Negotiating Tips that have Worked Against Me

Throughout my career, I’ve been involved in many negotiations, both in real estate and in general full-time job circumstances. In this article, I'll share three negotiating tactics that were used against me and worked. But don't worry, I'm not here to scare you! I just want to give you some pointers so you can be better prepared for your next negotiation.

They are so damn likable.

Problem: Do you find it tough to negotiate against someone you really like? It can be awkward at first because you may not want to offend them, but there’s some serious business that needs to be addressed.

Solution: Stick to the facts. Facts are emotionless. They do not contain trigger phrases like “this is unacceptable,” “but it’s not fair,” “but I’ve worked really hard on this,” “but I’ve been here so long,” or curse words. When you maintain a calculated and logical approach to the negotiation, your stance cannot be disputed.

They demonstrate they have more knowledge on the topic than you (and gray hair helps)

Problem: The opposition may have more experience in the industry, more knowledge about the topic, and may be older. When they talk, it’s clear they know more about the topic than you do. This can be a daunting situation.

Solution: Align yourself with people who have the knowledge and experience you lack, and bring them in to actively participate with you. If that’s not possible, dismiss any irrelevant information and focus only on the outcome. Think of yourself going 1000 mph and all the stuff they are saying are the blurry objects. They might say a lot of stuff, but only focus on the info that will get you to your outcome. It requires concentration, but it works.

They devalue your contribution (e.g. payment, time, thoughts)

Problem: The opposition may undervalue your contribution and indicate that they are losing money on the deal. However, they still go through with the transaction and somehow stay in business and are happy with the outcome.

Solution: Create a list of five reasons why the opposition should do the deal. This helps you understand from their perspective why it is favorable. You can choose to bring up those points or just keep them in your head. Regardless, remind yourself of the value you’re bringing to the table. They wouldn’t be having this conversation with you if they didn’t agree you bring value. Whether it’s money or time, you are adding tremendous value to this arrangement, and don’t let them tell you otherwise.

What are some negotiating tactics that you’ve seen work?

5 Signs That You Should Walk Away From a Property Deal

Real estate investing can be a lucrative business, but it's not without its challenges. One of the biggest challenges is knowing when to walk away from a property deal. It's important to recognize the signs that a deal may not be worth pursuing before investing your time and money. Here are five signs that you should walk away from a property deal.

1. The Property Has Serious Issues

If the property you're considering has serious issues like structural damage, mold, or a faulty foundation, it's best to walk away. These issues can be costly to repair and may make the property difficult to sell in the future. Unless you're prepared to take on a major renovation project, it's best to look for a property that's in better condition.

2. The Numbers Don't Add Up

Before investing in a property, it's important to crunch the numbers and make sure the deal makes financial sense. If the numbers don't add up, it's best to walk away. This could mean that the property is overpriced, the repairs are more expensive than anticipated, or the rental income won't cover the expenses. It's important to be realistic about the potential profit and make sure the deal is worth your investment.

3. The Seller Isn't Cooperative

If the seller isn't willing to provide the information you need, won't allow you to inspect the property, or is unresponsive, it's best to walk away. A lack of cooperation from the seller can be a red flag and may indicate that they're hiding something or aren't serious about selling the property. It's important to work with a seller who is transparent and willing to work with you.

4. The Property Is In a Bad Location

Location is key when it comes to real estate investing. If the property is in a bad location, it may be difficult to find tenants or sell the property in the future. Factors like high crime rates, poor school districts, and a lack of amenities can all make a property less desirable. It's important to consider the location carefully before investing in a property.

5. You Have a Bad Feeling About the Deal

Sometimes, your intuition can be a powerful tool in real estate investing. If you have a bad feeling about a deal, it's best to trust your instincts and walk away. This could be a sign that the deal is too good to be true, the seller isn't trustworthy, or there are hidden issues with the property. It's always better to err on the side of caution and avoid a deal that doesn't feel right.

Conclusion

Walking away from a property deal can be difficult, especially if you've invested time and money into the process. However, it's important to recognize the signs that a deal may not be worth pursuing and to trust your instincts. By avoiding bad deals, you can save yourself time, money, and headaches in the long run.

🧠 The Smarter Way To Make 💵 $10,000/month: SFR Rentals vs Apartment Syndication

Real estate investing has been one of the main, preferred investment vehicles for thousands and thousands of years! Owning land and property has been an important principle that has been passed from generation to generation all over the world and it’s one of the major factors fueling the beloved American Dream.

Real estate will always have a seat at the table when it comes to investment strategies, and it’s more important to talk about real estate now more than ever, especially with the rapid population growth and the national shortage of affordable housing.

