What’s Real Estate Syndication Anyway?

Here’s the Deal

Real estate syndication is when you and other investors pool your money to finance a property or project. It’s like joining a club where everyone contributes and shares in the profits and risks. Check out our article on how to invest in the deal.

How Does It Work?

Think of it this way: you put your money into a common fund, and a syndicator (the lead investor) takes the wheel. They find the property, buy it, manage it, and when the time is right, sell it. You sit back and enjoy the ride.

What’s the Syndicator’s Role?

The syndicator is like the captain of a ship. They steer everything, from picking the right property to managing and eventually selling it. Their expertise is what makes or breaks the investment.

What Types of Projects Are We Talking About?

From commercial buildings and apartment complexes to retail spaces and development projects, syndication can encompass a wide variety of real estate ventures.

So, What’s in It for Non-Accredited Investors Like You?

Access to Prime Real Estate Investments

Before, this was a game for the big fish only. But now, you can join in and invest in top-tier real estate opportunities.

Diversify Your Investment Portfolio

Put your eggs in different baskets by investing in various real estate assets.

Enjoy Potential High Returns

Who doesn’t like the sound of that? With syndication, you may see greater returns than traditional investments.

Earn Passive Income

Get regular income without lifting a finger. Sounds good, right?

Benefit from Professional Management

Lean on the expertise of seasoned real estate pros. They’ve got this.

Hold On, What Are the Risks?

Sure, there’s plenty to love about real estate syndication, but let’s be real. There are risks:

No Control over Day-to-Day Decisions

You’re in the passenger seat, not the driver’s seat.

Your Investment Might Be Tied Up

Selling your share might not be quick or easy.

Risk of Losing Money

Like any investment, there’s no surefire win.

Limited Info and Transparency

You might not have all the details at your fingertips.

Thorough Due Diligence Is a Must

You’ll want to do your homework on the syndicator and the deal.

Ready to Dive In? Here’s How to Start

1. Educate Yourself: Learn the basics.
2. Find Trustworthy Syndicators: Look for those with a solid track record.
3. Understand the Deal: Know what you’re getting into.
4. Seek Professional Advice if Needed: Don’t be shy about getting expert help.

Wrapping It Up

Real estate syndication offers you a thrilling path to potentially profitable investments. With access to prime real estate and the potential for attractive returns, it’s an option worth exploring. Just remember, it’s not all sunshine and rainbows. You’ll need to weigh the risks and rewards, do your homework, and maybe even seek professional advice. But as Milner noted, when done right, it can increase returns and decrease volatility. So, why not give it a shot? Happy investing!

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• Main Link, please follow and subscribe
• How to use my IRA or 401K funds to invest in real estate
• Question a passive investor should ask about the debt on a deal

• Apartment Investing Forecast 2022
• How Profit In a Recession
• How to Beat Inflation with Real Estate

• Why Multifamily Investing?
• Passive Investing Questions

Don’t see what you are looking for? Reach out and schedule a call with us. We are happy to answer your questions and take requests to add material for multifamily investing. You will never stop learning as a real estate investor. Real estate investing is an exciting journey full of endless opportunities to expand your knowledge. With new updates constantly emerging, there’s always something new to discover.The simplest thing is to find a great sponsor, get to know them, and let them do the heavy lifting.

You don’t have to be an expert to ask the right questions, but a little education goes a long way.

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We attend these events for the great content that the organizers deliver. Information about the state of the multifamily investing market, motivational and inspirational speakers, and great tips on running or improving your business. Another great reason, is the connections we make with amazing people.

Check out the videos below to see what they had to say about using your IRA funds to invest and what investors should be asking about the debt used to buy a multifamily deal.

Using IRA funds for Multifamily Investing

Steve is an industry expert when it comes to teaching you how to properly use the money in your 401K or IRA and get it invested in multifamily real estate or other assets. As of this writing, Quest Trust is the largest Self Directed IRA custodian in Texas. You can find more information by checking out Quest’s website or reaching out to Shawn Griffith and scheduling a call.

