“My humanity is bound up in yours, for we can only be human together.” – Desmond Tutu
Every year, June 19 marks Juneteenth, a federal holiday and a day of remembrance of the African-American culture, specifically Emancipation Day. On June 19, 1865, General Order No. 3 was read by Union General Gordon Granger in Galveston, Texas. The order informed enslaved Africans in America that they were free.
There are several ways to celebrate the holiday, no matter how much you do (or don’t) already know. Start a book, watch a documentary, and spend the day listening and learning about what the day means to the Black community. Click here to read more
Congratulations to all the graduates of 2022. As you embark on the next phase of life just remember
“The future is always uncertain, but we who celebrate what you have done, who celebrate all of your achievements, we are certain of one thing on this day: You will not let us down.”
3 Pillars Of A Good Real Estate Investment
There are 3 main pillars to every good real estate investment: 1. The Market, 2. The Deal (and the Property), and 3. The Team. Watch this video of me explaining in more detail
5 Reasons Why Apartments Are The Best Investment For Your Money Right Now
1. Hard Assets Are The Best Hedge Against Inflation
Apartments are arguably one of the best positioned real estate asset classes to create wealth in an inflationary environment. Why? Because the short-term leases allow apartment owners to pass along higher expenses to the tenant base through rent escalation. Apartment rent growth is outpacing inflation by a wide margin and is well positioned to do so for years to come, which will drive up returns.
2. Demographic Trends Are Favorable for Multifamily Housing
This is particularly true in regions experiencing net migration. Dallas, fore example, is growing like crazy, and in February apartments in Dallas averaged only 2.5% vacancy. Wow. The Dallas market is experiencing double-digit rent growth. It doesn’t matter if interest rates and cap rates rise, as long as they are outpaced by rent growth. Read about it in The Dallas Morning News.
3. Most Of The Underlying Economic Conditions That Favor Apartment Investing Remain Solid
Employment is arguably the best economic indicator for forecasting the health of the multifamily market. There have been more than 20,000 jobs created in the Dallas market. Doing business in Texas costs less and many employers have moved here, which brings employees who need housing. Luckily, we are in the housing business and can provide affordable apartments.
4. Debt Terms For Multifamily Remain Extremely Attractive
Even with the recent rise in interest rates (and further increases likely on the horizon) the cost of capital for multifamily housing remains near historically low levels.
5. Multifamily Has Proven To Be Recession Resistant & Offers Superior Risk Adjusted Returns
In contrast, investments like stocks and cryptocurrency are subject to the whims of the market and have never felt more speculative and volatile. Real estate is boring by comparison, but may allow you to sleep better and build more wealth in the long run.
How Multifamily Syndications beat Single Family for Accelerating Retirement
Investing for retirement is about a portfolio that limits risk, protects your assets, avoids taxes, reduces your exposure to inflation and market volatility and doesn’t take over your life. Yet, when most people think of investing in real estate, they think of buying and flipping single-family homes like they’ve seen on TV shows. What the single-family approach misses are the very factors that help investors safely build their retirement. Not only are single-family homes the riskiest way to grow your retirement, but they’re also time-consuming and slow.
When investing for retirement, multi-family syndications that purchase large apartment communities offer investors an option that saves time, protects assets, limits risk, provides tax benefits, and limits exposure to inflation and market volatility.
If the investment fails or there’s a market downturn and the lender forecloses, you are personally on the hook for that debt. Often, lenders come after your other assets to make up for their losses. Even if you are successful in negotiating debt forgiveness with your lender, the IRS considers the forgiven debt taxable income, which you will end up paying taxes on. For some, this leaves bankruptcy as the only way out.
What Are Apartment Syndications?
In syndications, a firm pools multiple investors’ funds to make a purchase such as a multifamily apartment complex. Each investor is a part-owner of the property, but they are not responsible for management or maintenance. Syndications are completely passive. Investors receive cash flow created by rents, proceeds from refinances and the sale of the property, while enjoying tax advantages and without legal or financial risk beyond their initial investment.
Multifamily Syndications Save Time
With buying single-family investment properties, it’s up to you to look for deals, go through the frustrating offer process and secure a mortgage. Ongoing management is also your job unless you hire high-priced third-party property managers who are often juggling management of multiple properties, and therefore, pressed for time.
With apartment syndications, all that work is done for you. Syndication firms have relationships with brokers who hand-deliver deals and analysts who underwrite hundreds of them. Syndications are large enough to fund on-site leasing, maintenance and asset management. All you have to do is pick the deal that looks best to you, sign and transfer funds.
Syndication Investors Enjoy The Benefits Of Scale
When you own more properties, the expense of on-site staff, renovation crew and seasonal vacancy losses are easily absorbed, simply because of scale. Buying in bulk also lowers renovation costs.
With single-family homes, it can take decades and significant liquidity to create a portfolio large enough to cover these expenses or absorb vacancies. A single month of vacancy or one major repair can gut a single-family rental’s cash flow for the entire year. But at about the same price as a single-family downpayment, you can invest in hundreds of units with syndications.
Syndications with a value-add strategy buy properties at a discount, improve them, refinance and pay proceeds to investors. This is a common scenario in real estate investment, and it can be done with single-family properties, too. The difference is that, with syndications, it can happen with hundreds of properties at once, again letting investors enjoy the benefits of scale.
