Don’t Get Caught in These 6 Investing No-No’s

Don’t Get Caught in These 6 Investing No-No’s - The Kitti Sisters

015: Don’t Get Caught in These 6 Investing No-No’s

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It should come as no surprise that both of us are a little passive income obsessed. And for good reason! Apartment investment has been the asset that has changed our life. Assets are designed to put more money in your pocket over time, so we’ve been dedicating our lives to learning all we can about apartment syndication and investment, and now sharing our knowledge so other people can learn from our wins and mishaps. 

Let’s call them…growth opportunities. 🤟

There is definitely some front-end work that comes with apartment syndication. And if you’re anything like we were, you might have a few questions as well. Those questions might sound like: Where do you begin? How do you make money on a deal? What if this doesn’t work?! If that sounds like you, good. That just means you’re taking this seriously and you’re doing an assessment of yourself and asking the most important question of all— is this even realistic? 

The answer to that is one big HELL. YES. And we’re living proof! Like any investment, there is a learning curve and there is the potential of making some expensive mistakes. But hear this: We’re not in the business of talking about things we don’t understand first. I mean, you don’t hear us talking about NFT’s or cryptocurrency, do you? Not that there’s anything wrong with those assets, it’s just not what we’re in the business of!

And we only practice what we preach. That’s why in today’s episode we are going over the six common investing mistakes you might be making and how to avoid them. We have seen over and over again our fellow passive income friends make these mistakes and we don’t want that for you! Even people at the top of their game have been known to have a flop or two. We all can’t be flawless legends like Adele. 🎵

We’re just trying to be the Adele’s of the apartment investing world, and this episode is going to get you a little closer to your 30 albums. 

Flawless. ✨

Mistake #1: Not Doing A Deep Dive on the Sponsor & Their Track Record

Picture 🖼️ this ▶️.  You’re on a date and the first thing this person is telling you is their dating statistics. Twenty-five first dates, three serious relationships, countless rounds of meeting up over drinks or coffee. Then they go on and on about how much they make annually and where they fall in the tax bracket. 

Well, some of you actually might be into that (hey! We can’t hate that. These are some hard times‼️)

All in all, it’s a little, off-putting. Like, hello, this is the first date. Not your Spotify wrapped. If you’re like most people, you want to go deep in your relationships and that is especially true of your relationships in the apartment investing world. A lot of people don’t do the due diligence of knowing their apartment syndication sponsor and their track record. 

Many investors out there make the decision to invest mainly on the numbers. They look at the hold period, the returns, the equity multiple, etc. These details are plastered on the front of every offering memorandum, on their websites, and boasted about on their platforms. Too often they forget that real estate investing is a human game. The competitive edge of one sponsor over the other lies in their network, track record, skill set, and ability to operate a deal well.

Can they hold a conversation well? Are they willing to put in that extra mile? Do you genuinely enjoy being around them? We like to call this “Passing the Charcuterie Test” meaning, would we grab drinks and have a conversation over wine and cheese together? Because if you can’t do that with us, we don’t care about how many returns a sponsor has, we ain’t returning back to them for a hangout. The most important return of all. 

A sponsor might have an excellent deal but if the team managing that deal is inexperienced or ill-equipped, then you could possibly lose money on that deal. On the other end of that, say a sponsor has a reasonable deal, but their experience, industry know-how, and the strong operating team could take that ordinary deal and get it to the next level, and get you a better return, we will take that any day of the week.

It’s also helpful to think of this as investing in the sponsor too, not just the deal itself. Anyone can throw numbers on a spreadsheet and seem like they have it together. We don’t know about you, but we’re more into people who can make spreadsheets and turn them into fun and engaging conversations. Now that is second date material.

Mistake #2: Not Diversifying and Only Investing in One Deal

You know the phrase, “show me your friends and I will tell you who you are.” Well, the same can be said for your real estate investments. “Show me what you invest in, and I will tell you what you earn.”

Investing in apartment syndication is a great way to diversify your earnings, but it’s equally important to invest in more than one deal at a time. Diversifying across different assets can help a passive investor manage risks and minimize the impact of market volatility. Meaning, that if something happens in the market you’re investing in, you have other markets and other assets you’re also investing in so not all of your eggs are in one basket, so to speak. There are massive benefits when investing in more than one deal.  It can enhance your earning potential and stabilize your returns. ⚡

Now, that’s speaking our love language right there. Enhanced earning potential and stabilizing returns, ohh baby! We can’t get there though by just investing in one deal at a time, there have to be several on the table. We’re always looking for the next right deal with the right sponsor because we know how quickly things can change, and we don’t want to chance it by keeping things steady with one deal at a time. I guess you can say we playing the field a little bit.