Questions for Passive Investors to ask about Debt

Julie Anne Peterson is not just an expert at helping general partners (GPs) find the right debt for their deal, but she is also funny and generous with her time and expertise! Listen to the video for a few things passive investors should ask about debt in multifamily investing.

If you like these videos, please visit our YouTube Channel and subscribe.

You can take a look at some of our other blog articles:

• How to invest in Multifamily Real Estate
• Questions to ask
• How to track a deal

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So you invested in a real estate syndication as a “passive investor.” Now what? It’s time to track your investment by following the top multifamily investing key performance indicators (KPIs.) What are those you ask? Let’s check out the following list.

Multifamily Investing Top KPIs

As an investor, there are many key indicators you can track when assessing the performance of a multifamily property. Here are our top picks:

Operational

1. Cash Flow: Cash flow is a crucial indicator for investors, representing the income generated from the property after deducting operating expenses and debt service. Positive cash flow indicates a profitable investment.
2. Net Operating Income (NOI): NOI is an essential metric that reflects the property’s profitability. It is calculated by subtracting operating expenses from total income, excluding financing costs. A growing NOI suggests improved financial performance.
3. Occupancy Rate: The occupancy rate indicates the percentage of occupied units in the property. High occupancy rates generally imply stable rental income and tenant demand.
4. Rental Income Growth: Tracking the growth of rental income over time helps assess the property’s income potential and market demand. Increasing rental income signifies improved cash flow and potential appreciation.
5. Operating Expenses: Monitoring operating expenses is crucial for investors. It includes costs such as property management fees, repairs and maintenance, insurance, utilities, and property taxes. Efficient expense management can positively impact cash flow and overall profitability.
6. Return on Investment (ROI): ROI reflects the overall profitability of the investment by considering factors like rental income, property appreciation, and expenses. It helps investors evaluate the effectiveness of their investment and compare it to alternative investment opportunities.
7. Market Rent and Vacancy Rates: Understanding the local rental market and vacancy rates provides insights into the property’s potential for rental growth and tenant demand. A strong rental market with low vacancy rates indicates a favorable investment environment.

Non-Operational

1. Debt Service Coverage Ratio (DSCR): DSCR measures the property’s ability to cover its debt obligations. It is calculated by dividing the property’s net operating income by the total debt service payment. A higher DSCR indicates a more secure investment with better debt coverage.
2. Property Appreciation: Tracking the property’s value appreciation over time is crucial for investors. Appreciation can contribute significantly to the overall return on investment, and monitoring market trends helps assess the property’s long-term potential.
3. Capitalization Rate (Cap Rate): Cap rate is a measure of the property’s return on investment. It represents the ratio of the property’s net operating income to its value or purchase price. A higher cap rate indicates a potentially better return on investment.

By monitoring these key indicators, investors can gain a comprehensive understanding of a multifamily property’s financial performance, potential risks, and growth opportunities, aiding in informed decision-making.

Examples

Here are examples of each of the key indicators for an investor assessing the performance of a multifamily property:

Operational

1. Cash Flow: Let’s say a multifamily property generates $10,000 in rental income per month and has operating expenses of $6,000, including property management fees, maintenance, utilities, and taxes. The cash flow would be $10,000 – $6,000 = $4,000 per month.
2. Net Operating Income (NOI): Assuming the property’s annual rental income is $120,000 and its annual operating expenses amount to $80,000, the NOI would be $120,000 – $80,000 = $40,000 per year.
3. Occupancy Rate: Let’s say a multifamily property has 50 units, and currently, 45 of them are occupied. The occupancy rate would be (45/50) x 100 = 90%.
4. Rental Income Growth: If a property’s rental income was $100,000 in the previous year and increased to $110,000 in the current year, the rental income growth would be ($110,000 – $100,000) / $100,000 = 10%.
5. Operating Expenses: Consider a multifamily property with annual operating expenses of $60,000, including property management fees, repairs, maintenance, insurance, utilities, and property taxes.
6. Return on Investment (ROI): Let’s assume an investor purchased a multifamily property for $1,000,000 and received a total return (including rental income and property appreciation) of $200,000 over a five-year period. The ROI would be ($200,000 / $1,000,000) x 100 = 20%.
7. Market Rent and Vacancy Rates: Consider a rental market where the average rent for similar multifamily properties is $1,500 per month. If your property is commanding a rent of $1,700 per month, it suggests potential for rental income growth. Additionally, if the vacancy rate in the market is 5%, indicating high demand, it further supports the property’s investment potential.

