All Forum Posts by: Jorge Abreu

Imagine with me, that your workday began with the usual routine, but halfway through your morning, you received the news you’d been laid off.

For most Americans, that means zero income starting tomorrow morning.

Now, let’s pretend that during your employment, you leveraged your money.

The rich don’t work for money. They make their money work for them. – Robert Kiyosaki

Three Types of Income

Most people’s income is active, which means it’s from a consistent paycheck. But wealthy people typically earn Residual or Passive income (or both!).

Active Income

Active income is from your employer and requires activity in exchange for money. When you stop, the income stops.

Residual Income

Residual income means you receive money after the work is done. For example, every book an author sells provides residual income.

Passive Income

Passive income is earned with very little effort and continues flowing even when you aren’t working. Real estate investments are one of the most stable sources of passive income.

Remember the job loss scenario? Let’s pretend you’d built passive income, on the side, during employment.

Since being laid off, your earnings decreased by your monthly salary amount, but you still have income.

Financial freedom is achieved when your earned passive income supersedes your active income.

Investing in Stocks vs. Real Estate

Historically, the stock market returns about 8% annually, which means $100,000 would produce roughly $8,000 per year. That’s only $667 per month.

To replace an income of $3,000 per month, you’d need $36,000 per year, which would be 8% of $450,000.

However, with real estate, $100,000 could buy a $400,000 rental home. How?

The bank brings $300,000 to the table.

You put in 25%, the bank puts in 75%, and you earn 100% of the profits.

A $400,000 home renting for $3,600 with a mortgage of $2,100 would net you $1,500 per month. Theoretically, 2 investments of this size could replace a $3,000 monthly income.

The total rental income plus $25,000 in additional equity (based on 5% annual appreciation) equals $43,000, or 43% return in just one year.

But I Don’t Want to Be a Landlord

The numbers look enticing, but being a landlord does not.

This is where, instead, you join a small team to acquire real estate.

When investing $100,000 in real estate syndication, it’s feasible to earn $8,000 per year (8%), similar to the stock market.

However, the real opportunity lies in the sale of the asset. Syndications hold the property for about 5 years. During this time, building improvements are made and the land market value typically rises.

Upon the sale, you receive $160,000 ($60,000 in profit). This, plus the passive income of $8,000 per year (totaling $40,000), equals $200,000, which is a 20% average annual return.

If, while employed, you’re able to create passive income, you’ll be less stressed when facing a layoff. You may even find yourself celebrating unemployment.

DFW total volume in the first half of 2022 totalled almost $23 billion

In the first six months of 2022, North Texas topped Los Angeles, Atlanta and Houston on the list of the nation’s biggest commercial property markets by sales volume.

The Dallas-Fort Worth metroplex touted $22.9 billion in combined sales of apartments, offices, industrial buildings and retail, the Dallas Morning News reports. The second largest U.S. market, Los Angeles, boasted just $15.5 billion in sales for the first half of 2022.

“For the third straight year, Dallas ranked as the number one market at the midyear,” according to a just-released report by New York-based global property consultant MSCI. “Also the number one market for apartment investment, Dallas is certainly a beneficiary of the fervor with which investors are flocking to the sector.”

DFW’s total volume of $22.9 billion smashed the market’s prior record by 54 percent, according to the report. Nationwide, $375.8 billion in commercial real estate investment was recorded — up 38 percent from the first six months of 2021.

Of this grand total of North Texas property sales, about half so far this year have been multifamily properties. One Dallas property sale was included in the top commercial real estate transactions nationwide. Regent Properties’ $615 million purchase of the Trammell Crow Center skyscraper in downtown Dallas ranked 10th on the list of the biggest commercial property deals in the first half of this year, per MSCI data.

Following its recent acquisition of a major multifamily portfolio stretching across the Dallas-Fort Worth and Houston metros, totaling 4,445 units across 14 buildings, Dallas-based S2 Capital surpassed Blackstone as the most active buyer in the metroplex over the last five years.

Source: TheRealDeal

 Agreed 💯 That is a great and effective option. 

