071: 5 Tips to Get Apartment Syndicators to Want to Partner With You
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If you’re someone who wants to enjoy the economy of scale, be part of the bigger and potentially more profitable deal while working with professional management and surpass the limitations that come with size, the amount of credit, and the amount of capital you need – then you need to be a passive investor in apartment syndication deals. 😊😊
There is no 🙅♀️ secret that we love what we do and feel so fortunate that this is our life and we get to share what we do with people like you!
Now, people will listen to a couple of episodes and ask us “what’s the difference between an active and passive investor?” regarding apartment syndication. And if you’re new here, apartment syndication is our favorite mode of investing.
Nan, let’s walk people through what’s the major differences between active and passive investing because both have their perks and their considerations. 🤓🤓
Yes… Do you know what I think of when I consider the difference between an active and passive investor in real estate?
Mmmmm, other than what’s in the name?
Going to a club!
Okay interesting, it’s been some time since I’ve been in one of those. I’m more of a pool all-day dinner by 7 and bed by 10 kinda gal.
I know I know but stick with me for a second. Active investors are like club promoters. They are the ones who know where the best clubs are and which people to bring into the scene. They give you the all-access experience without killing yourself standing in heels waiting in line. They got you covered. 😉😉
Okay, so it’s kind of like how active investors are hands-on in making the deals happen. Active investors, sponsors, syndicators, general partners – whatever! They roll up their sleeves, find the properties, kick dirt, find people to bring into the deal, and maybe even go so far as to work on the properties themselves.
Exactly– making passive investors the club goers. Enjoying all the perks of a great night out without the drama of finding out which nightclub is the best to go to in the area. ✨✨
And you’re forgetting one of the most important parts– they bring the cash to spend!
Riiiight because passive investors are people who bring in the capital and don’t want to get their hands dirty. They just want to see their capital grow!
It’s almost like investing with Wall Street, except Wall Street is NOT a person you have an established relationship with and investing in real assets with. Not watching stock go up and down on your phone.
And here’s the best news, you don’t need an invite to attend this exclusive club. It’s not difficult to be a passive investor, but there are a couple of things you need to be good at. 🤩🤩
Don’t worry, we got you covered. This is what we’ll be breaking down in today’s episode from your favorite not-so-clubby club promoters!
Market Madness
The first thing you need to know is about choosing the market you want to invest in. If you’ve turned on the news or looked at your phone in the last few months then you know people can’t stop talking about this white-hot market we’re living in. 😇😇
We have been hanging out with experts who said that real estate is not a macro asset. It’s not a commodity. Each individual market has its own market dynamics. Remember ‘08? Unlike the last major housing crash leading up to that year, people were buying properties and just sitting on them – rent was something no one was taking seriously.
Many people were telling themselves “I’m gonna buy this property and 10 years from now, I’ll resell it for $100-$200K more than I already paid for it.” Looking back, we would call that some pretty speculative activity. I mean, in today’s world we laugh at anyone who thinks they can predict the housing market 2, 5, or 10 years from now!
Nan, thankfully, today’s investors are a lot savvier. 😘😘
They look for markets that have these four key metrics:
- Find your hive– understanding net migration in the area you’re looking to invest in.
- Go where the jobs grow– what’s the job growth look like in the area?
- The inventory to construction pipeline– literally looking at the tangible construction supplies that are available to meet the demand of the people who want to move to the area.
- And lastly, no vacancy which goes into why we traditionally look for physical vacancy rates at 8% or lower.
Oh, and we can’t forget one of the most crucial pieces to investing in the right market – make sure the state is business and landlord friendly! Trust us, this will save you a ton of time and headache down the line.
They look for markets that have four key metrics that we do a deeper dive in on EP057 of the Cashflow Multipliers podcast Our Little Black Book for Using Metrics to Make Investment Decisions.
In that episode, we go over four key metrics.
- Find your hive– understanding net migration in the area you’re looking to invest in.
