc. You may want to get a mentor or coach ideally who's doing large MF syndications and see how you can help them. That's out I short cutted my way in the business when I started. Read my experience below.

https://www.biggerpockets.com/blogs/9145/61278-wor...

Timing the market has never been a good plan whether stocks, real estate, etc.  Low interest rate environment is still very attractive for borrowing as long as you don't over leverage.  Value add strategies will reduce your risk significantly.  Conservative underwriting is vital.  Buying in the strongest markets that have diversified employment and still seeing large employment move in (not a light switch, talking 2-3 years moves) and have history of resiliency is where you should be ok continuing to buy w/an exit strategy that has flexibility.  

I do this exercise a lot w/investors.  In the heart of the downturn (2009 seemed to be it for the market that we are in), MF delinquency was 1% while SF was 5%.  That's a huge difference.  We looked at market data on lowest avg occupancy in one of the submarkets we were in and it hit 85% in 2009 as the very low point while our sensitivity model showed we can make money at 80% and B/E at 75%...and this was a pretty deep recession.  Now, if we were forcing a sale to happen then it probably would not have worked out for investors, but we can still pay the bills and wait the market out.  If your model can't wait the market out, those are the folks that get hurt in down times.  

Hi John,

Don't overcomplicate it.  Some of the best folks I know in this business that can share great info don't have Masters or PhDs but are masters at their craft and great teachers.

1) Couple suggestions on books:   Steve Berges - Complete Guide to Buying and Selling; Dave Lindahl - MF Millions

2) Attend local MF meetup groups in your area - network / learn.

3) Attend conferences that focus on MF and syndication from reputable folks.

4) Continue to hang out in BP apt forums.

5) If you insist on getting deeper into it, you can get your CCIM.

5) Blogs that may be helpful

https://www.biggerpockets.com/blogs/9145/66259-apa...

https://www.biggerpockets.com/blogs/9145/53820-why...

Wish you the best !  

Mike,

Are you looking to actively or passively invest in MF?  $200K is healthy but probably won't take down a 250 unit.  Do you have partners?  You may want to look at syndication since you are willing to look out of state, looking to find solid growth markets for total return (cash flow / appreciation) and intrigued by large apartments (where you get more scale).   You can earn good passive returns and learn how the experts manage these opportunities.  We currently have acquired over 2K units in the DFW area.  It has some pretty strong pop/job growth characteristics that looks firmly in tact.  Couple ideas below to help you in your research into syndication, large value add apartments.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/66259-apa...

Hi Arun,

We see 70/30 (GP/LP) splits pretty common with experienced syndicates. On the GP side, they can range from 20% to 50% depending on returns targeted for the investor and experience level of the sponsor. The splits will typically start after the 8% preferred return is paid out to LPs. This favors LPs. Some syndicates will do a catch up after 8% where they receive 100% after that until some point where the project is back to a full 70/30 split. Waterfalls are also common after a targeted return to investors hits say 18%, then the split may change to say 50/50 for every $1 distributed above that 18% IRR. This does not cap the investors return but further rewards the GP for exceeding expectations.

For property mgt fees, typically see 3% and asset mgt fees of 2% for the experienced syndicate.  The asset mgt fee is to support the efforts of the syndicate to hold the property manager accountable to execute the business plan and optimize the value for the investors.  The asset management fee is usually based on the monthly revenue.  A good syndicate will have a lot of flexibility on when to pay itself this 2%.  Ex. take the 2% only after the 8% preferred has been paid out or defer it during a weak market.

Hi Dennis,

@Jeff Greenberg is giving you some excellent advice.  One of the best ways to learn how syndication works is to participate in their passive offerings or team up with a partner who has that experience so you learn the ropes.   Here's a couple blogs that might answer some FAQs you may be thinking about.

https://www.biggerpockets.com/blogs/9145/65780-syn...

Mitul,

In the state of Texas we have a concept called a series LLC. It has a lot of advantages to support the concept you are outlining where you have a parent and several child LLCs that serve the same asset protection concept w/o the hassle of all that comes w/a unique LLC. I do know that LLCs can be established in other states. I'm more than happy to send you information on this concept you can share with a real estate attorney that has a good grasp of business formations. It's also important to include your CPA in these framework discussions.

Jolene,

Agree w/@Michael Le that its definitely a commercial asset class.  I have been involved in syndicating apartments and self storage / mobile home parks.  It would seem that folks understand things they have participated in more often and understand.  Apartments are a very mainstream and core alternative real estate asset holding IMO.  I have actually worked with investors on two deals at once and was testing the interest in both which were attractive opportunities and had similar return characteristics.  For every $4 of investment money, $3 went into MF vs $1 into SS/MHPs.  I would gather that it takes more education and experiences that investors have not had w/the SS/MHP asset classes.  That may change over time as expose them to more of these types of deals but from a syndicate standpoint that is my experience.

Hi Andrey,

Lot of good advice above. For diversification benefits, tax deferral and often times matching (free money) it makes sense to have some qualified accounts like the 401K. If this gets larger and / or you simply want more control you can do a few things. Often if you move employers, you can setup a Self Directed IRA (transfer funds) and get control back over your assets including investing in a broader array of asset classes like real estate... just understand the rules. I prefer SD-IRAs w/check writing to really reduce your fees. Also, if you start your own business, solo 401K might be the best thing going from a significantly larger contribution and not impacted by the UBIT (unrealized business income tax) on the leveraged portion of your real estate. SD-IRAs are exposed to that today. Here's an article that might be beneficial to your research once you start accumulating more assets in your qualified accounts.

https://www.biggerpockets.com/blogs/9145/63896-3-c...

Hi Debbie,

Really depends on your goals, risk tolerance and interests.  Do you want to maximize income so you can do more of the things you like to do or are you there already doing what you love to do?  Do you want the comfort of no debt and have enough income then you may be fine.  Do you actively manage these properties and enjoy them or are the hassles mounting and looking for more passive ownership where a professional manages them for you?  If more income, are you willing to find the right balance of safe leverage to get it ?

I started w/SFRs and moved up to duplexes and fourplexes like you are doing which cash flow better but then I saw the light in larger value add apartments and could do it w/o having a W2 income.  Realize you can pull some money out of your properties that you have to safely leverage into other properties that get you more income .  Again, do you want to be active, then this may be a place to start and via a 1031 as my friend @Dave Foster points out...then start mining areas of the country that offer an opportunity to increase your cash flow and passive income with direct apt ownership.  That takes more time but if you like it, go for it, just find a market, develop the relationships, educate yourself and put together a team on the ground to work with you.  

You can also research passive plays and invest as a limited partner in passive MF deals which are ideal for out of state investors and be a part of 200 - 300 unit value add apartment deal in some of the most dynamic growth markets in the country that have withstood down markets fairly well.  Some blogs below on why I like large apts and 25 FAQs on syndication to get you pondering. I talk to a lot of investors and my observation is that over our lifecycle, most folks move more from active to passive ownership over time.  It just makes sense, real estate is exciting but living life, spending more time w/family, friends is most important.  You need to still do your homework but once you've found an experienced syndicate, they do all the work and you get to relax and still get that same or better return when being active.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/65780-syn...