All Forum Posts by: Elizabeth M Williams

You might also want to consider investing in a multifamily syndication in Phoenix, as well. The average annual returns are around 20%, with same tax advantages of being a landlord. Just a thought, nice way to be in the hottest real estate markets without competing with other investors, and perhaps overpaying/impacting upside, without having to qualify for a mortgage, as well. You do, generally, need to be accredited, though, and the minimum investment tends to be $50k. We work with a syndicator in Phoenix, happy to share details offline. 

In the same boat, with a house in Portland. Wish I had that much equity! The only reason we've not sold it is because we MIGHT end up living in it. I've found that house owning is so deeply ingrained in our minds that even when it makes more financial sense to sell, we continue to have an emotional attachment to our properties. We are inching towards retirement, and our plan is to sell it within a year (we will decide by January if we will move to the area) and put the cash into 5 or 6 multifamily syndications. Same real estate benefits, same or better returns, zero hassles. As they exit, over 3-5 years, we will roll proceeds into more syndications. Having said that, if you calculate your returns over the life of the investment, and are making a lot in the form of appreciation, and you don't mind being a landlord, then it might be worth holding onto. The rent seems cheap, though, given the area the house is in. 

@Tushar P. Thank you for your comment, and I assure you that this is covered during any conversations with prospective investors. 

By their very definition, both sophisticated and accredited investors are deemed have sufficient knowledge and expertise in financial matters to weigh the value and risks of an investment. We are also required to have all investors fill out a suitability form prior to investment. Unlike with the ease of buying into the stock market, we have lengthy conversations with our investors, understanding their needs, and answering any questions about the deal, specifically, and MF investing, more broadly. This includes any questions around 'what could go wrong?'

Re anyone can get 300-500% returns with zero effort - for someone to do that, that would mean they were invested in higher risk plays, which doesn't fit the profile of the average MF investor. 

Investing, by definition, carries risk. Sadly, 2020 & 2021 saw a lot of people, without a lot of experience, chasing meme stocks & SPACs, often with the use of margin accounts, getting badly burned. They've relied on reddit and other groups/sites/youtubers for their picks, often unaware that they have been part of the Wall Street manipulation, and only to see both their gains and their savings wiped out. 

So we know that putting money in the bank or in a safe will end up costing us money, in the end, as inflation is real, and savings accounts and mattress stashes will lag inflation. So our option is to invest, and with eyes as open as possible. Personally, and I'm in the stock market, as well, I see MF syndications as great addition, and in some cases, alternative, to the market. Why? It's not as volatile; it's not subjected to price fluctuations because of a short report, or a hedge fund's actions, or any number of news events globally that can wipe out returns. Also, because at the end of the day, it's a physical asset that you own, which will always have intrinsic value. 

Similar to the market which has bull and bear runs, real estate is also cyclical. And as you know, it's time in the market that counts, not trying to time the market. Similar to the market, what you pay for the asset has a large impact on the performance, long term.

There is a reason that many projects have a 5 year hold in their investor summary. It's to mitigate risk for its investors, ie to account for downturns, and unforeseen events. On value add deals, renovations are typically done within 18-24 months, and often rent escalations inline with renovations are fully implemented within 2 years, perhaps 3. So it is in the interest of the investors & the operator to sell once rents are stabilized, and move onto the next deal. Furthermore, it is imperative that investors understand the deal & its terms, and to ensure that the business plan is conservative. A lot of these deals, speaking to risk, have break even points at 60-70% occupancy, in complexes where historic occupancy is 90% and above. That's a lot better risk profile than many stock market investments. 

Speaking to that, in the stock market, investors mitigate risk by investing in dividend kings/aristocrats, broad market etfs, and staying long in the market. Again, you MIGHT get huge returns by betting on GME or AMC or the latest meme stock, but you are more likely to lose. Similarly, investors in MF syndications can mitigate risk by going deep into a deal (and it is my job, above all else, to help investors both become educated in MF, and to help them look at deals, often ones that I don't raise for). They can mitigate risks by investing in bigger projects, in bigger metro areas, in areas not dependent on a single industry for its economy, by investing in certain classes of apartments, with experienced operators. The terms of these deals are such that distributions are cumulative, so if there is an unforeseen circumstance, they will be made whole on their distributions.