Non-Operational

1. Debt Service Coverage Ratio (DSCR): Suppose a property’s annual net operating income is $100,000, and its annual debt service payment (mortgage payment) is $80,000. The DSCR would be $100,000 / $80,000 = 1.25.
2. Property Appreciation: Suppose an investor purchased a multifamily property for $1,000,000, and after five years, its market value increased to $1,500,000. The property appreciation would be $1,500,000 – $1,000,000 = $500,000.
3. Capitalization Rate (Cap Rate): Suppose an investor purchases a multifamily property for $1,000,000, and the annual NOI for that property is $80,000. The cap rate would be ($80,000 / $1,000,000) x 100 = 8%.

These examples illustrate how each key indicator can be calculated or assessed to evaluate the performance and potential of a multifamily property from an investor’s perspective.

Which KPI is the Most Important?

The short answer is that they are all important. The long answer is really a combination of your understanding of the deal, your personal risk tolerances, and your relationship with the general partner.

It’s your money and no one will take as much interest in how it’s growing as you do.

Why Do KPIs Matter?

From and owner’s point of view, Lord Kelvin is spot on about why multifamily investing KPIs are important. It is also important from the passive investor’s viewpoint so you can track if the investment is hitting it’s original business plan. I.E. is it performing as advertised?

How do you track your investments?

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What is multifamily real estate?

Multifamily real estate is a residential property that contains more than one unit. These include duplexes, triplexes, quadplexes, townhomes, apartment complexes, and semi-detached homes. There is a breakpoint where the real changes from residential to commercial. Four units and below are residential. Five units and above are commercial. This designation is important, as brokers and lenders use different approaches to value Residential and commercial properties. Now we have an inkling of what multifamily real estate is, let’s move on to understanding how to invest.

How to invest in multifamily real estate?

There are many ways to invest in a multifamily property. These are just a few.

Individually

For smaller property sizes or individuals with a large capital pool, purchasing a property yourself is an option. Purchasing a multifamily property this way works the same as buying a single-family home. You either pay for the whole property upfront or obtain a mortgage to cover some of the purchase price.

Joint Venture

A second way is through joint ventures. A joint venture is a commercial enterprise undertaken jointly by two or more parties who, otherwise, retain their distinct identities. The members pool their money and can either purchase the property outright or get a mortgage to assist in the purchase.

Syndication

The third way is through syndications. Syndications are where a small team of individuals finds, analyzes, and promotes the property to qualified investors. This group is often referred to as general partners or GPs.

The GPs promote the deal to potential passive investors. Passive investors only need to invest their money into the deal while the GPs do all the work managing the property.

Due to this, LPs will receive lower returns than the general partners. No single article will tell you everything you need to know about investing. Check our thoughts on Questions Passive Investors should ask.

What are the requirements for investing in multifamily real estate?

Like with most activities, there are requirements you need to account for when beginning.

Individually

Buying a residential property requires either cash or a residential mortgage. Mortgage companies look at your income, the type of property you are purchasing, your assets, your credit score, and the debt-to-income ratio. They need this information to see if you can pay the mortgage payments, and how likely you are to pay.

Commercial Joint Venture

A joint venture has similar mortgage requirements to investing individually but introduces a joint venture agreement between the members. These agreements define what members will put into the deal,the end goal, and more.