Approximately 4.3 million new apartments will be necessary by 2035 to meet rising demand, according to new research from the National Multifamily Housing Council and National Apartment Association.

The new builds are necessary to address a deficit of 600,000 apartment homes that exist in large part thanks to the 2008 financial crisis, the research found. In addition, the number of affordable units, defined as those with rents less than $1,000 per month, declined by 4.7 million from 2015 to 2020.

NMHC and NAA Apartment note that “apartment demand is growing and the industry needs to keep up…”(but) producing enough new apartments to meet demand requires new development approaches, more incentives and fewer restrictions.” Specifically, the US needs to build 266,000 new apartments each year to meet rising demand.

“The lack of available housing is holding our country back. Whether it is a multifamily residence, duplex or single-family home, we need a massive supply of new for sale and rental homes—including millions of new apartments by 2035,” said NMHC President and CEO Doug Bibby. “Making sure everyone has access to quality, affordable housing is a bipartisan issue, and the industry stands ready to do its part to help create the 4.3 million new apartment homes our country needs.”

Immigration has been a main driver of demand, but levels tapered off before the pandemic and remain lower than normal. But “a reversal of this trend would significantly increase” demand, the associations warn. Texas, Florida and California account for 40% of future demand and will collectively require 1.5 million apartments by 2035.

Apartment construction contributes $150.1 billion to the country’s economy annually, creating 752,000 jobs.

“The U.S. has undergone tremendously difficult conditions that have fundamentally altered our nation’s demographics, but one thing remains certain—there is a need and demand for more rental housing,” said NAA President and CEO Bob Pinnegar. “Put simply, we do not have enough housing. The US must build 3.7 million new apartments just to meet future demand, on top of a 600,000 unit deficit and loss of 4.7 million affordable apartment homes. It is time to reverse course after decades of underbuilding, and instead pursue responsible and sustainable policies that will not only meet this demand but address the missing middle and loss of affordable housing stock.”

Multifamily vacancy in Q2 was down another 20 basis points from Q1 to hit a five-year low at 4.5%, dropping by 90 basis points year over year, according to Moody’s. And though construction remains slow, demand is strong: net absorption for the quarter clocked in above 30,000 units.

Source: GlobeSt

It is becoming almost unanimous among apartment rent forecasters that what has been a strong rent growth run across most of the country in the past two years is starting to moderate. To name one example, CoStar just predicted that demand will cool over the next six months, noting that rent growth rose 9.2% in Q2, down from 11.4% in the first quarter.

Yet rent growth is still far higher than it was pre-pandemic, with new benchmarks continuing to be set. The latest example comes from Yardi Matrix, which reports that average US rents rose above $1,700 for the first time in June after adding another $19 since May.

Rents Up 10% or More in 25 of 30 Markets

Yardi Matrix said that the increase was powered by strong demand throughout the country. Rent growth increased at least 10 percent year-over-year in 25 of Yardi’s top 30 metros. National occupancy rates were solid at 96 percent.

On a year-over-year basis, though, growth continues to slow, decelerating by 50 basis points in June to 13.7 percent – some 130 basis points off the February peak of 15.2 percent.

“The multifamily market is starting to show signs of deceleration in June but is still performing at extremely high levels. Year-over-year rent growth was down 50 basis points from May. While rent growth in 2022 is still higher than any previous year on record, it is the fourth month in a row year-over-year rent growth declined,” note Yardi Matrix analysts.

Yardi Matrix said rents are forecast to increase at slower rates for the rest of 2022 as the economy “cools off.”

Inflation rates will take a while to ebb, “causing consumers to cut into savings and their ability to afford increasing rental rates will lessen as the year goes on,” states the latest report.

Meanwhile, rents in the single-family build-to-rent (BTR) sector continue to grow and reached another all-time high of $2,071 after climbing $23 in June. Its year-over-year growth dropped by 90 basis points to 11.8 percent.

Source: GlobeST

When you first begin to consider real estate syndication as an investment option, it can feel lonely, intimidating, or even like you’re going in blindfolded.

We personally have experienced fears around investing in a property we have never seen, had concerns about how we would get our money back, and doubt around the inability to log into an account and see my money.

