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Updated almost 8 years ago on . Most recent reply
My First Apartment Building Questions.
Hey everyone, I've saved up enough to invest in my first deal and would love your suggestions. I want to own an apartment building with the plan to be buy and hold, while letting the tenant pay off the loan so I can eventually own it free and clear and have it cashflow. I have between $300-500K to invest but want to be completely hands off as I value my location independence.
I'm looking for some type of online platform where I can pool my money with other investors, and be completely hands off.
So far the only thing I could find that's even close is Fundrise's Growth eREIT. But that's not exactly what i'm looking for as I'd rather buy and hold than have the plan be to sell it off in 5-7 years. Any pros and cons of using them vs. another platform?
I'd love to find some type of online investment club where everyone else has as much skin in the game as me so I know they're not going to take risky deals. Any ideas what that would be?
Any pros and cons of what I mentioned above or alternative solutions would be appreciated. Thanks everyone!
Most Popular Reply
Hi Johnny,
There are several options for you. I favor syndication for what you are seeking. Most syndicators specialize in a certain niche so there are plenty for apartment investing. Here are a couple of articles that may help you. Please reach out if you'd like to discuss further your options and get some education in this area.
https://www.biggerpockets.com/blogs/9145/63405-syn...
@Johnny Chen I’m not too familiar in the realm of these online platforms but being that you want to be completely hands off in a deal because you value your location independence that’s very achievable. What I recommend you do is find expert operators that have experience in operating deals and achieving a nice cash on cash return for their investors that’s what it sounds like you are looking for, so more of a passive approach on your side. But also while earning your quarterly distributions while invested in a deal you’ll also be able to learn and see how they are running the deal and deciding if the niche you’re invested in is something you’d want to be more active with down the road. There are a lot of different ways you can play this. I hope this helps feel free to reach out if you have any questions.
Hi Johnny,
There are several options for you. I favor syndication for what you are seeking. Most syndicators specialize in a certain niche so there are plenty for apartment investing. Here are a couple of articles that may help you. Please reach out if you'd like to discuss further your options and get some education in this area.
https://www.biggerpockets.com/blogs/9145/63405-syn...
Thanks for the replies so far. I think syndication sounds like exactly what I'm looking for. I should have done this sooner as I heard the CEO on the podcast months ago but I just started looking at RealtyShares as an option and am thinking that aside from buying and holding, it sounds like the best option for my situation?
Any advice on:
1. If my buy and hold strategy is even a good one? (The goal being to have the tenants pay off the loan, and eventually own the apartment building free and clear to cashflow)
or
2. Investing either RealtyShares, or FundRise's Growth eREIT (or another platform if anyone knows of one) which meets the location independent/hands off aspect I desire.
Thanks!
@Johnny Chen I don't have a ton of experience with the online platforms you mentioned but I would guess they will likely structure the exit of the investments in 3,5,7 year holds. Many investors underwrite using an IRR metric and without a projected exit in the underwriting, the IRR will not be as appealing to the majority of the investors who favor more velocity in their money.
There is no right or wrong way to invest it's simply what fits your goals best. My suggestion would be to find a syndication sponsor who aligns with your own investment goals but wants to take the active role that you do not want.
Within my own business, I am a firm believer that although one side is passive and the other active in a syndication, ultimately syndications are a partnership. Because of that, it is very important to us to make sure we get to know our potential partner's goals and experiences to ensure the right fit exists before doing business. That is true for any investment but if you are looking for long term buy and hold it stands even truer.
I'll add my 2 cents on the goal to pay down the debt of your investment until its free and clear. I personally think there are better ways to use your equity in an investment. By taking properties to free and clear you are missing a huge component to maximizing value within an investment.
Here is a detailed article I wrote explaining all the nuts and bolts of why the wealth invest in Multifamily. It will demonstrate the benefits I alluded to above
Why the Wealthy Put Their Money Into Multifamily & Commercial Real Estate
And here is an article I wrote on why I like properly structured debt on real estate investments.
