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What To Consider Before Investing in Multifamily Real Estate

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Multifamily Real Estate investing is becoming increasingly popular, with investors clamoring to find a property multiple for renting a single-family home. The reason for this excitement is that multifamily properties offer an attractive investment that combines solid returns with lower levels of volatility than single-family homes and other real estate asset classes. What is a Multifamily Property? Multifamily properties can be defined as a building with more than one unit. The most common type of multifamily property is the apartment complex, but there are other types of multifamily properties such as condominiums, townhouses, and even student housing. Multifamily properties can be found in any market and can be either owner-occupied or rented out to tenants. They appeal to investors because they provide a stable income stream through monthly rent payments and also offer tax benefits for some forms of investment real estate. Multifamily properties are often owned by a single investor or by a partnership of two or more investors. These investors hire a property manager to oversee day-to-day operations, including tenant screening and maintenance requests. Pros and cons of multifamily investing Investing in multifamily properties can offer many advantages. Low startup costs – The cost to purchase a multifamily property is significantly lower than the cost of buying a single-family home. And once you’ve purchased your first property, the cost of acquiring additional units can be spread over several years as you build your portfolio. Low vacancy rates – The vacancy rate for multifamily properties is typically between 4% and 5%, according to Real Capital Analytics (RCA) industry experts. This is much lower than the vacancy rate for single-family homes, ranging from 10% to 30% during economic downturns. Rental income. Your rental income will be based on the rents you charge your tenants, which can vary depending on the location and type of property you own. For example, the average rent for a two-bedroom apartment in San Francisco is $3,400 per month, according to Zumper’s National Rent Report for January 2017. In contrast, the average rent for a two-bedroom apartment in Detroit is just $700 per month. Multifamily properties provide diversification. Since most multifamily properties have multiple units, they provide some level of diversification by spreading risk around several units rather than relying on one property alone for income. So, for example, if one unit becomes vacant due to a tenant moving out or being evicted, this won’t necessarily cause any issues with the other units in the building because they’re all covered by separate leases anyway (at least until they expire). Low correlation to stocks and bonds. Multifamily properties are less correlated with stocks and bonds than other real estate investments because they provide income rather than capital appreciation — although they also offer capital appreciation. In addition, they tend to be less correlated with the stock market than other real estate investments like office buildings or industrial properties because they tend to be located closer to where people live and work — this means higher demand for housing during times when people want to live closer to their jobs and vice versa. Lower maintenance: Less maintenance than single-family homes or retail spaces. Apartments have fewer repairs and lower turnover than single-family homes and retail space (both of which require repairs and cleaning). Risks of Multifamily Investment Properties Here are three of the most significant risks to look out for when considering a multifamily property: Tenant turnover rate: Tenant turnover rate refers to how often tenants move out of their units in a given period (typically one year). A high tenant turnover rate means that many of your tenants will be moving out soon — which means more vacancies and less income from those units while re-renting — and more work. Market risk. The market can be volatile and unpredictable, so you could lose money on your investment if the economy turns south or if a large amount of new supply in your area drives down rents. Construction risk. This is a big one! For example, suppose you’re buying an older property and need to renovate it or add amenities to attract tenants. In that case, you could lose tens of thousands of dollars if you don’t get the job done correctly or on time — or worse yet if something goes wrong during construction and causes damage to the property or other units in the building. Property Management for Multifamily Properties When it comes to managing these types of properties, there are two options: self-manage or hire a property manager. Self-managing your assets means doing everything yourself — from collecting rents and paying bills on time to fixing leaks in the bathroom tubs and repairing broken appliances. If this sounds like something you want to do on top of all your other responsibilities (like running your business), then self-managing might be the right choice for you.  Property management. You will need a property manager to handle everything from maintenance issues to tenant screening. If you cannot hire a professional manager, you’ll have to spend time handling these tasks yourself. This will take away from your time as an investor and could cause problems down the road if you don’t have enough time or experience managing tenants. Final Thought In the end, multifamily real estate investing is not something that every person or company should attempt. It is a highly specialized field with unique challenges and considerations. However, suppose you’re interested in embarking on this investment strategy or gaining a better understanding of the landscape. In that case, you should have the knowledge you need to succeed. With that in mind, begin your research today to make an informed decision in the future. To learn more about our current passive investment opportunities, please Schedule an investor introductory session

As Interest Rates Climb, What happens to Rental Property’s Bottom Line?