Just like in most industries, there are numerous ways to make money. You can develop properties from the ground up, get your hands dirty and start flipping houses, or put on your landlord hat and start building a portfolio of rental properties, amongst other viable methods. However, all real estate investing strategies are not created equal; some are more active than others and some more passive.

Most people are attracted to real estate investing for the potential of passive income. With this in mind, we’re going to put two real estate investing strategies toe-to-toe and see which one will come out on top.

The Race to $10,000/month: SFR Investing vs Apartment Investing

For our “case study”, we’re going to compare single-family residence (SFR) rentals to investing in apartments through apartment syndication. We’re going to assume that you want to build up an income of $10,000/month or $120,000/year in passive income. It is possible, and even realistic, to do this using either strategy, so we’re going to take a look at which one will get you to $10,000/month faster!

• SFR investing, for simplicity’s sake, will be characterized as buying single-family houses with your own money for down payments on loans and then renting the house out for income.

• Apartment investing will be defined as buying a property with 50 or more units through apartment syndication deals, in which you are a passive investor, and you and the rest of the partnership rents out the units for income.

The categories we’ll be comparing the two strategies on are risk, scalability, and barrier to entry.

1) Risk

With no risk, there is no reward! All investing strategies have some level of risk associated with it, and there will always be pros and cons list that comes with any investment. In real estate specifically, some investing strategies are considered riskier than others. For example, real estate development is considered riskier than SFR rental investing or apartment investing, and that is where you need to look yourself in the mirror and be honest in identifying your risk tolerance.

The typical monthly cash flow from a SFR rental property is $100-$200/month, which adds up to roughly $1,200-$2,4000/year in positive SFR rental cash flow per property. This profit margin can be very fragile, with the risk of it being depleted, or even going in the red and causing you to come out-of-pocket if there are any maintenance issues. An HVAC system can cause thousands of dollars, but even if you consider less severe issues such as plumbing, this can still cause a huge dent in your profits, with the typical job like repairing faucets, toilets, sinks, or bathtubs costing between $175 and $450 to fix.

Another profit-drainer that must be taken into consideration is any vacancy you may have due to a non-renewed lease or an eviction. When there is no one renting your single-family house, there is no one sending you checks each month, therefore, there is no profit being made. While you may have a heads-up about an upcoming vacancy, what can be somewhat unpredictable are the cases in which old tenants cause your turnover costs to skyrocket.

Just think how quickly costs can add up when you have to repair or repaint walls, get carpets cleaned or replaced, deodorize pet smells, etc. These profit-drainers, can not only impact your monthly profit but can potentially wipe out your entire cash flow for the year.

When you take a look at multi-family rentals and apartments, a major benefit is the risk distribution. You no longer have one unit that can only be rented to one family at a time, you now have multiple units that can help offset vacancies. Isolated instances of vacancies, evictions, and maintenance issues should have a significantly smaller impact on your cash flow, as the tens or hundreds of other units will be there to balance it out and protect the cash flow. This type of risk distribution would not be possible with SFRs until a larger portfolio of 10+ houses has been built.

In the category of risk, apartment investing through syndication better mitigates risk factors.

2) Scalability

The longer it takes you to scale your rental portfolio, the longer it will take you to build your cash flow, pretty simple and straightforward. Now, there’s no argument against the idea that both SFR investing and apartment investing can get you to your $10,000/month goal. The argument, again, is which one will get you there faster, in which the level of scalability will play a major role.

We know that a SFR will average $100-$200 in cash flow a month, and with some quick math, we realize that you’ll need somewhere between 50-100 SFRs to generate around $10,000 in monthly cash flow. There are two fundamental issues with this; the cap of conventional mortgage loans and the amount in down payments that you’ll need to fund these transactions.

The cap on traditional residential loans is set at 10, however, many banks will stop lending after the 4th loan, as this is associated with a higher risk of default. Of course, you can build strategic relationships with local banks and credit unions to get closer to 10 loans, however, after the 10th house, you’ll need to get creative and get private funding or find portfolio lenders.

This leads us to the next hurdle. In most cases, you’ll need at least a 20% down payment on each property, which adds up to around $1,000,000 needed in down payments if we keep it simple and assume you’re buying each house at $100,000. If you make $200,000/ year and invest $50,000 each year, or one-fourth of your yearly salary, to buy SFRs, it would take you 20-40 years to buy 50 to 100 SFRs that would bring in $10,000/month in cash flow at the average cash flow of $100-$200/month per SFR.

