033: The Best Thing Since Sliced Red Velvet Cake: Apartment Syndication
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Have you ever done something that just didn’t feel…right? Maybe you’ve done something that may be left me a little uncomfortable and annoyed? 👅
We’re not talking about shopping for jeans and getting annoyed and uncomfortable, we have all been there. We’re talking about life choices that didn’t connect with what felt right, or what felt true to you. It’s everyone’s greatest fear and we are not exempt from it, but we have to go through it to grow through, right?
We have fond, yet totally cringey moments of us working in the fashion world. 😖😖 At the height of all the success, we thought it couldn’t get any better. However, in hindsight, we can see where we were just not cut out to be taking client calls all day and all night.
I think it’s important for all of us to remember, including us, that these are moments in time that are a part of the human experience. We have all done or said or participated in things we know weren’t the best for us and that’s more than okay. If you have a lesson, a story, or a way to empower people through your journey, we can still count those moments as wins.
For us, since we have discovered not just the power, but the joy that comes from investing passively in apartment syndication, we have done nothing but sing its praises.
So, when are we doing apartment investor karaoke?! 🎵🎤
No one wants to hear songs about paper loss, they just want to see it reflected in their bank accounts!
Even though we aren’t quite literally singing, it took us a while to land in the wonderful world of apartment real estate. Now that we are, we love telling people about how they get to invest in real, physical, hard assets without the hassle of the dreaded T’s 👉 tenants, toilets, termites, and trash!
But why stop at those benefits? 🤔🤔
In addition to not having to deal, you get to share in the majority of the returns, hedge against inflation, and receive extraordinary tax benefits. We’re talking about tax hacks that the wealthy don’t want you to know about. If you think we’re kidding, check out EP024 Zero to Hero strategy if you haven’t already.
On top of potentially paying virtually $0 in taxes, you get to diversify into different markets and asset classes without having to do all the work yourself, no need for any hammer lifting here!
And, in our opinion, one of the most underrated attributes of investing passively in apartment syndication is the impact you can make on local communities to make a long-lasting change that could affect generations of renters in neighborhoods.
However, as we alluded to earlier, this may not be for everyone in the same way the fashion world wasn’t for us. Similarly, investing in the stock market, NFTs or crypto also isn’t for everyone.
Yep, the moment we can start buying boba with crypto, we’ll reconsider‼️ 😝😝
Every investor’s personality is different, in a different season of life, and has a different level of risk tolerance and investing goals. It’s honestly fascinating to hear the stories of investors sometimes because truly, no two stories are the same. We’re all unique people on our various paths– so why would our investments have to look the same?
We have spent a significant amount of time with potential investors, and it feels like we have talked to just about everyone who is considering this journey for themselves and we have heard some doozies stories.
We’ve had to talk people off the ledge from taking out a loan to begin investing, which is never a good idea by the way, to people who are simply attracted to the tax benefits that are associated with apartment syndications.
We honestly can’t blame them. Us humans are just that, humans who get distracted by shiny objects and the next best thing. But before you invest your hard-earned $50k, $100k or more into an apartment syndication, let’s make sure apartment syndication is truly a good fit for you.
If one or more of the following describes you, then you might want to think twice before investing passively into apartment syndications.
👉 You are living paycheck to paycheck (and have less than $50k of “play” money)
👉 You want to be liquid
👉 You want to have an active role
👉 You are looking for a short-term investment
👉 You want to keep 100% of the project’s profit
👉 You are in the CIA – Control Issues Anonymous
No. 1 You are Living Paycheck to Paycheck
To start off, you’re living paycheck to paycheck. 💵
This isn’t a hard and fast rule, but it’s a good rule of thumb to start with. While there are some crowdfunded real estate investment platforms that will accept smaller investment amounts, most apartment syndications start at a minimum investment of $50,000 or more.
We’ll state this as clearly as we possibly can 〰️ if you’re living paycheck to paycheck, you should not invest in apartment syndication.
Why?
Because you need to be prepared to lose that money in a worst-case scenario.
$50,000 should not be taken lightly, especially if it’s from your life savings or in another account that you view for emergencies while you’re working your day job.
There will be risks with any investment you make, so even though you can still invest if you make less than $50k, apartment syndication is a long-term investment and you won’t see your money come back to you as fast as other opportunities potentially could. We like to make sure there are a lot of contingencies in place in the investment we pursue, but the investment is still an investment, which means it’s still a risk.
