How Syndications Work

If you're into the details of a syndication, this page is for you. Below you'll find the nitty gritty details of how the process works and your role.

We Acquire Properties

We work with partners to find great deals, negotiate the purchase, and finance the properties.

How We Select Markets to Invest In

High Growth Markets

We look for growing markets in terms of population, jobs, income, home values, and rents. As they say, "a rising tide lifts all boats," which is why a growing market is so important.

High Yield Markets

We look for areas in which properties are valued for less relative to their income than other areas, i.e., their cash-on-cash returns are higher. One good indication of yield is the cap rates in those areas; the higher, the better in terms of potential cash flow.

Why Multifamily Commercial Real Estate

A timeless - tried and true - asset class that provides a basic essential human need and is still in demand during market ups and downs. There are powerful macro factors that currently make apartments an exceptional investment with plenty of room for more profits.

First and foremost, millennials aren't buying homes at the expected rates. Meanwhile, retiring baby boomers are moving to urban apartments, creating additional rental market demand. The overall market is shifting to a rental environment, with renter rates significantly increasing over the last 12 years, as shown in the following graph.

Chart of Housing Inventory Estimate: Renter Occupied Housing Units in the United States

Source: FRED Economic Data

Furthermore, the supply of new apartments is not keeping up with demand in most markets, and this is expected to continue for many years.

Chart of Rental Vacancy Rates in the United States

Source: FRED Economic Data

According to the National Multifamily Housing Council and the National Apartment Assoc., the US will need to build more than 4.6 million new apartment homes by 2030. It will take an average of 325,000 new apartment homes every year to meet that demand, but only 244,000 apartments were built from 2012 through 2016.

Part of that demand comes from:

  • Changing lifestyles: people are delaying marriage and starting a family. Over 75 million people between 18 and 34 are entering the housing market primarily as renters.
  • Demographics: ages 55+ will account for more than 30% of rental households.
  • Immigration growth: international immigration is expected to account for 51% of all new population growth in the US, and immigrants have a higher propensity to rent and typically rent for longer periods of time.

Our Buying Rules

  1. We buy for cash flow, not appreciation - this is called a value play, not a yield play.
  2. We buy based on current actuals and not on future projections.
  3. We secure long-term debt with a term longer than the hold period to give us the flexibility to ride out an economic downturn.
  4. We keep ample capital reserves available at purchase (at least 6 months). This increases the investment's stability and protects the investor's capital.

We believe the multifamily housing market is resilient and has a very bright future. Everyone needs a physical place to live, and for both lifestyle and financial reasons, many Americans choose to rent an apartment instead of owning and maintaining a home.

You Invest

Investors become partners in the ownership of the actual property.

The Different Steps For You to Invest and the Timeline

  1. Join the investor club.
  2. We'll send you an email with a link to the "formal" investment opportunity. Here's an example of a 43-unit property in Texas.
  3. Log into the Google Drive Data Room, click "Offerings," and review the opportunity. Click the button "Make Offer" and enter the amount you'd like to invest in the Google Form.
  4. We'll review your offer to make sure it meets our investor guidelines.
  5. Once we accept your offer, you'll receive an email to review and sign the legal documents (i.e. the Private Placement Memorandum, a Subscription Agreement, and Operating Agreement).
  6. Once you Docusign the documents, you'll receive wiring instructions.
  7. You wire the funds and then wait for closing.
Example property package

Questions to Ask When Vetting an Apartment Syndication

  • Does it align with your financial goals?

  • Who is the deal sponsor (aka General Partner)?

  • Is sponsor's pitch and offering memorandum well researched?

  • Is it for accredited or non-accredited investors?

  • Is the property in a strong metro and neighborhood?

  • What is the risk vs. gain?

  • What class is the property?

  • Is it a value-add project?

  • What are the return metrics - cash-on-cash return (CoC) and average annual return (AAR)?

  • What are the tax considerations?

  • Is the General Partner planning on refinancing at some point?

  • Whare the General Partner's fees and splits?

  • What do cash flow distributions start? How frequently are they?