These fears were addressed head-on through research. Every article we read and every conversation we had built my certainty until we began to feel confident toward taking the plunge.

If you’re considering your first syndication and feeling hesitant, we recommend doing your research, connecting with other investors, reading through previous deals, and taking your time.

Do Your Research

The best way to build your 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

It’s a Whole New Business by Gene Trowbridge

Principles of Real Estate Syndication by Samuel Freshman

Podcasts:

BiggerPockets Podcast

Best Real Estate Investing Advice Ever with Joe Fairless

The Real Wealth Show with Kathy Fettke

Ask Questions

Relevant Facebook groups and forums like BiggerPockets can help you learn what questions you should be asking.

It’s likely that other people 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 Investors

A successful investor needs a supportive community, and considering that syndication is a group investment, you’ll want to get networking.

Any new investors will share similar anxieties, questions, confusion, and excitement. Experienced investors can provide invaluable firsthand accounts of their experience with various projects and sponsors.

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

Review Previous Deals

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

As you review more investment summaries, you’ll start to understand the flow of the deal packages, how each sponsor communicates, and exactly which investments interest you.

Take Your Time

Each new investment opportunity fills up quickly. This can make new investors panic and start to believe they are missing the best deals. Remember, there will always be another opportunity.

Allow yourself time to complete the steps laid out here, so that when you make your syndication choice, you are confident about every step.

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 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.

Many real estate syndicators are concerned about their ability to raise equity for deals during the darkness we are faced today with the ultimate definition of a black swan event. Coronavirus has hit the US and world fast furious and has managed to force us into a recession. With oil prices crashing, the stock market crashing and a national pandemic. I have even heard some say that they feel guilty and even awkward talking to investors during this very strange time in history. I might even be guilty of this one.

After spending the last ten days listening to countless virtual webinars put on by a myriad of experts, I have completely changed my stance on this topic. One expert said, “Be the light in a dark world!” That phrase got me thinking, what if... investors are still hungry for great investments, but longing for a sponsor that is confident enough in the product they are offering that they feel guilty by not sharing it with anyone willing to listen. I’ve been told by countless mentors that whether you believe you can or whether you believe you can’t, your right.

Are you confident in the product/investment opportunity that you are offering?

If you are, then why would you hold back?

FINDING NEW INVESTORS

With so many investors realizing that they can’t rely on wall street for their financial well being, there is no better time to share the undeniable benefits of having a physical asset backing their capital investment and all the benefits that come with such an investment. It’s important to paint the picture for them and make sure that your messaging is on point.

In times of turmoil, especially in the current economic climate, the real estate investor may be nervous about the future, however, the stock market investor can’t sleep, looks at his phone every five minutes in hopes that the Dow Jones doesn’t go to zero, and is begging the government to do more. If you are in the stock market and you lose everything, no one is going to bail you out! However, if you are in real estate, the government is falling over itself to offer a solution and help. There are currently five different types of government assistance for real estate owners. It is impossible for a real estate investment to go to zero. This is comforting!

Passive investors are absolutely looking to place their capital somewhere and the current wall street crash was the last straw for many. They will be looking to place their funds in a different asset class, primarily real estate. So what are you waiting for?

This pandemic has not changed the fact that there is so much money out there that is looking for a safe, above average return. It’s important to be a beacon of hope for them and share the good news of multifamily syndication and the security and preservation that it offers.

Investors are not only looking for a good return, right now more than ever, they are wanting to know that their capital is safe and in good hands. Build rapport with everyone, be honest and trustworthy and you will raise the capital that you need for every project despite the current economic uncertainty.

Be the operator that people want to invest in and build your presentation so that it is clear who you are and what you do. Ask yourself not only if you are a good fit for your investor, but is your investor a good fit for your company.

Make sure to educate when necessary. The CARES ACT allows investors to borrow upto $100K from their retirement accounts with no penalty and a three years pay back. Be a problem solver and you will find the money for your deals.

EXISTING INVESTORS

Passive investors expect the sponsors that they invest with to over communicate with them and update them often on the state of their investment. You don’t want them sitting on the side-lines being fearful and possibly looking for somewhere else to put their money. They care about the way you are handling the crisis and solving the problems that are before you. If you can earn their trust and confidence in times like this, they will be lifelong capital partners and share their experience with everyone they know.