If you were to invest in apartment syndications with the same amount of money, you wouldn’t have a cap on the number of syndication deals you can have at one time, unlike the cap on traditional residential loans. Also, if you invested the same $50,000 into a syndication deal with a preferred rate of return of 8%, this would break down to $333/month in cash flow, which is above the average cash flow of a SFR. This doesn’t even take into account the profit you will receive once the apartment is sold in 5-7 years, which would make the average monthly cash flow throughout the life of the deal higher than $333/month.

It’s a clear winner in the category of scalability: apartment investing.

3) Barrier to Entry

The barrier to entry refers to the level of ease to start investing in either type of investing strategy; SFRs or apartment investing through syndications. To invest in SFRs by using conventional residential loans, you typically will need a 640 credit score and above, however, your income can vary as long as your debt-to-income ratio satisfies the lender’s requirements.

To invest in apartment syndication deals you either need to be an accredited investor or a sophisticated investor, with many syndication deals you run across requiring you to be an accredited investor. A sophisticated investor has to be able to prove extensive experience in real estate investing, which can take years to build. An accredited investor has a single net income of $200,000 or more per year, a joint net income of $300,000 or more per year, or a net worth of $1 million or more, not including the primary residence. This creates a higher barrier of entry either in experience or in income when it comes to participating in a syndication deal.

In this case, SFRs win in the category of the barrier to entry.

The Final Score

With a 2 to 1 final score in the categories of risk, scalability, and barrier to entry, apartment syndication comes out on top as the better investment strategy when trying to get to $10,000/year in passive income. Once you’ve overcome either the experience or income hurdles, apartment investing through syndication proves to be the better investment strategy.

Want to learn more about how Dwellynn can help you get started? Sign up for our exclusive deal list or reach out at hello@dwellynn.com.

✍🏾The Top 3 Major Keys 🔑 to Know About Apartment Syndication Taxes

We’re just going to say it: Nobody likes thinking about taxes, let alone talking about taxes!

The more money you make, the more taxes you pay, and that’s not fun even for the most die-hard CPA. Taxes will never be the cool thing when it’s coming out of your bank account. They’ll never be “in style”. They’re always going to be just…taxes. Thinking about taxes can make your brain go from green light to red light faster than you can blink when all you want to do is imagine new money flowing into your account thanks to another great investment.

The good news is that unlike many types of asset classes, investing real estate can help you decrease the amount you owe in taxes. This is why real estate investing tends to be a favorite among the masses. The IRS views profits gained from real estate-related transactions differently than they view profits gained through, let’s say, stocks. The tax law favors real estate investors both passive investors and active investors. You can get perks from tax benefits due to debt write off and losses due to depreciation, amongst other things.

By investing in real estate, a taxpayer can take advantage of the write-offs, and apply those write-offs to other taxes they may owe, which decreases their overall tax bill, proving to be a great wealth-building strategy.

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Of Course We Have A Disclaimer

We are not tax professionals or tax attorneys at Dwellynn. We created this informational blog about taxes in relation to syndication deals based on our experiences. We will always refer you to speak to your personal tax professional and/or accountant to guide you about all tax-related questions.

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In this blog, we’re just going to scrape the surface of the numerous tax incentives that real estate investors can benefit from, but we’re going to focus on 3 major tax benefits that will have you 100% convinced that real estate investing is a smart financial move.

1. Depreciation

2. Cost Segregation

3. Depreciation Recapture & Capital Gains

Depreciation Is Your Very Powerful Friend

The basic concept behind real estate depreciation is that everything has a life span, and as time goes by everything will age and come to the end of its life span. This principle is then applied to the world of business and real estate. Everything that is used in real estate has an “expiration date”, whether it’s obvious or not. When something is nearing “expiration”, or coming close to the end of its life span, the government wants to encourage you to replace it with a new version. When you replace an item, you are contributing to the economy as a consumer, which contributes to multiple industries, and the overall economy.

The government encourages real estate investors to replace items and renovate their property by offering to deduct the cost of the expenses to replace items and renovate against the income generated by the property. Depreciation is a non-cash deduction that reduces the investor’s taxable income. Real estate depreciation assumes that the property is declining over time due to wear and tear, but often this is not the case. Thanks to real estate depreciation, an investor may see cash flow from their property but can show a tax loss on paper. Instead of taking one large deduction in the year that the investor purchases or improves the property, depreciation is split up over several years based on the useful life of the property.

The most popular form of depreciation is straight-line depreciation, which means that the deduction will be in equal amounts each year. The IRS currently determines the useful life of residential real estate at 27.5 years, and this applies to apartment buildings as well.