Want to Make Money? Then Understand How Money Works! Here’s Your Complete Guide.
I think you will find both of them very useful in your education process.
Best of luck!
Let me know if I can ever be of help.
@Johnny Chen you may be able to source syndicators directly and save on the fees "crowdfunders" charge. I'd be happy to set a call sometime and chat basic deal structures on syndications.
- Ivan Barratt
Here's my take on syndication, crowdfunding, other formats. If you have any inkling of learning something about your investments, I'm not a huge fan of crowdfunding. Syndicators who go this route typically do not want to run a lot of education and alignment sessions w/investors. They are paying a middleman to do this at a cost to them.
Johnny Chen syndication is the way to go but I would hold on and just listen and learn at least a few months before doing anything. It's sounds really scary when someone says they have x I invest. Your inbox must be induated with solicitations.
Hey thanks @Lane Kawaoka, I got so many people trying to sell me something now.
But I think the best for me to do would be to start with something like RealtyShares or FundRise.
Anyone know the pros and cons or downsides of using these two? They seem like the perfect solution for my position.
@Johnny Chen A lot of the information here so far has been good. We actually just raised money for our latest deal through CrowdStreet and run our back office through them. The reason we used them was they handled a lot of the organizing of the webinar, verifying accredited investors, the paperwork, the set up, etc. I can't speak to any fees they charge investors but we do pay for their service on our end. They seem to be a good company and could be another one to add to your list.
As to finding a longer term deal, most loans balloon after 10-12 years at the latest, but most syndicators make their money when they do well upon sale. Therefore, they don't do many longer term deals and want to do 3-7 year deals and whatever makes sense. You have to talk them and let them know what you are looking for. There are some that may do longer term deals if they know that's what their investors are looking for, or they may not. You would just have to have that conversation and see what they say.
I would also advise not posting how much you to invest in the future because it'll be like sharks smelling blood in the water. Hope that helps and best of luck!
Hey @Chris Grenzig that was super helpful info. I can't believe I forgot about CrowdStreet as they were on the podcast as well. I'll check them out, thanks again for the inside scoop.
So far there is:
CrowdStreet
RealtyShares
FundRise (Growth eREITS)
That i'm looking at. Any others would be appreciated. Thanks!
@Johnny Chen realcrowd is another one. as a syndicator we'll likely use their platform. the main reason being the fee structure and investors still directly invest with the syndicator vs the crowdfunding platform being the go between. would love to connect and chat further. no sales pitch; just some education I always enjoy paying forward.
- Ivan Barratt
@Johnny Chen I think it's worth spending a small amount of time up front talking with a few syndicators to find one who shares your investment strategy. Otherwise you're simply dealing with a middle man who you should at least do the same amount of due diligence on than you would a syndicator or any investment. I don't see any advantages for the investor in a crowd funding platform. I do think it's a great tool for operators/syndicators to raise money from investors who don't ask many questions.
@Ivan Barratt is the real deal, and Indiana/Midwest is an incredible market if you are seeking healthy cash-flow while building equity (having tenants paying off the mortgage). I would take him up on the free education.
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#2 Multi-Family and Apartment Investing Contributor
- Rental Property Investor
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Syndication is a great way to go, but the platforms you mentioned can be good as well. In my mind they are basically the same, with slightly smaller returns to be made with the online portals, but still great potential. It's like any deal - the more you vet the deal and the owners, the better off you will be. I can go on any online portal and get my apartment deal on their web page to raise money, but that doesn't mean it's any better than if I raise money without the portal. Good luck in what ever route you go, but please do your research on the companies you invest with!
A REIT is a great investment vehicle, run by professionals, that will be completely hands off. I suggest only considering publicly traded REITs and that you consult with a financial advisor to help you understand the risks and benefits of the investment strategy used by REITs you're considering. Don't do anything online by yourself - that's a good way to lose your money fast.