All Forum Posts by: David Thompson

Hi Johnny,

There are several options for you.  I favor syndication for what you are seeking.  Most syndicators specialize in a certain niche so there are plenty for apartment investing.  Here are a couple of articles that may help you.  Please reach out if you'd like to discuss further your options and get some education in this area.  

https://www.biggerpockets.com/blogs/9145/63405-syn...

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

https://www.biggerpockets.com/blogs/9145/53959-vet...

Hi Chris,

Do you have to be the active partner?  There are a variety of way to get involved from passive syndication as limited partners in MF value add apts to some other interesting niches that are doing well in this part of the cycle and have good downside protection such as mobile home parks and self storage.

We can discuss offline other various ways to play this if you want to be part of the general partnership but  work with expert operators, investing with experts while you learn the ropes as well is a great strategy.  There are so many ways to get involved at a higher level w/the right situation.  Shoot me a note and we can share some ideas.

Austin,

Couple thoughts for you.  Since you are looking outside CA as one option, you could look at participating in syndications in the niche areas you are interested in.  I call this the earn and learn approach.  You can earn alongside experts, see how they do it, deciding if it's the niche you want to be more active with down the road.   Sounds like you have a busy career you enjoy and are thinking of creating passive income.  If you are accredited investor you have a lot of choices in syndication deals which I think are also ideal for out of state investing since you don't have to worry about managing the asset / property, the general partner does all the work but that does not mean you have to be passive in your thinking.  Good syndicators have active / hybrid investors as passive investors too because think about it, can you really be great at all the different niches?  If you are not accredited, there are deals where syndicators will take a limited number of non - accredited / sophisticated investors so you could get started now.

For instance, you may get that mobile home parks (MHP) is a great place to put some money, but you love to be active in MF because that is your passion.  You could tomorrow be investing with MHP operators that have years of experience, be invested in a pool of properties (diversification) and getting cash flow into your bank account monthly in about 90 days from signing up.  Great, invest passively in syndication deals w/MHPs and start attending local MF meetup groups in your area and get more active along that lines.  Several ways to get involved.  Don't think DIY or not.  It's not black or white...either I'm active or not.  I think most folks can appreciate some part of their portfolio in passive opportunities and can also get that they can learn and earn along the way before they start thinking about become more active in it.  Active can come with an immense amount of time, pain and lost money as you learn the ropes.  It does not have to be that way.

Bill,

Syndication is a strong consideration.  Flipping is a business, use the profits from that and invest passively in syndications placing your money with experts running the show and take advantage of the tax laws.  @Bret Ehlers mentions investing in debt and that is a way, but I don't like that in taxable accounts as it has no tax advantages. If you have a SD-IRA or Roth 401K, put lending programs in these vehicles. For your taxable accounts you have a wide variety of solid choices that are trending well now and look solid for the future based on demographics. The real estate laws are such that deprecation, mortgage interest and property tax deductions shelter a lot of your income. Returns from these types of investments are in the target of 8-10% preferred returns annually and can achieve up to 15 - 20% IRR over the holding period. These programs in a taxable account typically will outperform lending programs after tax. I currently prefer large value add MF apartments, mobile home parks and self storage. There's a lot of ways to play here but usually the key to entry is accredited status for many of these deals. Some background on why I like these niches.

https://www.biggerpockets.com/blogs/9145/63405-syn...

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

https://www.biggerpockets.com/blogs/9145/54155-sel...

https://www.biggerpockets.com/blogs/9145/62927-6-r...

Marc,

Your question is broad as @Jonathan Twombly mentions and after reviewing your profile, not sure what your focus is.  It looks like you are an investor interested in passive income so are you active or passive in proposing this question as it will help readers more focus on providing some thoughts.  

From an active standpoint, you'll be finding the deal, structuring the deal and raising capital with a healthy dose of legal awareness and support to ensure you are in line w/SEC and state regulations.  I find a good way to start in the business is to work w/a syndicator or partner w/folks who have gone down this path so you get the ins and outs.  A forum like this is hard to start someone from scratch and explain it quite honestly.  

To your one question, finding investors, can come from many sources.  Depending on the legal structure, you will have accredited status of investors as a typical requirement and how you outreach to them being important.  I have a short list of top 10 things I learned from raising my first $1m below.

https://www.biggerpockets.com/blogs/9145/53037-1m-...

