100:00:00,000 --> 00:00:04,800Hey everybody, welcome to the Build Young, Grow Wealthy The Podcast.

200:00:04,800 --> 00:00:06,600My name is Willita Cherie.

300:00:06,600 --> 00:00:10,240Today we have a special guest with us and his name is Joseph

400:00:10,240 --> 00:00:12,800and he's been on the podcast with us before.

500:00:12,800 --> 00:00:16,000And typically he's talked to us about Ho Silly.

600:00:16,000 --> 00:00:18,800But today he's going to talk to us about the benefits

700:00:18,800 --> 00:00:20,400of multi-family investing.

800:00:20,400 --> 00:00:23,400Without further ado, let's get into this.

900:00:23,400 --> 00:00:33,400[MUSIC]

1000:00:33,400 --> 00:00:38,080So Joseph, tell us why you decided to make the switch from Ho Silly to

1100:00:38,080 --> 00:00:41,400multi-family because you've been on the podcast before,

1200:00:41,400 --> 00:00:44,200talking to us about the benefits of Ho Silly.

1300:00:44,200 --> 00:00:46,800So what made you want to make that switch?

1400:00:46,800 --> 00:00:51,080

Personally, I saw what I like to say is the writing on the wall.

1500:00:51,080 --> 00:00:56,960There was a lot of changes coming in with these new gurus and stuff coming out and

1600:00:56,960 --> 00:00:58,520pitching everybody on.

1700:00:58,520 --> 00:01:04,520Hey everybody, come to Ho Silly, it made it extremely saturated in big markets,

1800:01:04,520 --> 00:01:12,520such as Dallas, such as the DFW area, as a whole Houston and other similar markets.

1900:01:12,520 --> 00:01:17,200So I went into multi-family just because of higher barrier of entry.

2000:01:17,200 --> 00:01:23,680And I mean, there's ways to get in which we'll go over some of those today as far as the benefits go.

2100:01:23,680 --> 00:01:28,440But yeah, it's just a higher barrier of entry, so let's competition.

2200:01:28,440 --> 00:01:32,440

So this would be equivalent to advancing your career, correct?

2300:01:32,440 --> 00:01:34,160

Yes, exactly.

2400:01:34,160 --> 00:01:37,440Multi-family is where everybody wants to be, by the way.

2500:01:37,440 --> 00:01:38,320

Gotcha.

2600:01:38,320 --> 00:01:44,200So go ahead and tell us the first reason why we should invest in multi-family.

2700:01:44,200 --> 00:01:48,800The first benefit of multi-family is group purchasing.

2800:01:48,800 --> 00:01:53,360And it's just because it's a very capital intensive real estate asset.

2900:01:53,360 --> 00:01:59,600So when people see $10 million, $30 million on the price tag for a piece of real estate,

3000:01:59,600 --> 00:02:01,720the automatically think, hey, I can't do that.

3100:02:01,720 --> 00:02:11,120But group purchasing allows investors to combine capital with other investors in order to purchase a larger and potentially more profitable real estate investment.

3200:02:11,120 --> 00:02:13,960

Okay, so how does this actually work?

3300:02:13,960 --> 00:02:17,080So there are a thousand people with a thousand dollars.

3400:02:17,080 --> 00:02:19,320Is this the way group purchase and work?

3500:02:19,320 --> 00:02:24,520Or is there a minimum cap in order for this to be a successful type of investment?

3600:02:24,520 --> 00:02:27,400

Yes, so the minimum investment is a hundred thousand.

3700:02:27,400 --> 00:02:33,920It all depends on if you're investing within a fund or if you're investing with an individual syndicator.

3800:02:33,920 --> 00:02:41,240If you're invested within a fund, then it's better to do a preferred minimum, which is 250,000, just because it's more beneficial for you.

3900:02:41,240 --> 00:02:46,840And then also with syndicators, you can do as low as a $25,000 investment.