These agreements generally contain:

• Each business’s information
• Member’s names and addresses
• Joint venture type
• The purpose of the venture
• The duties and obligations of each member
• Voting and meeting requirements
• Ownership assignment percentages
• IP rights
• Profit and loss allocations
• Terms for dissolution of the venture
• Noncompete and confidential agreements
• Each member’s signatures

Syndication

The requirements for syndication, however, vary depending on if you are part of the GP team or a passive investor. For a GP team member, there are no real restrictions. All you need is to know how multifamily investing works and know people who want to invest in the deal.

Becoming a passive investor, however, is a bit more complicated. In general, you need to be an accredited investor. An accredited investor: (see Full SEC definition here)

• has $1 million in net worth (excluding your primary residence) OR
• make $200,000 a year if single or $300,000 a year if married

There are some exemptions to these rules, however. 506b syndications allow you to join as a sophisticated investor. Being a sophisticated investor means you have a deep knowledge of real estate investing and how it works. 506c syndications do not allow sophisticated investors. Therefore they can only accept accredited investors.

Finally, all passive investors must have a significant working relationship with at least one GP member. 

No matter how you choose to invest in real estate, you must educate yourself. Accordingly one should reach out to a coach or mentor or at least self-educate using books, blogs, podcasts, etc.

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Multifamily investing assets are a VERY resilient investment class that performed well even during COVID. Contrary to what the press would have you believe, most people actually paid their rent during COVID. According to the National Apartment Association.

Multifamily properties are in demand

People always need a clean, safe place to live. A number of factors drive multifamily investing. First is the need for people to get out of the weather. Second, the tax code provides incentives for developers and investors to create and improve housing. Demand opens opportunities for investing in multifamily assets. Whether this is a joint venture, syndication, or even with just your own money, there is great potential. Don’t just take my word for it. Check out this article from Freddie Mac.

Multifamily investing scales

It is easier and more efficient to manage a 50-unit complex than 50 single-family homes. Your assets are all in place allowing you to more easily manage your assets. Having everything under one roof allows you to have onsite property management and maintenance.

People need a place to live

With 400+ people a day moving to Dallas/Fort Worth, the new housing market is unable to keep up. Couple this with the high price of entry as a first-time homebuyer, it drives demand for apartments which is great for multifamily investing.

Multifamily investing returns cash flow

Cash received from operations after all the bills are paid is positive cash flow! Some people like to call this mailbox money. Though today, most operators use ACH transfers so your check doesn’t get lost in the mail.

Time and money invested in cash-flowing assets is a get-rich SLOW program. All the more reason you get started today. If you are ready to invest or want to know more, reach out so we can get to know you and your risk tolerance.

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Multifamily Passive Investing Questions: Sponsor Team

1. What is their track record?
2. Alongside passive investors, do they invest in their own deals?
3. How significantly did market conditions play a role in their track record, as opposed
   to operational proficiency?
4. Does the firm have a significant online profile?
5. Does the sponsor have the proper resources and team in place to perform?
6. Do their professional referrals verify the claims that they have made about their
   reputation, experience, track record, and background?
7. What does your gut tell you about the Sponsor?

Now that we have vetted our sponsor team, it’s time to look at the deal structure. Understanding how the deal is put together is key to understanding how you as an investor get paid.

Multifamily Passive Investing Questions: Deal Structure

1. How is the deal structured?
2. Will non-accredited investors participate?
3. What is the hold strategy and how long can I expect to be in this investment?
4. How is the profit sharing with the Limited Partners (LPs) and General Partners (GPs) defined?
5. What are the common fees and how does the Sponsor make money?

All right! Now we understand the deal structure and are comfortable with the sponsor team. Asking tough questions about the financials and potential risks of any deal is critical. Let’s review some of the key questions to ask.

Multifamily Passive Investing Questions: Financials/Risk

1. What are the projected returns?
2. What is the required minimum investment?
3. Should I invest all of the capital I’m looking to put into one deal or spread it across
   multiple?
4. Are their any tax benefits from a passive investment in commercial apartments?
5. What are the risks and how is the Sponsor mitigating the risks associated with this
   investment?
6. What is the Sponsors strategy in the event of a down market?
7. What’s to stop the Sponsor from selling in a down market?