Floods happen. 🔥 Fires happen. Local and federal policy changes impact communities and behavior all the time. Let’s toss in a global pandemic for good measure!
In case you’re a fetus and haven’t been on earth that long, unpredictable things happen to this world, and to you, all the time. That means if you are not prepared to lose all of your investment–and we do mean all of it– you shouldn’t invest in apartment syndication. It’s a very small possibility, but it’s still a possibility!
No. 2 You Want to be Liquid
We live in a culture of now. Everything is instant information and at the swipe of our thumb. And yet we still feel like the world moves too slowly.
This is especially true when it comes to life events. If you’re supporting your child by paying for their education, or their upcoming wedding, you’re going to want to access the capital you’re planning on investing in fairly quickly. However, this often isn’t an option with apartment syndication. 🏢
An investment in apartment syndication should be considered illiquid for the lifecycle of the investment. That is, if the projected hold time for the syndication is five years, you should plan to keep your money in the deal for the entire five years. If there’s any reason you might need that money sooner than that, you shouldn’t invest your money.
At the Kitti Sisters, we try to support our passive investors in any way we can. At the same time, we understand that life happens and unexpected circumstances come up.
We all remember, and hopefully can retire the phrase, “unprecedented times,” right? Family and health emergencies happen, and while these occurrences we hope are more rare than common, this is still a case-by-case basis and we can’t guarantee that you can pull that money out of the investment early.
Just consider yourself in a committed, five-year relationship‼️
No. 3 You Want to Have an Active Role
The third thing to consider is if investing is right for you: you want to have an active role. Are you the type to roll up your sleeves and get your hands dirty with any new project⁉️ Are you what people fondly call a “weekend warrior” where your ideal off day is revamping or repurposing something with a little elbow grease?
➡️ Then apartment syndication might not be the best fit for you.
As a passive investor in apartment syndication, you will not be the chef in the kitchen yelling that risotto is too dry. Instead, you get to be the diner enjoying all the food while still wondering what exactly makes risotto so creamy yet textured.
All of the major decisions will be made by the chef, aka general partners. ✅
These decisions range from everything that makes up an apartment deal like sourcing the deal, negotiating with the broker and/or seller, raising the capital, dealing with legal, setting up LLCs, executing the business plan, and then shifting the business plan and when to sell.
Okay, you get it right? A lot of cooking, and not a lot of eating or drinking and that’s maybe where we’ll find you! At the bar with a glass of wine and enjoying the appetizers.
One of the major perks of being a passive investor is that you won’t have direct contact with the tenants, you won’t be applying for the loan and you won’t be getting bids from contractors on your CAPEX project.
Plus you don’t have to oversee the property manager or the property performance.
Instead, you’ll have access to the important, need-to-know stuff such as the investment summary deck, and legal docs that describe the risks, and potential benefits of the investment. Plus, you get access to monthly updates on the progress of the investment.
Almost like having a pen pal 📝 you hear from every so often. Except this pen pal is a building and giving you some serious cash returns. Included in being a passive investor, is enjoying above-average return, below-average risk, inflation hedge, cash flow, and extraordinary tax benefits. 🤘
What’s even crazier is that you might not even see this building or property in person which means you definitely won’t be involved in the day-to-day details such as dealing with tenants, maintenance, or budgeting.
Maybe this isn’t cutting it for you and the thought of just sitting down to eat doesn’t appeal to you as much as the thrill of being in a fast-paced kitchen does and that’s okay! In that case, you might want to consider flipping homes and managing your own single-family house rentals, joint ventures or even leading your own apartment syndication team. As long as the pace feels right to you– that’s all that matters!
No 4. You’re Looking for a Short Term Investment
Apartment syndication is a lot of things, but a get-rich-quick scheme surely is not! We’re all familiar with the classic parable of the tortoise and the hare, we’re the hare. Slow n’ steady wins the race. Or wealth, in this case.
We’re all about the get-rich-slowly-and-steadily approach.
So if your hope is that you’ll be in and out of this investment in a year or two, this method of wealth-building might be one you want to reconsider.
In full disclosure, we have seen one of our apartment syndications exit in under 20 months. A 100 unit building in Fort Worth Texas. 😘😘 However, that’s the exception and not the rule.
