Jump into a pool of money

Jump into a pool of money

If you’ve read my other articles, you may know that Adams Investor Group puts together syndications to buy multi-family apartment complexes.  We combine our money, credit and other resources to acquire large income – generating properties so that everyone in the group benefits.  You may be wondering how syndications work and why you would want to be a part of one.  Couldn’t I just go out and buy my own property? Certainly you can. Of course, if you’re looking at big apartments, you’re going to need a seven figure down payment. It also helps to have some experience when you go to the banks or hard money lenders and ask for funding. When we choose to work with people at Adams Investor Group, we generally have a minimum requirement that you come to the table with $100,000 in investable cash – be it actual money in the bank or perhaps a self-directed IRA. So let’s break it down for you and compare the syndication vs. doing it on your own: Putting the group together Without going into excruciating detail, this is generally how we pool our resources. We form a limited liability company (LLC) where you and the other investors are members and Adams Investor Group is the managing member. We buy the property in the LLC. For example, let’s say that we’re buying a 200 unit apartment complex and we need $1 million for the down payment. You and 9 other investors put up the cash and receive an ownership in the LLC. As managing member, Adams Investor Group we:  Use our expertise to find and analyze deals. Put the deal together. Manage the property and the investment after we close. Communicate...
Does One Size Fit All?

Does One Size Fit All?

When we talk about multi-family properties, we’re covering a pretty broad topic, aren’t we?  After all – a duplex is a multi-family, and it only has 2 units!  However, when you’re looking at multi-family apartments, it’s important to make a distinction between a multi-unit house and what qualifies as a true apartment building/ complex.  Adams Investor Group targets 100 to 400 unit deals and to some that seems a bit overwhelming so let’s start by setting a minimum size of 20 units and up.   Why 20 units?   Here is where the distinction comes into play. With single family homes, duplexes and even quad’s – emotion still plays a part in the sale.  People buy and sell residential property based on what they “feel” it’s worth, and not strictly on the numbers.  I’m not saying that buying a 4-plex is a bad idea, I’m only saying that you won’t be able to base your purchase price solely on its net operating income (NOI).  With 20 units and up, however, this is exactly how it’s done.  A 4-plex with an NOI of $25,000 should be selling for $250,000 with a 10 cap rate.  But is it?  It could be anything – because not everyone needs a 10% return on their money, so it might be selling for $300K, or even $350K.  On the other hand, a 20 unit building with an NOI of $30,000 will be pretty close to $300K at a 10 cap rate.  Now, emotion still does come into play here, and even on larger properties.  However, by and large, apartments are sold by NOI and the...
You can legally avoid paying taxes

You can legally avoid paying taxes

And just to clarify, in real estate, there is a tax code that allows us to actually exchange properties and circumvent the tax liabilities that are triggered on a standard sale. The IRS Code Section 1031 allows us to swap properties and pay whatever differences in cost go along with them. Exchanging is a pretty big topic, and a single article can’t really do it justice.  However, I’ll try to give you the essentials here.  Type of exchanges When you exchange property, you have to exchange what the IRS calls “like kind” property.  So what is like kind?  It’s my rental house for your rental house.  It’s Jim’s 100 unit apartment building for your self-storage facility.  The rules of like kind are pretty broad. Basically, it has to be real estate for real estate.  There are 3 main types of 1031 exchanges: An A-B exchange – a simple direct exchange between two parties. The A-B-C 1031 exchange – I want your house, you want Jim’s apartment and Jim wants my self-storage. We enter into an agreement to swap these properties and pay whatever costs are involved. The A-B delayed exchange – this is the good one. The 1031 A-B delayed or “Starker” exchange Back in the 1970’s, a man named Starker went to the IRS and said, “Hey, government – sometimes we real estate investors don’t always know which property we want when we’re selling.” So Starker along with several other real estate investors helped devise the new code 1031 A-B delayed exchange and this is the one that we almost always use. Here’s how it works:  1. You decide...
When should I sell my apartment complex?

When should I sell my apartment complex?

Acquiring great apartment deals is one of the most rewarding – and fun – things any investor can do. You’ve got so much going for you – control, tax benefits, steady income, income increases, return of capital and even a growing basis. However, have you ever thought about your exit strategy? No matter what you invest in, there should always be a plan to get out. Now, this doesn’t necessarily mean “selling” the apartment complex. Your exit strategy could simply be to get your initial money back so that you can do another deal. However, there is still a question as to how long you should actually own the complex. On the surface of it, you might say forever, right? I mean – this is a great investment, why would you ever get rid of it? Good point, and you may not. To help shed some light on this question, let’s take a look at a couple of common exit strategies first. Refinancing One of the best ways to get your initial money back is to simply put a new first mortgage on the property that covers your existing mortgage and also the initial equity you put in with your down payment. For example: Take our old friend the 200 unit, $5.5 million apartment complex. Let’s say that you bought it with 25%, or about $1.4 million down. So, you want to get a new $5.5 million mortgage on the property. Of course, you can’t do this right away. Remember that the bank wants something like a 1.25% debt coverage ratio – in other words, the net operating income...
I quit my CPA Job to buy Large Apartment Buildings

I quit my CPA Job to buy Large Apartment Buildings

I have always been fascinated with real estate. I started in 2000 investing in a couple rental houses. My “AHA” moment came in 2008 to move away from the single rentals and graduate up to large apartment complexes. My background is a CPA with real estate taxation and forensic accounting experience. I got to see wealth creation happen with real estate as I would advise my wealthy tax clients on various tax strategies to save them money for their own real estate businesses. One late night when I was working at the office, I was reviewing a client tax file and they were making a boatload of money and building their wealth with apartment buildings. Have you ever had that feeling like…”if this person can do something I know I can?” Sometimes this feeling comes from a position of feeling pain. As a CPA and working crazy hours especially during tax season, I was barely home to see my wife and two girls. I was missing the “magic moments”. I knew I had to make a change. I took to the internet learning about apartment buildings. I read books. Any chance I had I was educating myself, listening to trainings in the car, etc. It was a priority to figure out the education side so I knew the nuts and bolts of buying apartment buildings. Once I felt comfortable, I went out and bought a duplex. Based on the numbers the property was already cash flowing, but one of the units was vacant. I filled that vacancy and the additional rent went directly into my pocket. It was definitely...
Forcing Appreciation to Make a HUGE Profit

Forcing Appreciation to Make a HUGE Profit

If you’ve been following this series on the IDEAL advantages of apartment investing you know that IDEAL stands for: Income  (Click Here to read more) Depreciation (Click Here to read more) Equity (Click Here to read more) Appreciation Leverage You also know about: the great income you can make, how income determines value, the awesome tax benefits apartments give and how to build equity. Now it’s time to talk about appreciation – at least how appreciation works in the apartment game. You can’t just say that your 200 unit apartment complex is worth $15 million and try to sell it just because. There is a way to create appreciation in your property – and we’ve already touched on it in the last post. Essentially, you create appreciation by forcing the value. Adding more value is ideal when you are looking to sell your property. 5 Keys to unlocking maximum value Let’s go back to our old friend the 200 unit apartment complex. Way back when you purchased this property for $5.5 million and its annual net operating income (NOI) was $550,000. The market cap rate was set at 10%, so you paid $5.5 million. Okay, now it’s time to sell. Let’s say that for some odd reason, you haven’t raised rents or done anything else to the property over the last few years. Maybe you were on Mars, in a cave, under a rock, with your fingers in your ears… doesn’t matter. So now you want to sell your apartment complex and you’d like to make a profit. Here are 5 ways to increase or FORCE the value of...
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