  • Do the subscription documents align with the deal?

Possible Sources of Funds

Roll your IRA account to a "self-directed IRA custodian" (SDIRA)

Your money is held by a third party (called a custodian), but now the direction of investment is made by you. You can still invest in index funds, but you can also invest in partnerships, buy precious metals, buy real estate, and even lend money. There are some rules to watch out for - like you can't be directly compensated from the investment (so you can't buy a property that you self-manage), and you can't touch the money until you retire - but you still get the same tax benefit of not paying income tax each year.

If you have an IRA or 401(k) from a previous employer, rolling over to an SDIRA could be a great option.

Real estate equity

If your mortgage balance is less than 50 percent of your home's value, there is potential to unlock some of that equity with a new mortgage, second mortgage, or HELOC.

If you owned your home, or a vacation home, for more than 15 years, chances are you're sitting on some equity that can be used to grow your wealth.

Cash

Inheritance: A bittersweet occurrence, but perhaps we can help this final gift from your loved one better the life of your family.

Savings: Are you a well-disciplined saver but frustrated that you're not keeping up with inflation? Multifamily real estate provides above-average returns while hedging against inflation.

We Manage Everything

We oversee the property managers, who collect the rent from tenants and manage the property.

The 5 Phases of a Multifamily Value-Add Deal

Acquire the asset: After finding a property and performing due diligence, money is raised from investors.

Increase the value: After purchase, value is increased by driving up the Operating Income and reducing expenses. This is done by:
  • interior and exterior renovations
  • adding or enhancing amenities (dog park, gym, laundry, etc)
  • increasing occupancy
  • rebranding with a modern name and signage
With a multifamily asset, the valuation is based on how much income the asset generates, so every extra dollar of rent adds to the value of the property, in addition to generating more monthly cash flow.

Refinance: After the value-add renovations are complete, the property will appraise at a higher value. A refinance is done to pull out some of the additional equity, and you can get a significant portion of your original capital returned early.

Hold: Hold the asset whole, collecting cash flow. We hire experienced property managers to manage the property and keep it running at peak efficiency. Investors are provided with quarterly performance reports and cash flow distributions from the profits. A common holding period for syndications is 5 years.

Sell: The renovations are complete, monthly revenues have increased, and the asset has appreciated in value. By returning your capital, it can be deployed into a new value add opportunity.

You Receive Passive Income

We do all the work while you sit back, relax and enjoy the benefits of passive income.

You Make Money in 5 Ways

  1. Consistent cash flow from the rent that's 100% passive.
  2. Leverage due to the lender providing a large part of the purchase.
  3. Equity, with the rent income paying off the mortgage over time.
  4. Appreciation from rising property values.
  5. Tax benefits for real estate investors
    • Depreciation: allows real estate investors to write off 3.6% of the value of the building each year as an expense, even though there is no out-of-pocket cost for this expense.
    • Cost Segregation: a technical process (that we manage) where short-life items are separated from long-life items and depreciated rapidly over 5-7 years. This typically doubles or triples depreciation during the first five years of ownership.
    • 1031 Exchange: when real estate is sold for a large profit, instead of paying capital gains taxes on the gain, you can transfer those gains to a new property which allows you to defer taxes.

Are You Investing Like the Wealthy?

The middle class, upper class, and ultra-rich invest very differently. Edward Wolff's research shows how each class allocates their wealth, with exact percentages showing where they put their money.

The largest allocation for the ultra-rich, at 49%, is only 7.9% of the wealth allocated for the middle class.

Multifamily commercial real estate is an incredibly smart investment that gives you passive, tax-advantaged cash flow with limited exposure to market volatility and above-average returns hedged against inflation.

We make it simple for busy professionals to participate and accelerate their wealth and build generational wealth. The next step is to set up a brief call with us.

Percent of Gross Assets

Chart of the percent of gross assets by income class
James Furlo

Join the Investor Club

Step one is to schedule a 30-minute call. We'll review your investment goals and make sure a partnership is the right fit for both parties. We can't wait to build a relationship with you!

Schedule a Brief Call