Being in the multifamily investing sector for a long time now, I have gained a lot of experience and knowledge about it. This has allowed me to understand how it works and how to get lucrative deals out of it. If you ask me, understanding the multifamily sector takes some time.
It’s just a matter of holding on until you realize how to make the most out of the assets you have acquired. With the right strategy in place, you will be able to sell them for a large return or hold on to it on account of the equity it’s able to generate. In fact, our latest sale of a Multifamily asset gave our investors 39% IRR!!!
It’s these reasons that made me want to stay with multifamily for a long time. As soon as you purchased your first multifamily properties, you begin to understand the reasons why apartment complexes are more lucrative compared to single-family homes. I have a lot of experience in forming and managing multifamily syndications. All I can say is that multifamily investing offers massive payoffs if you approach it in the right manner.
When you invest in apartment complexes, you’re not opening only one income stream, you’re opening four! Imagine that! Right from closing the deal to selling your assets, you and your investing team can profit in four different ways, broken down as follows:
This is the first step you can profit from your multifamily acquisition. Basically, an acquisition fee is a form of compensation provided to you as the sponsor of a multifamily syndication. Think of it as a form of appreciation for the effort you have put in to acquire the assets.
So, how much will you be getting as acquisition fee? For one, acquisition fees depend on your underwriting and other terms you have agreed upon. The costs would normally range between 2 to 4 percent of the total price of the deal. That’s a small fraction of the total value of the asset, but let’s say you acquired it for $10 million. You can actually earn at most $400,000 from this step alone.
Quarterly and Monthly Cash Flow
Once you have multifamily assets in your possession, you now have a second income stream. This represents the basic earnings generated by these assets. You only need to divide these earnings into equity shares and disburse them among members of your multifamily syndication.
You would want to divide these shares following the 70:30 rule: 70 of your quarterly and monthly cash flow will go to your investors, while 30 will go to your management team. That simple! One thing’s for sure, everyone gets a fair share of the total efforts and money invested in managing the properties.
Income from self-managing your assets
Property management forms an essential part of the multifamily investing experience. If you manage your assets properly through value plays, you can get great returns.
In our companies, we were able to establish separate property management teams for each asset in our portfolio. My whole team and I were able to put in a lot of work in resolving issues with our residents. We made structural upgrades, and, in general, improved the experiences and lives of our residents. This arrangement has helped us a lot since it enables us to earn at least 3 to 4 percent of our total rent collections from managing the properties ourselves, hence securing a third income stream.
Property sales gains
If you decide to sell your assets, you are also opening up a fourth income stream that benefits you, your investors, and your management team. Again, using value plays, you can improve the value of your assets so you can arrive at the right sales price.
From the sale of these properties, you can divide the gains using the 60:40 rule just as you divide your regular and monthly cash flow among your investors and property management team.
At the end of the day, multifamily investing has to be the best way to build wealth. To make the most out of it, you might as well form your own multifamily syndication and start working towards your goals.