Apartment Syndications Hold Strong In Market Downturns
In economic downturns, people downsize from luxury homes and condos into apartment complexes to gain affordable housing. Apartments tend to have high occupancy rates no matter the state of the economy, and even if apartment vacancies increase, cash flow is maintained because of scale.
Inflation Hits Single-Family Investment Properties Harder
Rental income from investment properties is a great way to hedge against inflation because rents increase as inflation rises. While expenses, insurance and taxes also inflate, this is more of an issue with single-family homes, as their profit margins are thinner. Inflation-affected expenses are typically outpaced by the leap in income caused by growing rent checks. Oftentimes, apartment investors enjoy higher profits in an inflationary environment.
Tax Advantages Of Apartment Syndications
Multifamily syndications offer many tax-shielding strategies that single-family homes do not. Syndications often use rapid depreciation and bonus depreciation to pass through a paper loss for the majority of your investment in the first year. Many investors don’t pay taxes for the first five years because their dividends are offset by depreciation.
Investors can use tax-advantaged self-directed retirement accounts to invest in syndications, but to do so with single-family, you may need to pay in cash, as lenders may not provide loans directly to retirement accounts.
What isn’t well known is that 1031 exchanges allow for single-family landlords to trade in their rentals for done-for-you multifamily syndications while deferring capital gains taxes.
Apartment Syndications Protect Your Personal Assets
What makes single-family homes riskier than syndication is the outsized financial and legal exposure. Most investors buy a single-family home in their own name and then personally guarantee the mortgage. This exposes their assets to risk. In the event that you can’t pay your mortgage or there is a lawsuit by your tenant, a search can easily identify your assets, which can be seized or sold in the event of a foreclosure or legal judgment against you.
Investments in syndications do not require a personal guarantee, your ownership is not easily searchable, and your investment is held in entities that shield you from frivolous lawsuits. The very worst case is losing your initial investment. I go into more detail about syndication and asset protection in this article.
Syndication Is Not For Everyone
Of course, no investment is perfect for everyone. If you want the ability to liquidate your investment at a moment’s notice or be involved in the day-to-day management, syndications may not be right for you. With syndications, your initial investment is held until there is a refinance or the property is sold, and as an investor, you don’t have any control over when a property is sold or its daily operations.
Building Your Dream Retirement Starts With Your Decisions Today
However you choose to build the retirement of your dreams, always start with a foundation of knowledge. Do your research, talk to your CPA, and make sure you feel confident in your decision.
What Interest Rate Hikes Mean For Multifamily Property Investors
Inflation is at 40-year highs, but interest rates aren’t. Find out how rate increases could impact real estate investors.
Inflation—and rising interest rates—are at the center of the American economic conversation. And for good reason.
Keeping interest rates in historical perspective
Inflation is the highest it’s been since the early 1980s. Combined with the volatile swings in data throughout the pandemic, “We’re in uncharted territory,” said Ginger Chambless, Head of Research for Commercial Banking at JPMorgan Chase.
“By raising rates through this year, the Fed is trying to get a handle on inflation and slowly pull some of the excess liquidity out of the economy,” she said. “I think it makes sense for the Fed to take a gradual approach. This way, they can see how the economy holds up along the way, as opposed to a more drastic increase, which might cause undue panic in the markets.”
While inflation is at 40-year highs, interest rates are nowhere near 2000’s 6.5%, much less the record high of nearly 20% in 1980. Rates have returned to pre-pandemic levels.
“In terms of absolute levels, and in view of history, current interest rates are still at attractive levels,” said Mike Kraft, Head of CRE Treasury at JPMorgan Chase. “Generally, I would say this is a great time to do business—before additional rate movements kick in.”
What interest-rate hikes mean for multifamily investors
Taking out a loan to purchase a multifamily property or refinancing your apartment complex at a fixed rate may still be a smart move. However, you may want to look at more than interest rates. Consider other factors, including:
- Supply, demand and demographic shifts: The housing inventory—especially affordable housing—is low, with demand outpacing supply. As the economy opens back up and more people go out, there may be a move from the suburbs to cities for investors to consider. Likewise, more people have moved to the center of the country and are seeking workforce housing.
- Local market: Real estate is a largely local business, so you may want to take a close look at the specifics of your market before purchasing or refinancing. It’s also important to evaluate each property’s capitalization rate, which generally goes up when interest rates increase.
- Current financing structure: Interest rate hikes may have a greater impact on short-term loans than long-term ones, as may variable-rate financing. You may also want to keep an eye on the 10-year Treasury yield, which helps determine mortgage rates. The yield is also viewed as a sign of investor sentiment about the economy. Rising yields may reflect higher levels of expected inflation in the long term, whereas falling yields may indicate lower inflation along with the possibility of a slowdown or recession.
What’s next for interest rates, inflation and the economy
Kraft was quick to point out that while most signs of the American economy remain strong, there are always uncertainties. The war in Ukraine and the potential for new coronavirus variants are just a few of the outside factors to watch as the course of interest rates unfold.
Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase & Co., discussed the economic challenges in his recent letter to shareholders. “This is in no way traditional Fed tightening—and there are no models that can even remotely give us the answers,” he wrote. “In our current situation, the Fed needs to deal with things it has never dealt with before (and are impossible to model), including supply chain issues, sanctions, war and a reversal of quantitative easing in the face of unparalleled inflation.”