Hi Benjamin,

Sounds like you have a good find and opportunity, congrats !  Started my college at Univ of Arizona so familiar w/the area and understand Tucson is gaining more favor w/MF syndicators that specialize in what you are writing about here.  Lots of strategies, renovation, operational improvements are pretty core to it all of course.  Understanding your marketplace, sounds like you are ready to take advantage of that.  Value add advantages for apartments start getting into concepts of scale and forced appreciation.  The latter makes this investment avenue especially attractive.  I'll add a few blogs below on ideas to increase revenue and decrease expenses but will share w/you one example we deployed last spring in a 320 unit apt community in north Dallas.  

For some reason in the 1980s, builders did not build covered parking. We have acquired several apartments in the area where adding a carport is an effective strategy, not so much for cash flow but for the equity gain. We did a survey and found 200 of the 320 units were willing to pay $25/mo for covered parking (summer is hot in Dallas and winter can bring hail at times). Take 200 x 25 and you increased revenue $5K/mo or $60K/yr. At a 6 cap, that translates into a $1m increase in FMV of the property ($60K/.06 = $1m) ! Hard to pull this off w/SFRs or small MF less than 5 units as they are not valued based on income but by comparison valuation models.

https://www.biggerpockets.com/blogs/9145/54632-28-...

https://www.biggerpockets.com/blogs/9145/54408-28-...

Austin,

As someone with a financial planning degree, having worked in that field after college and interfacing with a recent planner with my sister looking at retirement, I can probably envision a vast majority of their advice is around stocks, bonds and annuity products where they get a commission for offering them. When I reviewed my sisters allocations, risk tolerance and recommendations that her planner recommended it was of course as I expected devoid of any passive income opportunities. She also is not interested in actively participating in REI on her own.

Certainly with someone trying to generate more income, passive investing via syndication deals in apartments, mobile home parks and self storage should be explored. They not only have a history and prospects of producing strong cash flow 8-10% is achievable and more upside appreciation in with the right operators, niches and strategies in the mid to high teens. Some offer pooled investments where you are getting diversification across many geographies and even combining niches such as mobile home parks with self storage properties for instance. Investor liability is limited in these partnerships to amount invested and its truly a passive vehicle for someone not looking to be active w/their portfolio and take on the risks of learning / managing in a highly competitive REI market. The general partner (syndicate) does all the work.

I had a discussion w/a very experienced money person recently and we were discussing appropriate allocations to what are called alternative assets.  I won't suggest a number but certainly can see some x % to help with cost of living and cash flow needs.  Couple articles to get you thinking.

https://www.biggerpockets.com/blogs/9145/59865-div...

https://www.biggerpockets.com/blogs/9145/62927-6-r...

Talk to your CPA. Before forming a LLC, you certainly can have legitimate business investment expenses to offset your personal income. You don't necessarily need a LLC to do that.

Tony,

As a limited partner you should have no liability except loss of your investment dollars. Read the PPM but that is normally what is attractive from the investor's standpoint is limited liability in the partnership. That said, syndicates take LLCs from an investor who wants to hold the asset in that form and the reason investors use them is that they have an existing LLC from other investments and they just put this syndicate deal in there to protect the holding from lawsuits that might happen to them outside of the syndicate investment. Rarely do I see someone forming an LLC exclusively for this investment as there are management oversight responsibilities, costs, etc that need to be considered and folks are coming into syndicate deals with a passive overall mentality to start with so burdening them w/a more active company is not something that they are considering. Always good to discuss with a legal professional involved in asset protection strategies though especially when thinking of your longer term plans.

Sanjoy,

Some good points made above.  I live in Austin but we are not buying large value apartments here.  We think there are some better entry points in San Antonio and Dallas, the latter where we've purchased 8 200+ communities in the past 18 months.  The numbers must make sense, value add B focused, and conservative underwriting.  We are continuing to buy opportunities in the strongest submarkets of Dallas. Cap rates have not moved despite 3 interest rate moves as investor demand for MF assets trump those moves to date.  That said, you should underwrite for increased cap rates, you can use variable rate but use options strategy to lock if things hockey stick, re-look at the market in 18-24 months and refi / look to exit. Most investors should think 5 years and that is important to have staying power out at least 7 however savvy syndicators get out earlier.  We see nothing near term concerning us in the DFW market from a demand standpoint.  Prices are getting higher and you need to be an experienced player who's done a lot of deals in your target market to get better looks (some off market) from your broker.