Most apartment syndication projects hold at least a 5 year time period and you would be wise to plan accordingly and to have your money invested for the full projected hold period.
No. 5 You Want to Keep 100% of the Project’s Profit
The fifth reason to reconsider apartment syndication is if you’re expecting 100% of the project’s profit back to you. Remember, when you’re investing passively you are the only one in a deal – there can sometimes be up to hundreds of investors in the mix with you.
Passive investors typically receive the majority of the returns and usually see a 70/30 or 80/20 split– don’t worry passive investors get the larger number! 😎😎 However, there will always be a portion of the project’s profit that will go back to the general partners.
Why? Well, if there was ever a time when you couldn’t be bothered to go out and pick up dinner and instead had a very convenient– yet expensive– delivery to your front door, then you’re already familiar with fees. General partners are the ones doing all the heavy lifting.
In addition to working with the property management company, they also keep an eye on the renovations, handle unexpected situations, spearhead marketing efforts and prepare financial reports.
They’re expecting their fair share of the pie for the work they’re putting upfront. Similar to how you wouldn’t be able to eat, you wouldn’t have a deal without someone delivering what can feel like straight-to-your-door-ready-made-apartment-investing opportunities.
Without compensation, the general partners would have no incentive to work hard on the project.
Personally, we like when a deal is structured to reward the general partners handsomely when the investment does well. That aligns the general partners’ interests and the passive investors. When the investment does well, everyone wins. 🤍🤍
However, this isn’t everyone’s preferred method, and if this makes you uncomfortable with fees or profit-sharing structures and you would prefer to keep 100% of the project’s profit yourself, then rental properties or fix-and-flips or even buying your own apartment complexes might be a better fit for you!
No. 6 You’re in the CIA– Control Issues Anonymous
Speaking from experience the both of us, if you’re someone who struggles with being in control and needing to know the details of every little move, this mode of investing may be one you will want to get a second look at.
And there is nothing wrong with that! There was a lot of control we had to learn to let go of as we started passively investing– it’s all in the name, right? Passive. Dealing with the day-to-day decisions will be taken care of by the general partners and syndicator. Not you.
In that same vein is why this investment is so perfect for busy high-level entrepreneurs, but also something to reconsider if you want a more hands-on approach. 😛😛
The Best Thing Since (Sliced) Red Velvet Cake
We’ll shout it– and sing it–from the rooftops but we love apartment syndication and truly believe it’s the best thing since sliced red velvet cake 🍰.
And we are big-time consumers of both‼️
We love being able to invest in real estate without the hassle of a landlord and being able to invest with different sponsors in different markets within different asset classes. Plus, the tax benefits and the inflation hedge we benefit from is the icing on top of the aforementioned cake!
But just like how red velvet isn’t everyone’s favorite, investing in apartment syndication also isn’t for everyone. More than that, we want to make sure you are choosing an investment asset that works for you, your lifestyle, and your natural gifts! So to recap those 6 points again, you might want to reconsider investing in apartment syndication if you 〰️
1️⃣ You are living paycheck to paycheck (and have less than $50k of “play” money)
2️⃣ You want to be liquid
3️⃣ You want to have an active role
4️⃣ You are looking for a short-term investment
5️⃣ You want to keep 100% of the returns
6️⃣ You have CIA – Control Issues Anonymous
There is nothing wrong with ditching the passive route and going for a full-hands-in -the dirt-roll- up-your-sleeves kind of work you do yourself to learn the ropes and lessons on your own.
Or perhaps you just need an investment that is more liquid and has a shorter period, both reasons are personal and there are plenty of other investment opportunities to make that happen for you.
We love 💙 apartment syndication because we value the diversity it comes with. There are many opportunities to invest in great projects and make a lasting, local impact in communities.
So, choose your own adventure!
Which will it be?
What will you do with your incredible life, skills, talent, and financial future? 🤔
We hope you felt encouraged, ready, and prepared to take on whatever is next for you. Apartment syndication or not, there is always space for investors to make a difference! Now, if those 6 points we just went over with you, don’t float your boat, be sure to join The Kitti Freedom Club – an ordinary investors’ club for people like you to gain an inside scoop on investment deals! ✨
GET ME ON THE KITTI FREEDOM CLUB
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