Example

If you bought a property for $1,000,000 with the land being valued at $100,000 and the building being valued at $900,000, then your depreciation would be $900,000/27.5 = $32,727/year. This is what your accountant will show as a deduction each year for this property. With this great tax advantage, passive investors typically won’t pay on their monthly, quarterly, or yearly cash flow from the syndication, but they will pay on the sale proceeds of the property at the end of the syndication.

The Tax Cuts and Jobs Acts of 2017 allow for 100% bonus depreciation on qualified properties that are purchased after September 27, 2017, creating an even greater tax advantage in the first year.

If You Like The Sound of Depreciation, You’ll Love Cost Segregation

Straight-line depreciation allows you to spread depreciation over the lifespan of a property, which is 27.5 years according to the IRS. However, in apartment syndication deals, the partnership typically holds an apartment community for 5-7 years. Consequently, this leaves a lot of unrealized tax benefits on the table, as the partnership would only get 5-7 years of the tax deduction benefits, leaving 20.5-22.5 years of tax deductions unutilized. Cost segregation enables property owners to accelerate depreciation to help them take advantage of these depreciations over a shorter property hold-time.

Cost segregations is a tax benefit that allows real estate investors who have developed, purchased, expanded, or renovated real estate to increase cash flow by accelerating their depreciation deductions and deferring their income taxes. The idea behind cost segregation is that different assets have different lifespans. The carpeting in apartment units will have a far shorter lifespan than the bricks that the apartment building is made of. Items that have shorter lifespans like fixtures, carpeting, windows, and wiring, can be depreciated over shorter timelines of 5, 7, or 15 years. A cost segregation specialist is hired to identify and reclassify the components of an apartment community that can be depreciated on an accelerated time frame.

The paper losses that are created through depreciation deductions can apply to the other taxes you pay on your salary and other income sources, not just the taxes on the income from the investment property from which the tax deductions came from. This can be different on a case-by-case basis, so verify this with a tax professional

The IRS Has To Get Paid: Depreciation Recapture & Capital Gains

There will be a time where you have to “pay up” to the IRS, no matter how much you want to live a tax-free life. As we all know, the IRS will get their money one way or another. In this case, it’s through depreciation recapture and capital gains once the property is sold at the end of the syndication cycle.

When the apartment community is sold at the end of the apartment syndication deal, the apartment community is considered a depreciable capital project. The gain from the sale of this depreciable capital property must be reported as income. When the assessed sales price of a property exceeds the adjusted cost basis, the difference between these two figures is reported as income to enable the IRS to “recapture” previous depreciation benefits. When the asset is sold at the end of the partnership, the initial equity and the profit distribution that the passive investors receive at the sale of the property is classified as a long-term capital gain by the IRS.

Example

In the previous example, you bought a property for $1,000,000, and the annual depreciation of your property, excluding the land, was $32,727/year. You decide to hold your property for 10 years and then sell it for $1,200,000. The adjusted cost basis will be $1,000,000 - ($32,727 x 10) = $672,730. The realized gain when you sale this property will be $1,200,000 - $672,730 = $527,270, the capital gain will be $527,270 - ($32,727 x 10) = $200,000, and the depreciation recapture gain will be $32,727 x 10 = $327,270.

In this example, the capital gains tax will be 15% and you’ll fall under the 28% income tax bracket. The capital gains you owe will be 0.15 x $200,000 = $30,000 and the depreciation recapture you owe will be 0.28 x $327,270 = $91,635. The total amount of tax you owe at the sale of this property will be $30,000 + $91,635 = $121,635.

Below are the tax brackets and percentages based on the new 2018 tax law:

• $0 to $77,220: 0% capital gains tax

• $77,221 to $479,000: 15% capital gains tax

• More than $479,000: 20% capital gains tax

The Best Part? You Don’t Have To Do Anything

As a passive investor, the depreciation and cost segregation tax advantages are already done for you by the professionals that the syndicator of the apartment communities hire. In this sense, being a passive investor has its perks. The only thing you have to do is get your K-1 from your apartment syndicator and hand it over to your accountant to take it from there. It doesn’t get any more simple than that.

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💡25 Tips and Questions To Make Sure Your Syndicator Is A Perfect Match 🔗

An apartment syndicator also referred to as the general partner (GP) or Sponsor, is a person or company that puts together an apartment syndication deal and manages it from inception to completion. The syndicator is the owner of the partnership, who has unlimited liability. The syndicator finds the deals, evaluates the deals, sources capital from investors, and manages the day-to-day activities of the project and business operations once the asset has been purchased.

Since the syndicator is in charge of the deal from start to finish, the success or failure of the syndication deal will rely heavily on the quality of the syndicator that you choose to partner with. For this very reason, you, as a passive investor, want to make sure to vet your syndicator as thoroughly as possible to get a clear and realistic idea of what it would be like to invest in one of their deals.

