Originally posted by @Eric Brown:
@Tanner Crawley
This is confusing to me also. I invested $25k into a 312 unit apartment complex as a limited partner last year, and I would never claim that I own 312 units. My participation in the deal consisted of me transferring $25k to the GP which made up a very small percentage of the total funds used to purchase a $49M apartment complex. Maybe Op is referring to something different though.
You nailed it Eric. Op likely did something very similar. In my opinion, this is a misrepresentation. I think the BP community is hungry for simple metrics such as unit count even though it is probably the worst metric you could probably use. I have also seen total asset value used which is also a pretty horrible metric as it ignores leverage.
Why unit count is flawed:
A luxury rental in an A-class market is likely worth 10+ entry-level units in a D-market.
It ignores partnerships and syndication. If you have 10% ownership in 300 units you don't own 300 units.
It ignores debt.
Why total asset value is flawed:
This ignores the debt load. If you have bought several properties with low down payments that are very different than someone who has highly appreciated properties or has paid down much of the mortgage.
Many high-leverage investors utilize these metrics because it makes their portfolios look much better. I myself am a huge fan of leverage, but can we as the BP community please start being more transparent about our portfolios and use better metrics? After all, the goal is not unit count or total asset value. The goal is net worth and there is many ways to get there.
Using bad metrics can make the wrong impression, in the case of this thread it may convince newer investors that LP participation is the best way to be successful. In reality, there are many routes an investor can take, and we should include more metrics when discussing our strategies and portfolios, for example:
My real estate portfolio:
2 Units
Total Asset Value: $1,050,000
Total Debt: $881,000
Total Equity: $165,000
Initial Invested Equity: $10,950
Annual Cash Flow: $7,200
Time Invested: 2 Years
By including more metrics and better metrics you can get the whole picture. It is clear my strategy is to put very little down (through owner occupancy and down payment assistance programs). I also target higher-value properties in A-class areas. These properties have strong appreciation but low-moderate cash flow. They are also pretty low risk as they are rented to reliable and high-earning tenants.
Even though my unit count is very low it has added $165,000 to my net worth in just 2 years and with just a 4-figure investment.
With the limited information that Alex included someone might assume his strategy is much better, but there is simply not enough information and the information that is included is likely misleading.
I don't mean for this to be an entirely negative post. Much of the original post is valuable. Alex is right to post his story as I think his intent was to be motivational and show that his determination paid off.
Still, we need to be intentional about how we talk about RE invested and what metrics we choose to include.
