- You Can Build Equity for the Future – One of the advantages of investing in real estate is being able to build equity. Equity is an asset that is part of your net worth. As you pay off your mortgage, you build equity. As you build equity, you now have leverage to acquire additional rental properties and increase your cash flow.
- You Can Generate Passive Income – By investing in real estate, you can generate passive income that is nearly tax-free. Your rental properties will work for you even when you are sleeping. By buying several rental properties that generate enough income to cover your expenses, you have the freedom to do what you enjoy, instead of spending all of your time at work.
- It Can Provide Cash Flow for Retirement – Real estate investing, when done right, is a stable way to increase wealth over a period of time. Among the many benefits of real estate investing is that it can provide cash flow for retirement. This means it can help supplement your retirement years with income from your rental properties.
- Investing in Real Estate Benefits the Community – While most investors focus on the ROI, the CAP rate, the cash flow, and other financial indicators, a huge and unquantified benefit of real estate investing is the impact on the community. Responsible real estate investors improve the communities by improving available housing, maintaining properties, and increasing the local tax revenues. This directly impacts the communities and improves the lives of people living there.
- You Can Indulge Your Entrepreneurial Spirit – There are many ways to invest in real estate and become an entrepreneur. You can buy a home, fix it up and put it back on the market for a profit. Buy a property to hold and let the appreciation create wealth. Perhaps you become a landlord and start purchasing rental homes, multi-family homes, or even apartments. Maybe land development is for you. You are the boss.
- You Can Enjoy the Portfolio Diversification Benefits of Owning a Physical Asset – Investing in real estate offers inflation protection as well as the portfolio diversification benefits of owning a physical asset. Real estate is a tangible asset that can always be monetized through renting or residing in the property, regardless of financial market conditions. This makes it far more resilient against asset market swings compared to traditional stocks or bonds.
- Real Estate Investing Is a Hedge Against Inflation – While most people fear inflation, this is not the case with real estate investors. Investing in properties is an excellent hedge against inflation. As the price level goes up, so does the rental income you get from your property and your investment’s value. This means that real estate investors are protected against both the immediate and the long-term effects of inflation.
- You Can Enjoy Tax Benefits Through Depreciation – There are different reasons to invest in real estate. It is a proven way to build wealth over time and can help generate cash when leased. It can also provide you with tax benefits through depreciation, and this can help increase your returns.
- It Can Be an Alternative Means of Saving for a College Education – Real estate investing can be an alternative vehicle for college savings. It is recommended that young families invest in the purchase of one property for each child they believe will attend college. The property can be financed with a 15-year mortgage, thus being paid off prior the child’s 18th birthday. It allows families to actively save through the renters’ payments. When the property is paid off, they can either sell or continue to use it as a source of cash flow.
- Owning Property Generates Wealth – Everyone should own at least one house or a piece of property. One of the many benefits of investing in real estate is being able to generate wealth through appreciation, building equity, and hedging against inflation. It can also provide cash flow with passive income from rental properties. These are the reasons why real estate should be a key component of your investment portfolio.
- Theory of Supply and Demand – housing prices have nowhere to go but up as demand drives it.
- Passive Income – you have the opportunity to potentially receive ongoing positive cash flow.
- No Entry Barrier to Investing – skills required to invest or quickly learned and can be relatively simple.
- Small Capital Required to Invest – when investing, you typically only need to pay 20% to 25% for the down payment.
- Potentially Safer Option – comparatively a potentially safer option than stock market based investments.
- Leveraging – a great way to stretch your investment dollars.
- Inflation Hedging – it can hold its value and purchasing power during inflation.
- Tax Exemptions – many different tax laws you can take advantage of to increase the profitability.
(Source – Paul McGraw)
- MILLENNIALS ARE PLACING STRONG DEMAND ON RENTAL PROPERTIES – There are several reasons for this trend toward renting for the large millennial generation, including the fact that steadily rising median home prices put homeownership out of reach for many people in this generation. Millennials also tend to value mobility and flexibility over the benefits of owning property, and for this reason they are more likely than previous generations to prefer renting.
- BABY BOOMERS ARE INCREASINGLY OPTING TO RENT – As the Forbes report notes, older tenants are drawn to renting not because they have difficulty purchasing a home like millennials (they do not), but rather because the right multifamily property can offer hassle-free, amenity-filled luxury living that appeals to this older generation.
- SHORTER-TERM LEASE AGREEMENTS ALLOW FOR FASTER INCREASES IN RENT – Whereas leases of five years or more are standard with other types of commercial real estate (office and retail, for example), multifamily leases are typically just one year. This means property owners are more easily able to raise rents quickly and consistently as market conditions change.
- THE DATA SUGGEST INCREASING DEMAND FOR WORKFORCE HOUSING – The key long-term benefit of investing in workforce housing, according to the 2017 State of the Nation’s Housing study by Harvard Research, comes down to simple supply and demand. As the study found, while construction of high-end Class A properties has increased in recent years, it has fallen for the Class B and C properties. In other words, workforce housing is facing a shortfall of units.
(Source – RealtyMogul.com)
In my opinion, real estate is the best way to grow wealth. If you want to invest in what the rich do, get involved in real estate — but I’m not talking about just any real estate. One type of asset structure that is often overlooked is real estate syndication, specifically for large multifamily apartments, self-storage facilities and manufactured home parks. The reason behind this may be one of many; limited access, high cost of entry, or the lack of “know how” to name a few.