The good news is finding a great sponsor will reduce the majority of this due diligence work for future deals as you continue to grow and invest with the syndication company that you choose. This will give you more time to focus more on the actual details of each deal that they are presenting you and decreasing the time it takes you to say “yes” to a good syndication deal. Once a syndicator has a mission, formula, and model that works for them, they usually consistently use it over and over again for predictable success.

Do your research on the syndication company, as a whole, and do your research on the individual syndicators in the company.

1. Look at the company’s website, see how organized it is, look for the bios of the key partners, and identify a focused investment strategy.

2. Find out how long the company has been in business, and if it is a newer company, look at the experience and tenure of each of the individual syndicators to identify someone that has been in the industry at least 5-10 years. What is their educational background and do they have experience with similar investments?

3. Google the names of the syndicators, look at their LinkedIn account, their social media accounts, and content they have created. You want to be able to look at their internet presence and get a good idea of their character, credibility, and integrity. You don’t want to find anything that conflicts with their bios or mission statement. Look for red flags, such as bankruptcies, felonies, or SEC violations and inquire about anything that creates doubt.

4. Take a look at their marketing material and look for quality, professionalism, organization, and clarity. Review things like their videos, conference calls, webinars, and deal summary decks.

5. Ask the syndication company how many of their investors have invested with them multiples times and what percentage of their new investors are from referrals. This indicates how good the experience of past or current passive investors have been.

6. Research the team members during the acquisition or operation of the deal that receives any type of payment or fees (attorneys, CPAs, property managers, etc. )

Dive deeper into the company’s track record.

7. Look at the company’s website to take a look at previous and current deals that they were or are involved in, and if it’s not on their website, then request information about their previous and current deals. One of the major things you want to see is consistency in the type of deals they work on (like large value-add class C apartment properties). You want to see that they are focused on one strategy, not all over the place.

8. Have they taken a deal full circle from acquisition to sale using the same business plan as the business plan they are proposing for the deal you are interested in? How did the projected returns compare to the actual returns (cash on cash %, growth in NOI, consistency of distributions in preferred returns, etc.)

Talk to some real people and check the syndicator’s references.

9. Seek out a couple of investors who have been in the company’s current syndication deals for some time, who have previous experience in apartment syndication investing and have done a couple of deals.

10. Ask them how the deal(s) have performed. Did they meet or exceed their expectations?

11. Get a good idea from the references how frequently and to what degree the syndicators communicate with the passive investors. Do passive investors get consistent updates?

12. Were there any issues or concerns they have experienced and how were they handled? Were the issues or concerns handled promptly by the syndicators?

Take a look at investor relations.

13. Do the syndicators make themselves available to answer your questions or educate you? Are you able to ask the syndicator questions and get prompt quality responses?

14. Do they help educate you on technical areas? Sponsors want to have long term relationships with their investor so if they are not answering you could get a sense that they are not thinking long about this business.

15. Can you tour the property with the syndicator or property manager?

16. Get an example of investor communication schedules along with directions on how to contact the sponsor.

17. Quarterly, you should be able to get the full financial readout from the property manager on the actual vs budget figures.

Avoid aggressive underwriting, assumptions, and forecasts.

18. A good sponsor should be principled in being conservative in their numbers and assumptions that make up the business plan and investment performance projections.

19. Words like “capital preservation” and “conservative underwriting” should come out loud and clear on the company website, any projects you are reviewing, etc. 

20. Look for a sensitivity analysis to see how your investment returns will be impacted if the occupancy, rent, interest rates, and cap rates change.

Break down the payout structure for passive investors.

21. Review the payout structure and understand how the sponsor and you, the investor, gets paid for distributions, refinances and sales. Common industry splits can be 20–40% for the syndicator and 60–80% for the passive investors.

22. Look for a preferred return of around 8%. This usually means that any distribution, refinance or sale that creates cash to the investor, the first 8% (to equate to an 8% cash on cash yield) will be paid to the limited partners and the general partners gets nothing until they exceed that 8% threshold. Above 8%, then the payout reverts to the split agreed to, say, 70% to the investor and 30% to the sponsor. 

Look for the syndicators to have “skin in the game” and alignment of interests with you.

23. Syndicators can promote alignment of interests by investing their capital in the deal, whether that’s their funds, company funds or by allocating a portion or all of their acquisition fee into the deal. By not having money in the deal, the syndicator isn’t exposed to the same level of risks as you are, however, if they have money in the deal, they are more incentivized to maximize the returns.