4000:02:46,840 --> 00:02:51,800

Are there benefits to investing 250,000 versus 50,000?

4100:02:51,800 --> 00:02:54,360Or are there benefits about the same?

4200:02:54,360 --> 00:03:00,400

Because the more money you invest, the more profitable your investment will be for you individually.

4300:03:00,400 --> 00:03:05,600So let's say there's a 10% cash-on-cash return on a building.

4400:03:05,600 --> 00:03:12,720If you put in a hundred thousand versus putting in a million dollars, well, the person who put in a million dollars is going to profit more.

4500:03:12,720 --> 00:03:17,760The person who put in a hundred thousand, they're probably going to make 10,000 for the year, cash-on-cash return.

4600:03:17,760 --> 00:03:21,520But the person who put in a million, they're going to make a hundred thousand for the year.

4700:03:21,520 --> 00:03:25,720So it's just higher economies of scale that way.

4800:03:25,720 --> 00:03:32,800

Besides having the right amount of money, are there any other requirements to be able to invest in this type of opportunity?

4900:03:32,800 --> 00:03:38,600Typically, you have to be either accredited or a sophisticated investor in order to invest in multifamily.

5000:03:38,600 --> 00:03:47,920Because the SEC wants to know that you're not putting your last hundred thousand into the same property and then going homeless, basically.

5100:03:47,920 --> 00:03:50,480

You set a fund and a syndicator.

5200:03:50,480 --> 00:03:59,400Do you mind going into more detail to tell us what is the difference between investing in multifamily with a fund versus a syndicator?

5300:03:59,400 --> 00:04:04,080

If you're investing with a syndicator, it's not bad to invest with a syndicator.

5400:04:04,080 --> 00:04:08,080It actually allows you to invest directly into a property.

5500:04:08,080 --> 00:04:17,000So with syndicators, you're allocating all of the funds that you invest are going straight into one individual property.

5600:04:17,000 --> 00:04:18,400Well, let's just go over the benefit.

5700:04:18,400 --> 00:04:22,720The benefit of that is when you invest solely into that one property,

5800:04:22,720 --> 00:04:25,440let's say you put a hundred thousand into one property.

5900:04:25,440 --> 00:04:29,320Now when that property goes up, you actually gain a lot more.

6000:04:29,320 --> 00:04:34,520And the flip side is if that property was to underperform, then you lose a lot more.

6100:04:34,520 --> 00:04:37,160So it's a lot more riskier to invest with a syndicator.

6200:04:37,160 --> 00:04:40,400If you invest with a fund, your risk is mitigated.

6300:04:40,400 --> 00:04:46,040So finding a fund manager and investing with him, you get invested in more doors as well.

6400:04:46,040 --> 00:04:50,480So if you want those numbers, people that like the number of doors and want to brag to your friends,

6500:04:50,480 --> 00:04:55,000how you own a thousand units, your best bet is to invest with a fund manager.

6600:04:55,000 --> 00:05:05,640So basically what you're saying is it's kind of like a person investing directly with a stock versus a person investing in say an index.

6700:05:05,640 --> 00:05:13,400The fund will be equivalent to an index fund because it goes across several different apartment complexes.

6800:05:13,400 --> 00:05:23,200So if one underperforms, you can still be profitable because you still have other complexes or apartments that you are still generating income from.

6900:05:23,200 --> 00:05:29,240Whereas if you invest with a syndicator, if it's a good deal, then great.

7000:05:29,240 --> 00:05:30,560You have profit.

7100:05:30,560 --> 00:05:41,720However, you're saying that if the deal doesn't fall through, then you basically lose all your money because that's the only investment that you have your money parked in.

7200:05:41,720 --> 00:05:43,120Is that correct?

7300:05:43,120 --> 00:05:43,760Exactly.

7400:05:43,760 --> 00:05:50,920It's a lot more riskier to invest directly with a syndicator versus investing with a fund manager.