Be honest, however it is important to share the positives with them. Some of the positive things that we are seeing this month include more current tenants are renewing than ever before. They don’t see this as a wise time to move and the government is sending 95% of Class B and C tenants a $2400 check that can be used to help pay their rent, etc.

Let them know what you are doing to protect the capital of the organization and exactly what you are doing to solve the problems you are anticipating. If you have plenty of cash in reserves, you should let them know that. Remind them that their investment is backed by a physical asset and it will never go to zero. Also, remind them that with real estate, you can force appreciation, there are huge tax benefits and that you have multiple exit strategies.

You also want to be honest and tell them what could happen in case things don't bounce back quickly. The return they were expecting could be reduced to 5-6% during this time but it is backed by real estate and they will still be getting a ROI and we expect it to bounce back very quickly. There is a possibility that distributions could be paused for a time period to ensure that the asset stays in a good cash position. This is not a loss of return, just a deferral until we feel comfortable releasing the funds.

If you are in the middle of a raise for a deal closing in the next 30-90 days, you will need to communicate with your current investors that have committed funds letting them know that you took your option to extend in hopes to get better financing and depending on the economic occupancy in two months, potentially a price reduction. Explain that you are keeping the deal in your control while you wait for the lenders to start behaving themselves again before closing the deal. If you have your earnest money hard, explain that you believe in the deal enough to allow your earnest money to go hard. You want to encourage your investors to get all their documentation completed and when we have the green light, they can wire their funds to get the deal closed.

As a multifamily syndicator, you have a once-in-a-lifetime branding opportunity. Make sure that you over communicate with everyone and take extremely good care of your current investors. Show them that you are capable of protecting their investment during extreme circumstances and you will have an investor for life. Economic uncertainty can create plenty of problems for all; however, incredible opportunities will be waiting for those that are prepared to take action! Are you ready?

The NMHC's latest survey shows 83 percent of delays were due to permits.

Almost all of the apartment developers that responded to the National Multifamily Housing Council’s latest quarterly survey on construction said they experienced delays. Out of the 97 percent of respondents that reported seeing delays, 83 percent of them said it was due to permits, while 93 percent of them reported delays in starts.

The NMHC’s Construction Quarterly Survey was conducted from June 6 to 23 and received 30 responses from multifamily construction and development firms. With nearly all respondents facing construction delays, the survey found that labor availability and rising material costs were also seen almost across the board.

The survey showed that 53 percent of its respondents reported that labor costs increased as expected in the last three months. An additional 40 percent of developers said that labor costs increased more than expected.

Developers reported a similar trend with rising material costs. According to the survey, 83 percent of respondents said that deals for materials have been repriced up over the past three months. According to the survey, electrical components were up by 12 percent, exterior finishes and roofing saw an 11 percent increase, insulation was up by 10 percent, and appliances saw a five percent bump up in costs. Lumber was the only material to see a five percent drop in costs.

SEARCHING FOR A BETTER SOLUTION

Doug Bibby, president of NMHC, said in prepared remarks that a combination of rising costs, construction delays and labor shortages are making it hard to build the necessary housing the country needs. The latest quarterly report repeats many of the same themes from the previous report conducted in March.

Bibby added in his prepared statement that the industry was also seeing regulatory barriers and rampant NIMBYism that was contributing to the construction delays. To alleviate these issues, he suggested that policymakers work with the private sector to bring down costs and address the delays.

NMHC’s quarterly report is also coming a few weeks after its study that was conducted along with the National Association of Home Builders. That study found that more than 40 percent of costs for multifamily development stems from regulations from all levels of government.

SOURCE: MULTI-HOUSING NEWS/NMHC

 You should build relationships with lenders and local banks. That way when you have a potential deal, you can share the details with them and they can provide you with a term sheet showing exactly what you should expect. You can estimate closing costs anywhere from 3% to 4% of the loan amount but those are very rough numbers. 

 Let me know if you have any questions about the process.