24. One of the common fees syndicators charge is an ongoing asset management fee. If they put that fee in the second position to the preferred return, that promotes alignment of interests. If you don’t get paid, they don’t get paid.

25. Make sure any fees the syndicator charges do not impact the projections shown.

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10 Current Trends of Multifamily Investing in Texas

Introduction

Multifamily investing in Texas has continued to grow and evolve in recent years, with investors constantly looking for new ways to maximize their returns. In this blog post, we will discuss the top 10 current trends of multifamily investing in Texas, including the rise of secondary markets, the impact of technology, and the growing importance of sustainability.

1. Rise of Secondary Markets

McAllen, Texas is a secondary market considered for multifamily investing.

While many investors tend to focus on the major markets such as Dallas, Houston, and Austin, there has been a growing interest in secondary markets such as San Antonio, Fort Worth, and El Paso. These markets offer investors more affordable entry points and potential for higher yields, as well as strong population growth and job markets.

Here are five secondary markets in Texas that are worth considering for multifamily investing:

1. San Antonio
2. Fort Worth
3. El Paso
4. Corpus Christi
5. McAllen

2. Impact of Technology

Virtual tours and 3D floor plans are used to give prospective tenants a realistic and immersive view of the property, even if they are not physically present.

Technology has become increasingly important in the multifamily industry, with investors using platforms such as real estate crowdfunding, digital marketing, and virtual tours to streamline the investing process. As more renters rely on technology for their housing needs, investors must adapt to stay competitive and attract tenants.

3. Growing Importance of Sustainability

Sustainability has become a major factor in the multifamily industry, with investors looking for ways to reduce their carbon footprint and attract eco-conscious tenants. This includes implementing energy-efficient features such as solar panels and smart thermostats, as well as using sustainable building materials and promoting green living practices.

4. Focus on Affordable Housing

As the demand for affordable housing continues to rise, investors are looking for ways to provide quality housing options at affordable prices. This includes investing in workforce housing and partnering with government programs to provide subsidies and tax incentives.

5. Emphasis on Amenities

Amenities have become a key factor in attracting and retaining tenants, with investors offering a range of amenities such as fitness centers, pools, and coworking spaces. As the competition for tenants increases, investors must continue to innovate and offer unique amenities that align with their target demographic.

6. Importance of Property Management

Effective property management is crucial for the success of multifamily investments, with investors relying on experienced and reputable property management companies to oversee their properties. This includes ensuring high tenant satisfaction, minimizing turnover rates, and maximizing rental income.

7. Shift towards Value-Add Investing

Value-add investing has become increasingly popular in the multifamily industry, with investors looking for properties that offer potential for value appreciation through renovation and improvement projects. This strategy involves identifying properties with untapped potential and implementing improvements to increase their value and rental income.

8. Impact of COVID-19

The COVID-19 pandemic has had a significant impact on the multifamily industry, with investors facing challenges such as rent collection, tenant retention, and property maintenance. However, the pandemic has also highlighted the importance of multifamily investments as a stable and reliable asset class, with many investors continuing to see strong returns despite the economic uncertainty.

9. Growth of Co-living

Co-living has emerged as a popular housing option for young professionals and students, with investors recognizing the potential for high yields and low vacancy rates. Co-living involves renting out individual bedrooms in a shared living space, with communal areas such as kitchens and living rooms shared among the tenants.

10. Expansion of Student Housing

The student housing market has continued to grow in Texas, with investors targeting college towns such as Austin, College Station, and Lubbock. This market offers investors the potential for high yields and stable occupancy rates, as well as the opportunity to provide quality housing options for students.

Conclusion

Multifamily investing in Texas continues to evolve and adapt to changing market trends and demographic shifts. These 10 current trends highlight the importance of staying informed and flexible as an investor, and the potential for strong returns and long-term growth in this dynamic industry.

The Power of a Multifamily Investment

Financial freedom. Generational wealth. Leaving the rat race. Taking control.

These are all sayings you frequently hear when it comes to real estate investing. If you are like me and more analytical in nature, you nod your head quickly and say “Sure, sure, show me the numbers”.

Today we look at a hypothetical investment over a 15-year period to show the competitive return profile of a representative multifamily real estate investment. Annual returns and cash yields displayed are approximate industry averages and used for demonstration purposes.

A typical real estate syndication will require a minimum investment of $50,000 – 100,000. For purposes of the exercise we have assumed a $75,000 initial investment. Cash on cash (CoC) is 8% and the assumed sales price yields a 10% return in addition to the annual cash.