To be honest, this was one of the biggest determining factors for us when we were first starting out on this journey. Knowing that we could invest in different cities, different markets, and different complexes. What can we say? Maybe we get bored a little easily, but apartment syndication has always kept us on our toes and on the lookout as we spread out our bets. 

Mistake #3: Not Asking More Questions

Where are our “why?” people at⁉️ Or better yet, the classroom troublemakers who sat there making noise, asking questions, and generally causing a ruckus? Listen up, this one is for you. Not asking enough questions is one of the biggest mistakes investors make when starting out, and it can be completely avoidable.

Some key things to look for when you’re listening to a presentation by the sponsor is, are they performing “stress tests” for worst-case scenarios? And no, we’re not talking about your stress level, although hopefully being more financially free will help in that department.

We’re talking about stress in the market and calculating for any hiccups that could potentially occur. It’s important to listen for these things or ask questions about when not addressed because it shows you’re doing your part by thinking through the calculated risk of investing and your genuine interest in the sponsor and what they have to offer. 

One of the first steps of apartment investing is by listening to an investment opportunity webinar. Tuning into this webinar will help you understand the apartment on the market and the team putting on the webinar highlights the deal and answers any questions you might have. It’s also important to note that if fees are not stated explicitly in the offering memorandum, you should always ask. 

Oh, what is an offering memorandum? An offering memorandum or, offering circular as it’s sometimes referred to, is a type of prospectus for a bond or other security. Basically, an agreed-upon understanding of the property and the offering.

Plus, you will have so much to say and offer to the sponsorship team because you follow the wise words of the Kitti Sisters and know a lot more about apartment syndication and other assets. You got this! So don’t be afraid to speak up and ask those questions, because if you don’t ask then, you’ll definitely regret it in the future when it can become too late. 

Mistake #4: Not Understanding the Drawbacks in Apartment Syndication 

In a world where we are so used to the “now”, apartment syndication lives in the future. It’s a longer-term investment strategy. Unfortunately, there is no Post-Mates option for the perfect apartment syndication deal delivered to your front door. In this business, you probably won’t see significant returns for a few months so try not to stress about it. 

Talking and communicating with your sponsor will be key here. You want to do this for several reasons, to let them know you’re still invested in the deal, and you’re not going anywhere. And also to discuss things such as timelines and returns and any foreseeable drawbacks you might need to be made aware of. Remember, we love asking questions! 

One of the main drawbacks is that your funds are locked in for three to five years or more depending on your sponsor’s plan. This is why attending that webinar is super important so you can understand the nitty-gritty of what they’re thinking and how long your money will be locked into the investment. 🤟

Another thing to know about your sponsor is that it’s their decision when to refinance or sell the property. That’s why these types of investments are considered “illiquid” investments. You can’t easily convert your investment into cash like you can for stocks or mutual funds. So, think of your money in these types of investments as brick and mortar rather than straw. 

But your sponsor does not have to be the big bad wolf who’s blowing it all down! You can receive some cash flow along the way and you might get a portion or all of your initial capital back in case they decide to refinance. While you might not be able to access your funds for 3-5 years or have much control in the day-to-day decisions, you have to remember you committed to being a passive income investor. And in order to be a truly passive investor, sometimes we have to surrender a little to get a lot back in return. ⚡

This is why investing is so perfect for high-level entrepreneurs! If you’re listening to this thinking, “but Palmy and Nancy, you don’t understand! I feel the most alive when I’m planning! ” Look, we get it and we have been there. Control Issues Anonymous, the other CIA. We know this might be hard to listen to but this is a hands-off approach type of investment, and you will get there! 

If you need access to capital quickly, and get your money within 24 hours and not 24 months, then we wouldn’t advise putting it in one of these types of investments. You also have to consider the market and where it’s going. We all know the real estate market tends to have the mood swings of a thirteen-year-old, but apartment buildings, historically, perform better than any other real estate type, making it a more calculated risk investment. 