- Go where the jobs grow– what’s the job growth look like in the area?
- The inventory to construction pipeline– literally looking at the tangible construction supplies that are available to meet the demand of the people who want to move to the area.
- And lastly, no vacancy which goes into why we traditionally look for physical vacancy rates at 8% or lower.
Oh, and we can’t forget one of the most crucial pieces to investing in the right market – make sure the state is business and landlord friendly! Trust us, this will save you a ton of time and headache down the line.
Stay in Line
The second key thing to take note of to make it as a passive investor is to make sure you pick a deal that lines up with the investment objectives for your money.
In other words, if you’re investing for cashflow, then you have to pick a deal that is going to generate said cashflow 💰💰. It’s an obvious duh but you’d be surprised at how many people get lost in the weeds and forget why they started.
The same can be said for capital. If you’re investing for capital gain, you pick an investment that has major appreciation potential.
Get Your Head in the Game
Third, the most important thing a passive investor should be doing is due diligence on the sponsor. This is crucial and we can not emphasize this enough. You wouldn’t hire someone without first interviewing them, right? It’s more important you vet the team and “club promoter.”
Now our favorite question to ask when vetting someone is: Would we want to drink wine and share a charcuterie board with them? If the answer is no, then no it is, for everything. If you can’t bond over brie then they’ve gouda go. If you don’t feel that connection, then why on earth are you going to wire over $100k, $500K to this person? It doesn’t add up.
When investing a lot of money, you want to be as certain as you can get that your money is in the right hands. You want to seek out people who can deliver on their promise, have a firm foundation of knowledge, and know what they’re talking about! Ask yourself, does this business plan make sense? 🕵🏼♀️🕵🏼♀️
You don’t need an MBA to understand if the business plan makes sense to you or not. But what about when it comes to the team? This part usually happens at the front end. You know when you go on a date, people tend to get nervous because you want to make sure the person you’re seeing likes you for you, but even more importantly – make sure you like them.
The same can be said for getting to know your sponsor and your sponsor getting to know you.
Another economy of scale that we haven’t touched on as much but makes a huge impact is that once you’ve done the work and vetted the sponsor team you don’t need to repeat this process unless you decide to work with another team!
If you choose to repeat and invest with the same team, then you can focus on whether the investment itself matches your own personal investment philosophy and grow with the team from there! 😊😊
This is something we practice. Nowadays, when we invest as passive investors since we’ve done the heavy lifting work upfront, by vetting the sponsorship team, when there’s an investment opportunity from them in the market that we like, and it aligns with our internal investment criteria – property vintage, the submarket, average household income, etc. we just invest!
Indeed.
Now, we’re proud of the fact that we get many repeat investors on each deal because passive investors love the idea of growing and scaling with us! It’s one of the reasons people stay with us because they don’t have to do as much due diligence the second time around.
They understand the value of time ⏳ and don’t want to waste it vetting another team when they’ve seen the proven results we deliver time and time again.
Plus, we just love the folks we get to work with and are very lucky to have such amazing teammates grow with us year after year!
As of now the majority of our deals are 506B offerings, which can take both accredited investors and sophisticated investors.
So Palm can you explain for our listeners what is the difference between an accredited investor and a sophisticated investor, and like, how do those two investors, you know, differ from one another because I think those words often get confused.
My pleasure…
For simplicity’s sake, the main criteria for being an accredited investor is outlined in Regulation D, Rule 501 of the 1933 Securities Act. These are the most important parts:
- An individual with an income over $200,000 (or a joint income over $300,000)
- An individual or couple with a net worth exceeding $1 million, excluding the value of the primary residence
- Business entities worth over $5 million
- An individual with a professional certification, or status as a private fund’s “Knowledgeable Employee”
And for sophisticated investors?
Sophisticated investors have an in-depth knowledge of investment and expertise in the market that makes them meet certain investment criteria.