In year one, you the investor make a $75,000 capital contribution in exchange for a share of the property. $6,000 is returned to you at 8% CoC (either on a quarterly or annual basis). Over the next four years the GPs work with a property management group to implement the business plan and optimize NOI. In year 5 an email arrives….”Great news! A buyer has made a strong offer for the property and we can sell at a nice profit thanks to the execution of our plan.” You receive a wire for $126,788 and have cumulatively now received $150,788. Subtracting your initial investment, we see that you doubled your capital and made $75,788 on the deal.

Now perhaps you celebrate with your fellow LPs and GPs, take your spouse to a nice dinner, maybe even fly to the Caribbean for a quick trip (please send recommendations this way). But by now you are an astute investor, aware of the power of real estate, and decide to roll the investment into a second property. Another 5 years go by and now we have $300,000.

Again, you could pocket this money, put it in savings, bet it all on $GME, but instead we decide to use the power of real estate to lever our returns.   

$609,509, all from an initial investment of $75,000. If you were 35 years old, you now have leveraged an initial investment into over half a million dollars by the age of 50.

Imagine if you did not just invest in one of these but could find the power to invest every couple years, or even every year. This is financial freedom, this is generational wealth, and in our opinion there is no better way to put money to work.

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7 Steps for Real Estate Investing Like Warren Buffett

Most investors would agree that Warren Buffett is one of the greatest investors of our day and perhaps all time. He is widely known for his ability to pick winning stocks, which is what earned him the nickname Oracle of Omaha. However, his advice to investors can be applied to other areas like business and real estate investing. Forbes offered seven ways you can take to apply Buffett’s teachings to real estate investing.

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1) Look for quality

This first step may not obviously apply to real estate investing, but it can still by applied. Buffett focuses on high-quality companies that have strong fundamentals. He would rather pay a fair price for an excellent company than a little bit for a mediocre firm.

The same holds true when it comes to investing in real estate. If a property is ever being sold for less than what you think it should be worth, then you should be asking questions to find out why it is so cheap. Some issues can be fixed, and it is possible to find good deals. However, it is better to hold out for a quality property than to invest in one that is cheap but probably won’t be very good.

To identify quality properties, it’s essential to look for those with good bones. Cosmetic issues can always be fixed, often for very affordable prices. However, problems with the location cannot be fixed. Fundamentals are also important, so you should look for properties with attractive financials that make it a good investment as a rental property or property that can be flipped.

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2) Real estate investing is a business.

It’s also important that you view all of your real estate investments as a business. Buffett told CNBC in an interview in 2014 that investors should look at their stocks “as a business.” He advises investors to think like an entrepreneur when investing in stocks.

This bit of advice may be easier for those interested in real estate investing. After all, many properties will go on to become rentals after they’ve been fixed up a bit. Even flipping a property is good business.

The key here is to look for deals that just make good business sense rather than going with your gut feelings. Investments should be driven by data and financials rather than guesses or speculations.

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3) Stay in your circle of competence.

warren buffettWarren Buffett has also spoken and written time and time again about what he calls his “circle of competence. He advises investors not to invest in companies or industries they don’t understand. This is exactly why Berkshire Hathaway stayed away from technology stocks during the late 1990s and early 2000s. Buffett didn’t understand the sector, so he avoided it.

When it comes to real estate investing, staying within your circle of competence is much easier. Of course, this means that you should take the time to understand the business side of things before you ever get started with it.

It also means that you should take the time to understand every property you buy before you buy it. Before you sign on the line, you should already have a plan for what you will do with it, whether that involves turning it into a rental property or just outright flipping it. It’s also important to understand not only the property you intend to invest in but also the market it is in. If you don’t understand the property and the market, it’s best to move on and find something else.

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4) Don’t forget about the possibility of loss.

No investment is a sure thing, and real estate investing is no different. Thus, it’s important to realize that there is always some level of risk involved, no matter how much of a sure thing a property appears to be.

Before buying or investing in any property, you should consider what the worst-case scenario might be. This is a critical part of the process because it will bring you back down to earth if it feels like you’re getting too excited about a particular property.

Understanding the worst thing that could happen to any property will also help you figure out where your own risk tolerance stands and determine how much you should keep in reserve.

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5) Remain disciplined.

It’s also important to remember to follow real numbers and concrete data rather than your emotions. It’s very common and quite easy to have a knee-jerk reaction to movements in the stock market, but it is possible to have sudden reactions to real estate investments as well.

By creating a strategy and sticking with it, you will be able to keep your wits about you when everyone else is panicking or getting overly excited about the market.

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6) Look for undervalued properties.

One of Buffett’s main guidelines when it comes to identifying stocks to buy is looking for value stocks, which are those that are undervalued. It is possible to do the same thing in real estate investing.