Lastly, there are some investors who consider this a bond proxy, given that the fixed income market has been, and looks likely to be, delivering pretty poor returns in the coming few years. With a degree of due diligence, and with conversations with people who can help navigate you through the pros and cons of this, or any other type of investment, MF investors can enjoy either class a shares, giving a steady income of normally 9-10%, with no participation in the upside (a good choice for retirees) or class b shares, where they get some skin in the game, and generally can anticipate 18% or more annualized returns. 

In my humble opinion, being diversified is important. Some people like 100% real estate, or 100% equities. Not me. Maybe if I was 20 years younger, who knows? Creating as many current and future income streams as you can, across multiple asset allocations, is a well-known way to further mitigate risk & protect your assets. 

@Eric James that's a very broad statement, and could be said for just about any industry. Believe me, I'm the most skeptical of people out there, and grilled our syndicator before investing, as well as spoke with an attorney a few times, multiple syndicators, multiple investors, multiple capital raisers, 2 CPAs. I must have had at least 25 conversations about it, and not only did I invest in the end, which, as a long time landlord (my grandma and Dad were also into rentals), took a huge shift in mindset, but I also decided to become involved in it. I'm 52 years old, and wanted to start introducing investors to these opportunities, as it's a hell of a lot easier than being a landlord. I spent months studying for SEC exams, which were very difficult, to become an SEC registered rep, specializing in private placements, working under a broker dealer. I am held to a high standard, and being SEC registered benefits both syndicators and investors. We don't bring any investors in who don't meet suitability requirements, nor do we raise for any syndicators who don't meet stringent requirements, as well. I live abroad, planning to move back home to the East Coast next year. I would never have put myself through this much work, at my age, if I didn't think it was a fantastic opportunity for investors, nor would I ever present a deal that I wouldn't invest in, myself. 

More broadly speaking, in all of my conversations, I didn't come across any syndicators that were blowing smoke up my ***. In fact, most of them seemed very earnest, and I admired their ambition a lot. Would I have invested in all of the deals? No, but that's because for me, I wanted to invest in a company that had a bit of a track record under its belt, and were operating in markets that are either growing or stable, not just a good deal in the local area. If I were younger, I might have a different story, or might even create a syndication, myself. There are a lot of 'tells' in investor summaries - are the assumptions conservative? What is the exit strategy? What does the data say about the surrounding areas - crime? job growth? schools? There are a number of data points that help decision-making on a deal. What's the hurdle point & waterfall structure look like? These are just a few of many.

Re the cap rate, cap rates are different across different sectors, geographies, sizes of assets. The average cap rates for b class, value add multifamilies (the type we work with) is 5-6%. That's a great thing, and the goal of many syndications on exit is to drive the cap rates down lower, as they've raised rents while also raising property valuations. I've seen deals that have 18% cap rates, when eyeing commercial and small multifamily properties. So while they might be a great deal, there's almost always a reason for that. But lower cap rates doesn't mean lower returns in MF. These cap rates are great both for investors & new buyers, as they enjoy cash flows ranging from 7-10%, with a lower risk profile than many properties with much higher cap rates. For those who invest in multifamily value add deals, it is very much the norm, at least for the projects we work with, though not limited to our opportunities, for investors to get 7-9% in annual distributions, and a total return of anywhere from 1.8-2.5x investment, often in a 3-5 year period. Again, no one has a crystal ball, with real estate, the stock market, any type of investing. So risk can be mitigated by considering multiple factors - is this a good location? Are rents staying stable in the market, or trending upwards? Are there multiple industries in the local area to support the stability of the rental market? Does the property have reasonable renovations needed, not extensive? What's the historical vacancy rate for the complex, and surrounding comps? Honing in on b class properties also helps mitigate the risk, as in there will always be a need for this type of housing.

The other factor is that the stock market is considered quite fragile, and bond rates are poor, so people are turning to other sources of income, further compressing cap rates & driving up demand for MF. The business plan for most MF considers a 5 year time frame, to ride out cycles, if need be. But with population growth to the areas that we, and many other syndicators operate in, two things happen - people are (unfortunately) priced out of the market, and demand for somewhere to live remains high. We work with projects that typically maintain 90% or more occupancy, prior to value add improvements. 

You could also consider multifamily syndications. Much less of a hassle than being a long distance landlord (been one for over 20 years), with similar & generally better returns than single families. Plus you don't need to qualify for a mortgage. I've got a great one in Houston if you're interested, happy to send you details. After over 25 years of being a landlord, I've completely drunk the koolaid of multifamily syndication. 

