Group Purchasing:

Investing in multi-family is capital intensive. Group purchasing allows investors to combine money with other investors to purchase a larger and potentially more profitable real estate investment.

• The lead investor/s (the sponsor group) identify the property, conduct due diligence & underwriting, secure property management, organize investment capital and are required to guarantee loans for financing the property
• The sponsor/s on the project are the general partners (GP) and are responsible for overseeing the property's operations and providing reports to the limited partners
• The passive investors are the limited partners (LP) that purchase fractional ownership in the property and have no debt liability and no management or operational responsibilities

Passive Income:

Multi-family investing can produce ongoing passive income even after investors have received back 100% of their original investment capital.

• Income from multi-family is passive rental income
• Passive income distributions generally begin within 90-180 days after the acquisition
• Year 1 cash flow is lower than in subsequent years when the property is first taken over
• By reducing expenses, increasing rents, and adding additional income, cash flow can increase each year

Return of Capital:

A unique benefit of investing in multi-family long term is the ability to return 100% of investment capital and still own the investment.

• After reducing expenses and increasing income, typically within 2-3 years, the property will be refinanced or obtain a supplemental loan to return 25% to 75% of investor capital.
• This process generally continues every 2-3 years. The goal is that within 4-6 years, investors will receive back 100% of their original investment capital if the property has not been sold by then.
• If the property is held long-term additional capital events through loan proceeds distributions can continue to occur every 2-3 years.
• If the property is sold instead of held long-term, investors would receive a return of capital first before a profit distribution.

Tax Advantages:

There are significant tax advantages available by investing in multi-family.

• Investors can substantially reduce their income tax liability via cost segregation, which speeds up the rate at which investors can claim tax deductions.
• Income is taxed as passive rental income
• Annual depreciation deductions
• Sale proceeds are long-term capital gains if held longer than 365 days
• Loan proceed distributions are not taxable at the time received even after investors have received back 100% of their investment capital
• Investors receive a schedule K-1

Above Market Returns:

Investing in multi-family can provide above-market returns to investors through cash flow, capital events, capital gains, and tax advantages.

• In general, multi-family can produce cash flow between 4% -10% per year of passive income.
• Investors can have a return of capital event when the property is refinanced or a supplemental loan which can return part or all the invested capital, leaving a low to zero bases but still owning the investment.
• By simply reducing expenses & increasing income even slightly, values can increase significantly to realize a substantial capital gain on the sale.
• Between cash flow and gain on sale, investors on average, can consistently achieve double-digit returns.
• As a result, multi-family is one of the most predictable ways for investors to earn above-market returns

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Hedge Against Inflation:

Investing in multi-family is considered a hedge against inflation since values increase as expenses on the property are reduced and rental rates are increased.

• Single-family investing has natural appreciation & depreciation based on the buying and selling activity in a particular sub-market
• Multi-family has forced appreciation regardless of the sub-market
• Value on a multi-family property is dictated by the net operating income (NOI)
• By simply reducing expenses & increasing income even slightly, values can increase significantly
• As a result, multi-family is one of the most predictable and stable investments available to investors to hedge against inflation

Forced Appreciation:

The value of a multi-family property can be increased by reducing operating expenses and increasing income. Below are a few examples:

• By reducing the water bill by $25,000 per year at a 5% CAP rate, the property value increases $500,000
• Charge an extra $10 per month on 50 covered parking slots ($500mo/$6,000yr) at a 5% CAP rate; the property value increases $120,000
• By increasing rent $25 per month per unit on a 100-unit property ($2,500mo/$30,000yr) at a 5% CAP rate the property value increases $600,000
• Charging an additional $150 per month by upgrading 50 units and adding washer/dryer ($7,500mo/$90,000yr) at a 5% CAP rate the property value increases $1,800,000
• By doing only these three (4) things, the property would increase in value by $3,020,000

Ability to Leverage:

Investing in multi-family allows investors to use debt more strategically than single-family real estate investing.

• In most cases, when buying an existing multi-family property, the financing is non-recourse & does not show up as a liability on a financial statement.
• The General Partner &/or any LP investor with more than 20% ownership acts as the guarantor on any bank financing for the property.
• The passive investors / limited partners (LP) benefit from the leverage/bank financing without having to guarantee any loans.
• The ROI to investors is significantly greater due to the leverage used.

Operational Efficiency:

Investing in multi-family provides economies of scale and operational efficiency at affordable costs compared to single-family investing.

• An on-site property manager, leasing staff, and maintenance professionally manage the property.
• The GP acts as the asset manager and oversees property level management
• Best economies of scale and value are on properties with 100+ units

Self-Directed IRA (SDIRA):

Investing in multi-family can also be done inside a retirement plan through a self-directed IRA and other qualified plans:

• Traditional IRA
• ROTH IRA
• Traditional 401 K
• 401 K ROTH
• KEOGH
• SEP
• HSA
• Etc

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