Also, another pro-tip to consider is where you’re investing. Everyone knows the three rules of real estate, location, location, location. That’s why for us we tend to avoid the West Coast and New England which tends to be the most sensitive to the market cycles versus the more stable south. 

Mistake #5: Investing Out of FOMO (Fear of Missing Out) 

If you’re anything like us, you can get major FOMO.  😬😬 Or, more realistically, just invite us to things. We’ll probably say no but we love being on the guest list. In our first apartment investing deal, we truly felt FOMO. I mean, it was definitely our own fault because we didn’t do our due diligence (do as we say, not as we did!) and just jumped at the first available opportunity that came at us. 

No interviewing the sponsor, no knowing who the team was and we definitely did not ask enough questions. 

As fate would have it, the deal ended up not being as cash flow producing as we had hoped, but overall, we are getting 2.02x equity multiples in a 4 year hold period. Hear us out, we are super thankful but we look at that time and realize our money could have been doubled if we had looked more thoroughly into it.

Our ultimate mistake was that we didn’t look at the comparable buildings and were not made aware of any new construction that was going to affect the rent income. Not knowing these facts caused the sponsor team to make a rent concession. 

This is all totally avoidable if we had simply done our due diligence. 

So, yeah, while it does suck not being invited to every outing, investing FOMO causes you to lose out on money and is not the best strategy to grow your wealth rapidly.

Mistake #6: Not Clearly Define Your Internal Investment Criteria 

Our last mistake is centered on you. Yep, you. You are the one who is ultimately creating boundaries, setting goals, and knowing how much you want to make. It starts internally by asking yourself some questions and setting your own limits with how much you are willing to invest and who you want to invest with.

To start, here are some things to internally define from early on. You’ll need to know what markets, number of units, what apartment class (Class A, B or C), in addition to your investment horizon, and when you need the full fund back. AKA, when you can start cashing in the checks.

Your internal investment criteria are ever-changing and will vary from investment to investment, the market, and where you are financially. ⭐ This method is meant to help you manage your stress, not add to it. The more clear and upfront you are at the beginning, the more success you will have in this process. 

Some other questions you might need to consider are. What market do you want to invest in? Do you want it to be landlord or unlandord friendly? Are you looking for cash flow appreciation play? What apartment complex size are you comfortable with? 

You might be surprised to know this, but in apartment syndication, size doesn’t really matter because your sponsorship team will be handling all the day-to-day details, which means, no, you will not be managing the whole enchilada that is the apartment. CIA, remember⁉️ That’s why investing in a larger deal isn’t as scary as you might think. 

As a matter of fact, due to the economy of scale, larger deals tend to perform better as the team can afford to hire a team of experts such as property managers, and an on-site maintenance team. Which means less work for you overall. 

A common mistake passive investors make in apartment syndication is only investing in Class A apartments. You know, the shiny new toy everybody wants to get their hands on. The truth is, that just because it’s newer and nicer doesn’t necessarily mean more cash flow. We found our sweet spot to be in the Class B apartments as it is a newer asset compared to Class C. Class B tends to be better for a tenant profile and less deferred maintenance while Class A is more susceptible to economic turndown. 

Mistakes Are Opportunities for New Takes 

The truth is, there will be bumps in the road when you’re apartment investing. We’re human and still learning every day. As the market changes, new complexes go up, new sponsorship teams vie for our attention, and there’s always a lot happening in the passive income world. 

But know this 〰️ Investing in real estate is one of the most effective and powerful ways to generate multiple income streams. Once you start achieving financial independence, every turn, no matter where it takes you, will be well worth the experience. 🤓🤓

Confidence is key in this business, and when you combine due diligence with checking the numbers, there won’t be anything to stop you! You will be well on your way to making your financial freedom dreams come true! 

And we will be with you every step of the way.


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Invest with the Kitti Sisters

Fortified with years of experience, fierce passive investors (we ALWAYS in our own deals), and selected high qualities investment opportunities to help build your long term wealth no matter what stage in life you're on. We will show you the ropes, help you build out a powerful, personalizes strategy, and give you masterful, financial freedom focused on living your lifestyle dreams.

We're Palmy ➕ Nancy Kitti 〰️ The Kitti Sisters

A sister duo team obsessed with all things financial freedom, passive income, and apartment investing + apartment syndication, who turned a $2,000 bank account into a nine-figure empire.  Now, we're sharing with you the behind-the-scenes secrets of our wealth building strategy.

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