7500:05:50,920 --> 00:05:51,880Gotcha.

7600:05:51,880 --> 00:05:59,560So do you mind telling us what is the next benefit of investing in a multi family operational efficiency?

7700:05:59,560 --> 00:06:01,840So I invest in a multi family.

7800:06:01,840 --> 00:06:08,720It provides economies of skill, which would be the properties professionally managed.

7900:06:08,720 --> 00:06:12,720There's on site managers, there's a leasing staff, there's maintenance.

8000:06:12,720 --> 00:06:19,200And then also when you invest with multi family in the fund model or with a syndicator,

8100:06:19,200 --> 00:06:21,920you're not having to manage the property yourself.

8200:06:21,920 --> 00:06:26,800So you have what's called a general partner and they oversee the property manager.

8300:06:26,800 --> 00:06:34,840So they are the asset manager and they sit on calls weekly calls with them and just make sure everything is going fine.

8400:06:34,840 --> 00:06:38,560And they should send you monthly reports as well.

8500:06:38,560 --> 00:06:46,000I can't speak on all syndicators, but I do know with my group, we send monthly reports.

8600:06:46,000 --> 00:06:52,560Now, another benefit of operational efficiency is that the more units on an apartment building,

8700:06:52,560 --> 00:06:56,080the more value you receive from the property manager.

8800:06:56,080 --> 00:07:00,960What is the third benefit of investing in a multi family?

8900:07:00,960 --> 00:07:06,640The third benefit is the ability to force appreciation, which earlier, like I was stating,

9000:07:06,640 --> 00:07:13,120while I said I moved into multi family over host selling is in host selling, when you get a property,

9100:07:13,120 --> 00:07:15,280you have to deal with the after repair value.

9200:07:15,280 --> 00:07:19,120So it's such and such on the side of on across the street.

9300:07:19,120 --> 00:07:23,120So they pop it for 250 and it's similar square footage is yours.

9400:07:23,120 --> 00:07:24,880But you want to sell yours for 300.

9500:07:24,880 --> 00:07:30,560You can't guys sell yours for 250 with apartment buildings with multi families completely different

9600:07:30,560 --> 00:07:33,600because each apartment building is a business in every cell.

9700:07:33,600 --> 00:07:41,440So when you buy that apartment building for business, per se, then you can instantly add value.

9800:07:41,440 --> 00:07:49,120So just an example, just give an example of that, if you go in and you reduce a water bill by $25,000 per year

9900:07:49,120 --> 00:07:54,240at a 5% cap rate, then the property value increases $500,000.

10000:07:54,240 --> 00:07:58,400So just like that, $500,000 is an added to your network.

10100:07:58,400 --> 00:08:04,480So what are some other things that will allow a multi family investment to have forced appreciation?

10200:08:04,480 --> 00:08:06,320Raising rents.

10300:08:06,320 --> 00:08:13,680Now this is an unpopular thing, but raising rents also increases your your profitability.

10400:08:13,680 --> 00:08:19,680So for example, if you increase the rent $25 per month per unit on a 100 unit property.

10500:08:19,680 --> 00:08:28,160So let's say that's $2500 a month, $30,000 a year at a 5% cap rate, then the property value increases $600,000.

10600:08:28,160 --> 00:08:32,400So what is another advantage of multi family investing?

10700:08:32,400 --> 00:08:35,520I would say the return of capital, if you're a limited partner,

10800:08:35,520 --> 00:08:42,960other means is once you invest, let's say, $100,000 into a property within two to three years,

10900:08:42,960 --> 00:08:48,480you can receive 100% of your original investment capital back while still owning the asset,

11000:08:48,480 --> 00:08:50,480collecting cash flow from that asset.

11100:08:50,480 --> 00:08:56,880Okay, so do you mind giving us a little bit more details about what that looks like?

11200:08:56,880 --> 00:09:02,560This process happens every two to three years, so it can happen between a self-minal loan or refinance.