The biggest reason investors participate in real estate syndication is access to deal flow. Not every investor has the time to search and underwrite hundreds of properties to find a gem to acquire. By getting involved with trusted real estate syndication partners, investors gain access to this deal flow and the ability to invest in high quality real estate without the hassles of property management.
What is Real Estate Syndication? – Simply put, real estate syndication is an effective way for a syndicator/sponsor and a group of investors to pool their financial and intellectual resources together to invest in properties and projects much bigger than they could afford or manage on their own. Over 90% of large multifamily purchases are made through a syndication.
The people involved in a syndication deal include the sponsor (also referred to as the general partner, operator, or syndicator), the limited partners (or passive investors) and the property management team.
Role of a Sponsor – The sponsor/syndicator is the person who initiates the real estate syndication; they are responsible for identifying the market, underwriting the property, securing financing, overseeing the business plan/renovations and the daily activity of the property management company, ensuring strong investor relations, and managing the asset it general.
Role of an Investor – The limited partner, or investor, is the individual (or group of individuals) that provides the equity to fund the deal. The role of investors in real estate syndication is very simple: they invest their money in a real estate project that is run and managed by the syndicator, and they earn a percentage of the project’s profits based on a predetermined and agreed upon rate that is split between all investors and the syndicator.
(Source – Ryan McKenna – McKenna Capital)
Workforce multifamily housing has been outperforming the broader multifamily market for several years and likely will continue to do so over the near-term. Market metrics, such as lower vacancy rates and higher rent growth, provide statistical proof of the sector’s superior performance and a compelling argument for continued investment in it.
However, the marketplace is not without risks. Workforce multifamily housing affordability and renter’s ability to pay higher rents has begun to create some resistance to rent increases and may limit them further in the future. Proposed rent control policies, if enacted, could adversely affect investment in this sector. A wide array of public and private programs focused on trying to improve housing affordability may improve the supply/demand situation for renters at the expense of owners.
Yet, as a whole, given the market environment, workforce multifamily housing is favorably positioned in the multi family housing world and should continue to be an attractive investment strategy.
(Source – 2018 CBRE The Case for Workforce Housing Report)
Workforce multifamily housing is defined as that in which families earning 60% to 100% of the area median income (AMI) live. Using the nations 2017 median income of $60,336, the 60% to 100% range of AMI roughly equates to between $36,200 and $60,300.
Workforce housing is not entirely multi family but it does represent the predominant investment opportunity for the workforce housing sector. This type of housing is a combination of Class B and workforce (formally known as Class C) product. Some Class B properties would not qualify, but using classes is a frequent and adequate approach.
Workforce multifamily housing is composed of mostly older (pre-2000s product) and mostly suburban garden style communities. It is typically over 30 years old, with a dated exterior and interior. It still contains the original appliances and light fixtures and foundation/structural problems could exist. It also might be necessary to replace HVAC units, electrical wiring and plumbing. Renters in these communities are often “renters by necessity” vs. “renters by choice.”
(Source – 2018 CBRE The Case for Workforce Hosing Report)
Demand – Market demand is very strong for multifamily workforce housing, rental communities that are affordable for low to middle income families. Limited wage growth over the past decade has contributed to the high number of workforce housing renters.
Supply – Since they can’t build new workforce housing, supply is growing very limited. Multi family product aging into price ranges that are affordable for workforce housing renters has been modest at best.
Market Performance – Workforce housing has outperformed higher end multi family for the past four years, with vacancy rates that are below and rent growth that is above the market wide averages.
Investment Returns – NCREIF (National Council of Real Estate Investment Fiduciaries) says that returns for garden multi family, a key component to workforce housing, are considerably higher than the all multi family average.
(Source – 2018 CBRE The Case for Workforce Housing Report)
- How long have they been actively engaged in real estate investing?
- What is their track record?
- How long have they been doing syndications?
- What locations do they invest in?
- How well do they know the local market they are currently investing in?
- Which asset classes do they invest in?
- How many years of experience do they have with a particular asset class?
- Do they put your own money into your deals?
- Did they ever have a deal go bad? If so, how did they handle it?
- Are they sponsoring any other investments? If so, how many?
- How do they structure their deals? Is there a preferred return? Do they use change the split between the general and limited partners after certain threshold?
- Do they allow for accredited investors only in their syndications?
- What are their sponsor fees?
- How long are they usually holding an asset for?
- What is their common investment strategy?
(Source – 2018 CBRE The Case for Workforce Housing Report)
What is an Accredited Investor? – An accredited investor is a person or a business entity who is allowed to deal in securities that may not be registered with the financial authorities. They are entitled to such privileged access if they satisfy one (or more) requirements regarding income, net worth, asset size, governance status or professional experience. In the U.S., the term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings.
The term originates from the English word ‘accredited’ which literally means someone who has been given special authority or sanction if they meet certain recognized standards. Participants in such types of investments are at risk of losing their entire investment, and therefore authorities need to ensure that they are financially stable, experienced and knowledgeable about their risky ventures.
Requirements for Accredited Investors – To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with the expectation of earning the same or higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years.
A person is also considered an accredited investor if he has a net worth exceeding $1 million, either individually or jointly with his spouse.
How to become an Accredited Investor – There is no formal agency or a process to secure the coveted status of an accredited investor. No registration, form-filling or application is required, and no certificate is issued by any agency stating that one is now an accredited investor for this year. Instead, the onus is on the sellers of such securities to take a number of different steps in order to verify the status of entities or individuals who wish to be treated as accredited investors.
(Source – Investing Essentials – Investopedia)