@Tushar P. that might just be one unlucky person, and that's spread out over a span of years. Not all accountants charge the same. You can even use turbo tax for K1's. My accountant didn't charge me extra for mine, thankfully. 

@Arn Cenedella thank you! Taxes are a funny thing, as well. On the one hand, it's wise to be as tax-efficient as possible, and as you said, it's complicated, and all of us have a unique situation. On the other hand, taxes aren't intrinsically a bad thing, and are designed to support the infrastructure of the society we live in. Plus, as my CPA used to say, if you're paying some taxes, it means you're making money.

We have an investment property we're likely to sell, as a) I'm sort of over being a landlord and b) that money could go to work better for us. We will likely have a capital gains hit of about $50k. I have driven myself crazy over researching the best way to defer this, and spoke with several folks who specialize in Delaware Statutory Trusts, as it's only recently that some of our syndication partners are being able to accommodate for 1031's, which is what I prefer to do, if possible. Re DST's - in the end, the returns gleaned are pretty meager, and investing in a MF syndication, even if we did take the capital gains hit, outperforms a hold in a DST. Will still look into other options, just loathe to be actively managing a smaller multifamily, and in most scenarios, the MF syndications outperform, anyway.

It is important for investors to have a sit down with a CPA to do some tax planning, yet I'm mindful, also, to keep myself in check, when we go crazy over the thought of paying taxes. I have an Australian husband, so it's double the work trying to navigate two jurisdictions. Lots of time and energy expended on taxes, when the whole point of passive income is to be able to have more time to pursue other things. :) 

@Nick Alexander, to answer your question, there are a number of variables involved. Other than the obvious benefit which is that multifamily syndications allows for real estate investment passively, which is a HUGE benefit for most investors, the other thing to consider is that you get to continually roll the proceeds from one sale into other deals, thus compounding your income stream & gains, over time, more than if you just sit on a single property. I will give an example. In 2007 I bought a rental property in a great area. Bought it with 20% down, for $315k. It's been cash flowing decently for the last 3 years (was moderate prior to that), giving me $6k a year or so, or an 8.5% cash on cash return, but only for the last few years. Had I bought something that wasn't in such a good location, I could have cash flowed more, earlier, but as a long distance landlord, I wanted a property that would attract quality tenants. Over the 14 years since I've owned it, I've had to do about $25k worth of repairs, which hurt the bottom line. 

If I were to sell it tomorrow, after closing expenses and capital gains, I would net around $275k, which, divided by the 14 years I've owned it, would give me around 27% cash on cash (assuming cash flows are a wash after expenses and repairs), based on a $70k initial investment.

Now, had I known about syndications back then, the scenario would look like this - 2007 - $70k into a MF syndication. Let's say it was a pretty average deal, and gave me 18% annualized returns over the life of the deal (though often deals are more like 20% or more). Assuming 8% tax advantaged distributions for a hold of 5 years (again, often they are more like 3 years, but I'm being conservative here). So on $70k up front I would be getting $5600 a year, for 5 years, totaling $28k. The project sells, and I get my share of the proceeds. If we take annualized returns, as I said, of 18%, that would mean I would have received $28k in distributions, my initial $70k back, and $35k as part of sale proceeds (which, just as if you sell a house, are subject to capital gains). 

Now let's imagine a simple scenario, from a tax perspective, where you're paying 20% in capital gains on that $35k, so you end up with $28k after taxes. So in 5 years you've spent $70k, and have made $56k on that investment. While getting distributions, you could be putting that $5600 a year into other investments, should you choose. At the end of 5 years, you now have $126k to invest, which you divide into 2 new multifamily deals.

Using same assumptions as before, at year 10 you have now have been earning $10,800 per year, over 5 years, in distributions, and would get your initial capital, plus $59,400 on exit (47,500 after capital gains tax). At the end of 5 years, you now have $227,500 to invest. 

You roll this into 4 MF deals. Using same assumptions, you will now get $18,200 a year in distributions, and you would get your initial capital, plus $113,750 on exit ($91k after capital gains tax). At the end of 5 years, you now have $409,500 to invest.

