009:  The Glow-Up Factor to Apartment Syndication

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You know, we’re just a couple of normal gals. We love the simple things in life. Like quality boba, a scrumptious red velvet cake, and booking all-inclusive resort vacations. Scenic room views only. 🌊

Ya know, simple. 

Of course, we also love apartment syndication. From syndication to vacation, baby. 

You see, in the apartment syndication world, we are known as General Partners, GP’s. And of course, as managers one of the main questions we get asked is: “Soooo, what’s the return looking like?” More specifically the question comes in percentages. People often ask, “If I invest x amount, how much can I expect in return?” To be honest, it’s weird if you don’t ask this question. You absolutely want to know how much is going back into your pocket after you invest in anything. 

But, much like people and Khloe Kardashian’s face, no two apartment syndications are the same. There are so many ways to structure a real estate deal, and just as many potential outcomes. 

Wait, I’m feeling another Kardashian joke in here. 🤓🤓

You know the saying: no risk no reward. And that is especially true with real estate. Some investments have high outcomes but also considerable risk involved. Other investments offer secure cash flow but without the potential for appreciation. Like the guy you friend-zoned in college, always there for you and yet somehow overlooked. 

Our method is pretty simple when deciding on where we’re investing. The first question we ask is, “would we invest in this ourselves?” followed by our own version of triple D’s: Doing our Due Diligence. This means looking into the deal, the location, and running the numbers to make sure it’s worth it to invest our money into before extending the offer to other passive investors. 

We also do something called underwriting deals which means we take on the risk financially. And again, no two underwriting deals are the same. But before we freak you out too much we have our own criteria that we look for when evaluating deals. These are the benchmarks we typically aim for when we offer investment opportunities to other passive investors. 

Now let’s take a deeper look at some specific numbers of the typical returns we aim to offer other passive investors. 👇

The Fine Print

Before we even go even a second further we need to offer a disclaimer. This is the equivalent of us ringing the bells and blaring the sirens. Because here’s what we know about you, fellow Cashflow Multiplier, there are several of y’all out there that will be in arms if we did not tell you the exact returns. We see you, because in a lot of ways we are also you. 

What we’re about to share is projected return, with any investment, we cannot guarantee any returns. This is basically the equivalent of the fine print of a coupon. Except there’s no expiration date. There’s risk associated with any investment. There’s absolutely real risk in investing in apartment syndication. However, you can mitigate your risk through education aka, a calculated risk.

Now, over here we are just giving you a rough ballpark of the kinds of returns we’re typically considering. There are three metrics of focus.

• Projected Cash on Cash Return – Return on investment from cash flow from rents.
• Projected Profit from the Sale – Return on investment from sale
• Projected Hold Time – Length money is invested or property is held

Projected Cash on Cash Returns: 7-9% Per Year

Okay so let’s define cash flow which sounds really fun, we have to admit. I picture a lazy river but just filled with Ben Franklin’s face. Kinda creepy but also fun?

Cash flow is the cash on cash return you get during the course of the investment. It’s simply everything you’re putting in your pocket when your money is invested after all things considered such as expenses, mortgage, or vacancy costs have been accounted for. 

Cash on Cash Returns is the money that’s left after you factor in vacancy costs, mortgage, and expenses, it’s the pot of money that gets distributed to passive investors, usually on a quarterly basis. 

Okay, we’re gonna get Math Teacher 👩‍🔬👩‍🔬 on you with this example 〰️ If you invested $100,000 in an investment opportunity and earned 8% per year, the projected cash flow would be $8,000 per year or roughly $2,000 per quarter that comes from the pot that is distributed for passive investors. This equates to $40,000 from cash flow over the hold period of say 5 years. AKA $40,000 more dollars than what you made in the last 5 years. 

Now, let’s compare this if you put that same $100,000 into a savings account earning 1%. Over the course of five years earning 1% from the $100,000 in savings, you would make about $5,000 in interest over the course of five years or $250 per quarter. That means that, at the end of 5 years, you’d have a grand total of $105,000. Whereas with apartment syndication, you could be making upwards of $140,000.

Apartment syndication really is the secret sauce to seeing your investments go even further.  🙌

The Glow Up

Here’s another definition for you, Projected Profit.  Projected Profit is the profit made when the property is sold at its newly improved value after 5 years. Basically, it’s the glow-up of property investing. When we say glow-up for properties we’re talking about how the sponsorship team has already executed the business plan, the units have been renovated, and looking good, the tenant base is strong and the rents are at market rates. Each of these things is crucial to the apartment glow-up, uh, we mean property value because they contribute to the overall revenue that the asset is able to generate. 

Commercial properties especially are valued at the amount of income the asset is able to generate. That’s why it’s crucial these improvements are made because they add significant value to the property. 

For us, the projected profit at the sale is 40%-60%. Again, using that $100,000 figure,  you would receive $40-60,000 in profits upon the sale of the asset in year five. This is on top of the cash-on-cash returns you’re receiving throughout the hold time. Yes, don’t forget you still make money while you wait for your investment to come full cycle.

We should also point out that the projected profit on the sale is directly tied to executing the business plan over 5 years, improving the asset value, appreciating the market value, and raising income or rents that the sponsor team implemented. It does NOT factor in the appreciation of that particular market. Hence, the profit from the sale can potentially be greater than 40-60% projected. ☺️☺️

So, Where Do You See Yourself in 5 Years?

We’ve been using 5 years as an example of projected hold times because that is typical and it’s the amount of time we like to keep our hold times for projects. We have also had full-cycle returns in as little as 24 months. Remember, full-cycle is another way of saying “sold”. See? You’re already talking like one of those finance bros. 

So why five years? 🤔 Typically because a lot happens in five years. I mean, think about it. Five years ago we were all wearing choker necklaces and jamming to Taylor Swift’s iconic Blank Space and no one could tell you what a Covid was. Seriously. A long time ago. 

Even for you! Think about where you were five years ago and think about what could happen in the next five. Living your dream life in Italy, go back to school, start having kids! Five years also gives you the time you need to execute the business plan for renovations for your asset, the unit turns, and add value to the property increasing income. And it’s also not too long of a time that passive investors can receive a reliable return to fund their kid’s college tuition.

Plus, commercial real estate loans are often on a seven— or ten—year fixed term. So with a five-year projected hold time, that gives you a bit of buffer to hold the asset a little longer if needed, in case the market isn’t as hot at the time we’d originally projected a sale.

The other thing to consider is that real estate markets ebb and flow (here’s looking at you to all the people trying to buy a house right now) meaning 5 years can allow our firm to best exit a property at certain times if the market is peaking or hold to move through a low point in the market. It’s true what they say, timing is everything. Especially in Real Estate. 

Don’t worry, we won’t leave you hanging. Check out the Ultimate Passive Income Guide and join the waitlist for the Kitti Freedom Club for more investing guidance and support right here‼️

 

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