Process and Timeline

A key area is the timeline for the property acquisition and expected distribution schedule.

1. How frequently are distributions to investors made?
2. How often will communications/updates be sent out to investors?
3. Will I be able to 1030 from one deal to the next?
4. How involved can I be as a passive investors/limited partner?

General Knowledge

As with any industry, real estate investing has its own jargon. There are many terms that an investor should understand. Just a few of those are:

1. What is a syndication?
2. Are you an accredited investor?
3. What is a private placement memorandum (PPM)?
4. Can I invest with my LLC or self-directed IRA?

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Why do we offer opportunities to invest in commercial real estate? In particular, multifamily apartments are our favorite for passive investing. Shawn and Teri have a passion for providing great, community-oriented, places for our tenants to live and offering a  solid well-run investment program for our passive investors. 

TWT Multifamily provides opportunities for educated passive investors to join us on our wealth creation journey while creating great communities. We offer many opportunities to learn and continue your education as a passive investor. From articles on our blog like Why Invest in Multi-family Real Estate? and Make Your Money Work For You! to our monthly emails, Teri and Shawn provide information to help you be a better investor. And of course, you can always call us anytime with questions.

Our approach to providing you with passive investing opportunities

First, Teri and Shawn approach every opportunity with the mindset of giving our residents a great place to live. Second, we strive to provide great returns to our investors with solid cash-on-cash returns, as well as significant capital appreciation upon the sale of the property. All this while striving to keep everyone informed.

TWT Multifamily provides opportunities for educated passive investors to join us on our wealth-creation journey while creating great communities.

First, TWT Multifamily approaches every opportunity with the mindset of giving our residents a great place to live. Second, we strive to provide our investors with great returns and solid cash-on-cash returns. Our investors receive a quarterly dividend, once the property is stable. Investors also participate in capital appreciation realized upon sale. Finally, we plan to hold the property for around 5 years.

While every multifamily real estate deal will not to fit everyone’s investing criteria or time, we do offer the opportunity to everyone which TWT Multifamily has a pre-existing relationship. When you make an important decision, many factors are involved. Always feel free to reach out and ask questions.

Things to consider if you are ready to invest passively

• Will you need the money right away?
• Do you know the sponsor team?
• Have you defined your investment criteria?
• Does this offering fit your criteria for passive investing?

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Are you starting to see why so many people have found huge success through investing in real estate? Hopefully, you’re beginning to get excited about what real estate investing can do for your life too.

Now that you’ve got a basic understanding of why real estate is such a great investment, let’s turn the focus from real estate to you. Today is all about YOU and why you decided to join us on this journey in the first place.

Join the journey to make your money work for you

We are glad you found TWT Multifamily. Join the journey! Let us know how we can help? Allow us to show you how to make your money work for you so you don’t have to work for your money! Even if you love your job, it’s great to have options.

Perhaps you currently work a 9-to-5 job that’s wearing you down, and you’re looking for an escape . Or maybe the long commutes take their toll and you’re tired of missing your children’s sporting events. You’re ready to take control of your life and start making your money work for you, rather than the other way around. One aspect of learning to make your money work for you is understanding why you need to do it.

Firstly, take a moment to jot down a few thoughts about your why, and where you hope real estate investing will take you. Knowing your why will better equip you to begin. Passive investing is a great way to start. You can build wealth over time.

Secondly, close your eyes for a moment, and envision yourself 5 years in the future . Imagine that you started investing 5 years ago, and that it was a catalyst for you to really take control of your life. Finally realize that you are now a successful real estate investor.

—

What does your life look 5 years in the future?

At last, how does your calendar look? Have you quit your job? Are you traveling the world? Volunteering for a cause you care about? At the playground with your kids on a Tuesday afternoon?

In conclusion, the more detailed you get, the more effective this exercise will be. Always keep that picture in your mind, and remember to keep coming back to it throughout this journey.