11300:09:03,280 --> 00:09:09,200So every two to three years, you can either be finance or get self-minal loan, which takes some money out.

11400:09:09,200 --> 00:09:14,640Anyway, 2025 to 100% of the investment capital, which is non-taxable,

11500:09:14,640 --> 00:09:18,000and you can hand that straight back to the limited partners.

11600:09:18,000 --> 00:09:22,720All right, so is there any more benefits we should know about?

11700:09:22,720 --> 00:09:29,120Well, so another benefit would be passive income, which everyone talks about passive income,

11800:09:29,120 --> 00:09:34,720everyone wants it, not many people know all the ways to get it. So really, so all income that comes

11900:09:34,720 --> 00:09:42,640from multi-family is passive rental income. Well, I can't say all, but the cash flow, the monthly cash flow,

12000:09:42,640 --> 00:09:49,040is passive rental income. So what could you expect for multi-family in terms of passive income?

12100:09:49,040 --> 00:09:54,960Like I said, it really depends on how much you invest. If you invest in a million and with a 10% annual

12200:09:54,960 --> 00:10:02,800cash flow, cash return, that's 100k for that year. Okay, and so every year the profits go up,

12300:10:02,800 --> 00:10:08,480or is it going to be consistent 100,000 per year? Because you know, passive income is important,

12400:10:08,480 --> 00:10:13,200but like we're saying today, inflation is really killing a lot of people's paychecks.

12500:10:13,200 --> 00:10:21,040So you have gas, food, and the rising cost of housing. If I earn 100,000 today, that's going to look

12600:10:21,040 --> 00:10:27,280very different for me in 10 years. So how does this work in terms of multi-family? Is it consistently

12700:10:27,280 --> 00:10:32,880going to be 100,000, or whatever you invest? Because like you said, the more you invest, the better your

12800:10:32,880 --> 00:10:40,720returns. How exactly does this play out in the multi-family world? So I would say by reducing expenses,

12900:10:40,720 --> 00:10:46,160increasing the rents, and additional income, then the cash flow will increase each year.

13000:10:46,160 --> 00:10:52,960Okay, so we talked about group purchasing, operational efficiency. We talked about forced appreciation,

13100:10:52,960 --> 00:11:00,560return of capital, passive income. Are there any tax advantages to investing in multi-family?

13200:11:00,560 --> 00:11:06,960Yes, so some tax advantages is just to name a few. So investors that can substantially reduce their

13300:11:06,960 --> 00:11:12,640income tax liability via cost segregation, which speeds up the rate of which investors can claim tax

13400:11:12,640 --> 00:11:22,240deductions. So you can claim in what between 75% to 100% in tax deductions, year one, just by investing

13500:11:22,240 --> 00:11:29,120in multi-family. Is that it or are there other benefits to investing in terms of the tax advantages?

13600:11:29,120 --> 00:11:35,680The monthly income is going to be taxed as passive rental income. There's annual depreciation

13700:11:35,680 --> 00:11:41,680deductions. And also the sale proceeds are considered long term capital gains. If they're held

13800:11:41,680 --> 00:11:48,080longer than 365 days, which they will be, also loan proceeds distributions. They're not taxable

13900:11:48,080 --> 00:11:53,440at the time you see, even after the investors have already seen back 100% of their investment capital.

14000:11:53,440 --> 00:12:01,120Nice. Okay, so it seems like it's actually very beneficial tax-wise because as you all know,

14100:12:01,120 --> 00:12:07,280who are listeners, if you've been here quite some time, you understand that taxes is one of the

14200:12:07,280 --> 00:12:14,000biggest bills we all can carry. So if you can take this opportunity and invest to multi-family,

14300:12:14,000 --> 00:12:19,040then it does allow you to actually keep more money because of the fact you have these great tax

14400:12:19,040 --> 00:12:28,720advantages just by investing in multi-family. So what other benefits are there to invest in multi-family?