Real estate agents set the price of properties after looking at the prices of comparable properties and speaking with their client about where they want to set the price. There will always be opportunities presented when prices are set lower than what the property is worth. If you have taken the time to get to know the market and the type of property you’re looking into, then you should have a good idea of when something is undervalued. This will give you a chance to take advantage of these underpriced properties.

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7) When the going gets tough, be aggressive.

Finally, there will always be difficult times in real estate investing, just as there is in other kinds of business and investments. Sometimes the market as a whole will not be doing very well, but an aggressive investor can still find opportunities, even if those opportunities won’t pay off for a while.

Like most value investors, Buffett is very patient when it comes to investing in underpriced stocks. He goes in with a long-term mindset, and the same should be true of real estate investors. The market may be down temporarily because there is an oversupply of properties, and that’s the time to buy. However, you may have to wait a while if you’re going to flip the property because you will need to wait until the supply is less to bring in whatever the property is really worth.

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This article is for informational purposes only adopted from a partner site: buttonwood.ca, it should not be considered Financial or Legal Advice.

Consult a financial professional before making any major financial decisions.

3 Steps To A Successful House Hacking

See main article on Biggerpockets: https://www.biggerpockets.com/member-blogs/10359/87977 

Buy Real Estate with Little or No Money Down

This catchphrase, Buy Real Estate with Little or No Money Down, is pretty ubiquitous in the Real Estate Investing world and there is some truth to it. The truth is that you are able to buy real estate with little money down, and what I am referring to here is to do with House Hacking.

First, you may ask: what is House Hacking any way?

House Hacking basically means that you can buy a small multifamily property to live in (Duplex, Triplex, or Fourplex) and rent the other units out to tenants. As a result, you pay a subsidized mortgage, as the rents from the units cover all or most of your mortgage.

Since you are occupying one of the units and if you are buying a property for the first time, there are incentives from the government to help first time homeowners. There is a provision for the first time buyers to put little money down: 3.5% as a downpayment to purchase a property (note: there are other instances in which you can use FHA loans that we would not go into here).

So, hooray! You are able to use a little bit of money to be a Landlord and start collecting rent checks (or Venmo alerts). Not quite. There are 3 QUICK METRICS to look out for when analyzing small multifamily properties.

1. CRIME

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LOW CRIME This may sound pretty obvious; however, during your excitement of buying your first property, you might not take this account for a variety of reasons.

Or you might make a big mistake some investors make by trying to make an "educated" guess of the crime in the area during a visit to the area and think "hmm.., it seems to be a safe area". This isn't going to cut it. Moreover, what is safe to one person might not be safe to another.

TIP: Use the property address on websites such as Trulia or similar sites to get intel on the crime status of an area. For Trulia, it is best to choose an area with the LOWEST CRIME.

2. RENT TO VALUE [RTV] RATIO

Normal 1574801810 Evelyn Paris Qr V T8 H Bzm Unsplash

1% RULE As you start looking at a lot of properties, it can become increasingly difficult to analyze a lot of deals quickly. Consequently, you want to look at these deals quickly and make a decision about whether you want to take a deep dive or not.

TIP: The Rent To Value [RTV] ratio is dividing the total monthly rental income over the total value (or asking price). For instance, if the total rental income from a duplex is $2,000 per month and the Seller is asking $200,000, then this might be a deal you want to take a closer look at because the RTV is >= 1%. Hold on before you go putting in an offer, there is ONE last metric to look out for.

3. RENTERS TO OWNERS [RTO] RATIO

Normal 1574802370 Max Bottinger Gup8 M Cv Ssf0 Unsplash 50% RULE After buying your property, you want to ensure that you are able to get your units rented as quickly as possible. Not surprisingly, there is a direct correlation between how many renters are in a particular area to how quickly you can rent your unit.

In order to mitigate any risks of having your property sit on the market for any longer than needed, it is best to have the Renters To Owners [RTO] metric at the forefront of your mind when evaluating your next small multifamily or your first multifamily property.

TIP: Use your zip on a website called City Data to find out the ratio of renters in your particular zip code. Typically, my rule of thumb is to be above 50%. That said, you should remain somewhat flexible and pay attention to your local markets.

SUMMARY

You are able to start your Real Estate Investing with little money down by House Hacking. However, you want to increase your chances of success and mitigate any risks by using the three metrics:

Crime Rent To Value [RTV] ratio Renters To Owners [RTO] ratio Normal 1574803117 3 Metrics

If you are currently House Hacking or learning about it, what are your tips and tricks to a successful #HouseHack?