Why does this matter? Make your money work for you

Above all, research shows visualizing your goals and writing them down, make you much more likely to achieve them. What does all this have to do with being able to make your money work for you? Passive investing takes time and effort getting to know some great sponsor teams. If you want to make your money work for you, multi-family real estate is one of the best vehicles available.

Please reach out to us and ask us how your money can work for you?

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A great question. Why invest in multi-family real estate indeed? If you can’t answer it, you probably shouldn’t invest in it. Of course, that is true of any asset. You need at least a basic understanding of what the asset is and how it makes money. After all, isn’t that why you want to invest? To make money?

Let’s start with the simple question of, why real estate? First, we know there are many paths to growing your wealth, from investing in the stocks to writing a bestselling book to collecting bitcoin.

So, why invest in multi-family real estate?

That’s a great question. When Teri and I started looking for options, the ones that we knew were stocks, bonds, annuities, savings accounts and CDs. Eventually, we learned about Real Estate. With the volatility of the stock market and interest rates being close to zero, we were looking for other investment vehicles. We got interested in Real Estate investing after reading Robert Kiyosaki’s book, Rich Dad, Poor Dad. We started learning, joining local Real Estate Investing (REI) groups, listening to podcast like Old Dawg’s REI Network. Educate yourself to what is possible. We invested passively in our first multi-family in 2013 and never looked back. Stay tuned to the blog for stories about our journey and some of the bumps as well as the highlights. Let’s continue learning about why invest in multifamily real estate.

As we each invested in the stock market and dabbled in a little crypto, we had already given up on savings accounts and CDs, we realized that our Real Estate holdings were performing more consistently than our other investments. Yes, there times the stock market was great, but it also had some big drops. 2008 anyone? COVID? It also didn’t hurt when we heard over 90% of the world’s millionaires were created by investing in real estate, and we were starting to find out why.

The wealthy don’t work for money, their money works for them!

Real Estate Stands out!

Real estate stands out from other types of investments because of several key reasons.

1. Produces Cash Flow
2. Inflation Resistance
3. Uses Leverage
4. Gives You Equity
5. Can Appreciate In Value
6. Better Returns than Stocks
7. Provides Tax Benefits

Cash flow is king and real estate investing the means!

Bill Mannassaro

Produces Cash Flow

Real estate syndications provide monthly or quarterly distributions which you will receive directly to your bank account. Cash flow will allow you to live a life by design NOW VS. waiting until you retire so you can use your 401K.  Investing in a real estate syndication allows you to make an investment once in the beginning, and then sit back and watch it grow. You are essentially collecting ‘mail box money’ on a hands off investment while experienced operators manage the asset.

Inflation Resistant

When the price of everything goes up real estate will typically follow. 

Uses Leverage

Real estate syndications, on average, offer higher returns than other investments by using leverage. We typically look for opportunities where we can provide our investors at least a 8% cash on cash return, at least 70% return, and at least a 15% IRR. 

Gives You Equity

You own physical real estate or at least a piece of it.

Can Appreciate in Value

One of the key aspects that helps make real estate inflation resistant! The great thing about commercial real estate is forced appreciation. The higher your Net Operating Income (NOI), the higher the value of the property.

Better Returns than Stocks

Check out this great article from the Financial Samurai.

Provides Tax Benefits

Hello depreciation! This is HUGE! Investing in real estate can often help lower the amount of taxes you owe, even while you’re making great returns on your investment. Obviously we are not CPAs, so you check with your own CPA regarding your unique tax situation. 

Over the years Real Estate has been good to us. More on that in future articles, but don’t just take our word for it. Check out what Investopedia has to say. Find other sources like Bigger Pockets and what they say about risk versus reward. Get to know people in the industry. 

Schedule a call to chat with us. We would love to get know you. And if you do decide to invest with us, the SEC requires us to have an existing relationship. 

Newsletter and Deal signup

Shawn & Teri Griffith
shawn (at) twt-investments (dot) com

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