14500:12:28,720 --> 00:12:34,480Above market returns. So all that means is that you're going to make you're going to get better returns

14600:12:34,480 --> 00:12:39,520in multi-family in what you receive in the stock market. Do you mind expanding on that a little bit

14700:12:39,520 --> 00:12:46,240more? So just for some conservative numbers, cash low can range from 5 to 7% in year one,

14800:12:46,240 --> 00:12:51,440and then increase to as high as 15 to 20% after year five of investing in multi-family.

14900:12:51,440 --> 00:12:57,840Also capital gains on the sale can represent any can represent returns ranging from 20% to

15000:12:57,840 --> 00:13:04,240over 100%, depending on how low the property is held. So for example, we we raised capital for

15100:13:04,240 --> 00:13:11,520property that has a low-side return on investment after six years as a 64% and then on the high

15200:13:11,520 --> 00:13:20,960side, 167%. So it's very few investments that you can invest in that you get you a return of 167%.

15300:13:20,960 --> 00:13:27,440Just to go over some other ways like another way to be invested is you don't really have to just have

15400:13:27,440 --> 00:13:32,720let's say let's say you have a high paying job you don't have to use the cash that you are keeping

15500:13:32,720 --> 00:13:39,040your account to invest if you have a self-directed IRA that can you can use that to invest. So let's say

15600:13:39,040 --> 00:13:45,520you have a 401k or a Roth IRA something of that nature and you have 250,000 then you can actually

15700:13:45,520 --> 00:13:54,160invest that 4 250,000 into our recommend into a fund that way it can manage that for you and you'll

15800:13:54,160 --> 00:14:00,480get above multi-returns and have a much better retirement. And also the benefit of doing that is the

15900:14:00,480 --> 00:14:06,800difference between the typical 401k Roth IRA which are normally hinged to some form of the stock market

16000:14:06,800 --> 00:14:12,880or index dealing with multi-family it's a hedge against inflation so inflation doesn't hurt

16100:14:12,880 --> 00:14:17,600people who own apartment buildings as much as it hurts people who are in the stock market. If you

16200:14:17,600 --> 00:14:23,120invest in this area actually with inflation you tend to gain more profit in the multi-family space

16300:14:23,120 --> 00:14:30,160when inflation is happening. Yeah because it seems like no matter the sebar market or a bull market

16400:14:30,160 --> 00:14:37,760the multi-family investments are better off either way. That's true if you buy for cash flow

16500:14:37,760 --> 00:14:43,280if you buy for cash flow then you'll be good simply because cash flow is going to take care of you

16600:14:43,280 --> 00:14:51,920through any form of the market. You know I've never seen that rents just decrease because of a recession

16700:14:51,920 --> 00:14:58,000but they all typically stay the same if they have to but it never just actually lose values what you're

16800:14:58,000 --> 00:15:05,280saying is that correct? Yes. Okay cool. All right so is there any other things that we need to know about

16900:15:05,280 --> 00:15:12,320in terms of investing in a multi-family or is this about the end of our road here? This is

17000:15:12,320 --> 00:15:18,400everything this is all the benefits here. So let me just ask for all of you out there listening

17100:15:18,400 --> 00:15:24,720is multi-family an investment strategy you want to incorporate in your portfolio or is this

17200:15:24,720 --> 00:15:31,200something that you think seems too complicated, too expensive or something you're just not interested in?

17300:15:31,200 --> 00:15:38,240I really want to know so make sure you follow me on LinkedIn at Holy The Shrie. So that is all I have

17400:15:38,240 --> 00:15:43,520for now. I want to thank you for coming on the show today Joseph. If you're new to the podcast be

17500:15:43,520 --> 00:15:50,400sure to subscribe for those who are return listeners. Thank you for returning. Be sure to share this

17600:15:50,400 --> 00:16:00,080episode with your friend. That is all I have. Until next time I will talk to you later.

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