This is the power of compounding (especially if you invest distributions), and is a simple breakdown. Often deals exit much earlier than that, so you can compound more quickly. And in reality, you would try to 1031 from one deal to another, something that some of our syndicators are provisioning for now, thereby setting up tax deferral indefinitely. Or you would work with your CPA to time your gains with any other losses. Or you can keep it simple and pay the 20% on the gains. You might also invest thru a self-directed IRA or solo 401k. There are a number of tax efficient ways to do this, but at the end of the day, here are my takeaways, which took a big mindset shift for me to wrap my head around, as a long term landlord - 1) you CAN and MIGHT make more as a landlord, but at what cost of time, and unexpected expenses, and it's not guaranteed; 2) the syndicators I raise for know their markets inside out, and do way more due diligence than I ever have when buying a rental. Investors benefit from their research, expertise, and track records, in the form of stable, pretty predictable outcomes; 3) I would much rather leverage my investments into MF now, because I'm diversifying across hundreds of units, in areas that are recession-proof, that cater primarily to local workforce, not dependent on a single industry. Again, this mitigates risk from an investment perspective; 4) it's a hell of a lot easier & faster to invest in a MF than to get a mortgage.

This is our plan. There are also other forms of investing, which is appealing to retirees, which is a simple preferred share interest, at 10% per year, for example. That's a great return, given it offers tax advantages, and while those investors don't have skin in the game on exit, they've enjoyed stable returns for 5 years, diversified across hundreds, if not thousands, of units & geographical territories. My distributions are reinvested, and I will continue to do this till I need the cash flow. 

Hope this helps. I've seen some bad deals and some good deals. As an SEC Registered Rep, the deals I introduce investors to are very well-vetted, with great syndicators, as I work under a broker dealer, and we need to ensure that our opportunities are suitable for our clients' requirements. I wouldn't dream of introducing a deal to an investor that I wouldn't invest in, myself. I work as part of a highly respected team, and the majority of investors are repeat. 

I should add, the deals tend to fund pretty quickly. I've missed out on one, myself, and it oversubscribed within 2 days of my looking at it. CBRE put out a report stating an expected investment of $148B into the US MF market in 2021, which astounded me. 

I've had a number of enquiries via my site by people who'd like to invest in one of our syndication deals, but can't due to either not being accredited, or the majority of the deals being open to accredited, not sophisticated investors.

I'd just like to reiterate that for those who are keen to invest in multifamilies, if they don't meet the income requirements, they can become accredited by taking the Series 65 exam, which doesn't require registration/sponsorship under a broker/dealer. SEC exams are pretty rigorous (I'm an SEC Registered Rep) but they are a great option for some.

The other alternative is to find deals for sophisticated investors. We have some on offer from time to time, as well.

Re taxes, I saw a thread going through the tax ramifications of investing in multifamily syndications. As has been stated and is likely known by most of you, the distributions are taxed as passive income, similar to if you owned a single family. Multifamily syndications have the added benefit of bonus depreciation, which can result in losses, a great tax advantage for investors who are high earners, reducing their overall tax basis. 

Upon exit, the taxes are treated as long term capital gains, and there aren't many opportunities to 1031 into new deals, though a few of our operators are actively pursuing this, and one has started offering it, which is amazing! So the scenario would be to invest in a syndication with an operator, then on exit, roll into the next project with that same syndicator. Given that the distributions comprise around 40% of overall returns on a deal, a lot of investors simply opt for the capital gains on the remaining 60%, or use the passive losses to offset other passive gains. Like other types of investments, a conversation with your CPA can help with tax planning, as each individual's situation is different. 

There is another alternative for taxes, as well. Should you wish to really dig into this, you can also consider getting Real Estate Professional Status (REPS). This is a strategy best suited for those who have a mix of single family rentals/small MF in the mix, as well. By qualifying for this status, you would be able to convert your passive income into active income, and derive the associated tax benefits. The requirements are relatively stringent, but suitable for some.

Lastly, it makes sense for some to utilize their IRA's to invest in syndications, to mitigate, eliminate or defer taxes altogether, depending on the plan you invest from. If you don't already have an existing self-directed IRA, but have an IRA that allows for this conversion, the process is pretty straightforward, and allows for additional tax advantages. Again, this is worth a discussion with your CPA, to determine if this strategy makes sense for you.

Feel free to reach out to me if you'd like to hear more about multifamily syndications, in general, or our current offerings.