Now, if you’re accredited by today’s standards, then the sponsorship can put the word out that they’re looking for accredited investors if they’re offering 506C – essentially, what 506(c) offering is it’s an offering that the sponsorship team can solicit investors without prior pre-existing relationship and advertise their offerings. Hence as a passive investor, you don’t have to spend your time hunting down a sponsorship team. They’re already looking out for you!
However, if the rules changed, as proposed by the SEC earlier this year, the individual net worth requirement could change from $1 million dollars to $10 million dollars, excluding the value of the primary residence which might be hard for those deals with the right sponsorship team to find you.
You’re going to wish you had a pre-existing relationship with someone who has these kinds of deals already in their back pocket.
This is why we recommend getting into a relationship. A relationship with a sponsorship team/ a syndicator, of course! Find multiple of them so you have pre-existing relationships in place and you’re eligible to look at their deals and partner with and/or invest right alongside them– without the hassle of interviewing and vetting.
Find Your People
And before too many of you start asking where do we find these people? It’s all about location, location, location, as in, where are you locating yourself to get into a relationship with the best sponsors?
There’s the obvious choice, and our personal favorite place to be, the Kitti Freedom Club, a group of passive investors for everyday people just like you!
Currently, all of our investment opportunities require 506(b) pre-existing relationships with accredited or sophisticated investors. What does this mean? We can take as many accredited investors as we chose, but cap our sophisticated investors at 35.
So for all you sophisticated investors out there, be sure to not miss out on our investment opportunities and jump on a call with us and get in on the Kitti Freedom Club so you can participate in an investment that has been historically known to create generational wealth.
Now, another place to find an incredible team is you can ask people in your circle who have success in apartment investing and becoming passive investors where they started. Getting in on those warm leads will definitely give you a major leg up!
Referrals are the best!
Yes, because you’re besties have already vetted them!
The Investment Journey
So you’ve done the hard part, you or your bestie already vetted the team, and worked through every corner of due diligence. You’re ready to see the money come in and come in fast but there are a few considerations to make first.
One, what’s our communication style? Are you someone who needs to be updated monthly or quarterly about your investments?
Second, when is the first distribution? For our investment opportunities, we typically ask for 6 months after ownership before we make the first distribution so we can stabilize the asset first.
Other things to consider on this journey are checking to see if there is an investor portal that houses pertinent records.
And you want to look for someone with a track record. A strong track record.
Plus, a rookie mistake we made when starting out was saying yes to every deal. It’s okay to take your time and find what works for you! Getting to know your sponsors is a large chunk of the process so take your time, breathe easy, and rest assured your money is working for you for a change!
As a passive investor, your job is done as soon as you’ve made the decision to invest and send the wire. Now, watch the perks roll in as you enjoy making money while you sleep, hedge against inflation, and gain extraordinary tax benefits while you have a team of experts working hard for you.
Our only regret? We wish we would have started sooner. So if you’re someone who is just starting out in your passive investing journey and wondering if it’s too late to start, the answer is absolutely not. Now is the time to activate being a passive investor while the market is in our favor.
So that’s it guys thank you for watching all the way to the end, if you like this, share it with your friends, as learning and growing with your besties is way more fun!
What are you looking to be? An active investor or a passive investor, we want to hear about it, put it in the comment below.
Finally as always, please click the subscribe button and the like button to help us know what you like to hear.
This is what we do every week, where we share our best tips, tricks, and secrets in owning your own time, and how you, yes you, through our favorite mode of investing – apartment syndication, you can do it too. And once you do that your life will never be the same again. Until next time, Cashflow Multipliers!
As always, we are so inspired by our Cashflow Multipliers tribe and this community just gets better and better! Be sure to check us out on Instagram @thekittisisters and on our website, thekittisisters.com to learn more about the Kitti Freedom Club, listen to past episodes, and check out other freebies.
Until next time, Cashflow Multipliers!
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