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2022 has brought about some of the highest rates from the Fed in the past 40 years. Which brings about many questions for real estate investors. Will this push us into a recession? What will this mean for the housing market, mortgage rates, and rental investments? To start; as rates increase it’s important to bear in mind that investment loan rates will always be higher than a traditional mortgage to begin with. As a general rule of thumb, you can expect investment loan rates to be approximately 0.50% to 0.75% higher than a primary mortgage rate. In our current market, both home prices AND financing prices are on the rise simultaneously. Which means that people aren’t just being pushed into a less expensive home, some are pushed out of purchasing a home altogether. So, what do they do? They continue renting. Rental markets and the home purchase market are very tightly linked. Therefore, we can determine based on historical data in similar market climates, the coming years will have a large and increasing market of renters. Making having a real estate investment a wise one indeed. The demand for housing will remain high and along with that, high rent prices. This recent Zillow report shows how increased mortgage rates correlate with average rents, moving from $1,600 per month in February 2022 to $2,000 in August 2022. Source: Zillow Economic Research So what does this mean for Rental Property Owners or those involved as passive Real Estate Investors? The bottom line is that when the Federal Reserve interest rates go up, it can actually be a very good thing for real estate investors, particularly multi-family. The first reason is that the market for multifamily apartments will increase as many people will either not qualify or cannot afford a mortgage on a primary residence. The standards for lending go up significantly during this climate of rates increasing. Mortgage lenders who previously pre-qualified home shoppers will have to recalculate, often leaving a lower number of qualified home buyers. The second thing to consider is that while the housing market boom appears to have stabilized, the prices of homes remain at historic highs. Coupling that with the rising interest rates results in rental costs being favored over a mortgage payment. Therefore indicating that real estate investments will continue to perform well. Individuals and families now postponing house hunting still need a place to live. The market for tenants now looking for a place to rent is bigger and will expectedly climb. When you piece together what a rising Federal Reserve rate does to the housing market and mortgage rates- it may signal a great opportunity for potential investors to dip their toe into the real estate investment market or for those already in the game to consider expanding their holdings. The foreseeable future holds a new stream of tenants and a strong future for real estate investment. Historically real estate has always been a strong hedge against inflation. To learn more about our current passive investment opportunities, please Schedule an investor introductory session

3.02* Return in 5 Years – Story of Boston Wood Apartment

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james kandasamy austin

Our Boston Woods investment was located a short 10 min drive from the Medical Center in San Antonio, TX at Intersection 110 and Loop 410. We were able to find this deal using an off-market strategy, reaching out to the sellers directly. Using an off-market strategy in procuring a deal can help make it a more advantageous investment. It is comprised of 174 originally split into 3 locations: FKA Cumberland, Villa Madrid, and Westchester. Constructed originally in 1970, 1974, and 1984 respectively. We combined the three properties into one – Boston Woods. Purchasing deals at the market cap rate can be a great investment as long as there is a value-add component, which in this case there clearly was. Our decision to merge the three properties into one not only streamlined this property- but was a huge marketing advantage as well.   Acquisition Purchased in November 2016, 6.51% cap rate Cash out of pocket: $3.76 million Initial Financing: $4.66 million at 4.61% Capital Repairs: $1.52 million Purchasing deals at the market cap rate can be a great investment as long as there is a value-add component, which in this case there clearly was. Our decision to merge the three properties into one not only streamlined this property- but was a huge marketing advantage as well.   How Did We Find the Deal? Off Market Strategy Using text blast campaign to Sellers. Negotiated with Sellers for almost 8 months. Sellers are partners with bad relationships. Sellers are sophisticated Land developers/brokers Learn to Find Deals using an Off-Market Strategy Previous Management Marketing Issue Top three Largest PM companies in San Antonio Right strategy Managing Three Properties as One Horrible marketing with phone greetings with 3 different names.   We increased rental income from $.75/sq. foot to $.92/sq. foot. We utilized multiple crews for the rehab, implementing a partial rehab plus full rehab strategy to slow resident turnover and keep tenant occupancy up throughout the process.     We spent $1.3 million within 12 months of acquiring this property with a total budget of $1.5 million. It’s important to pump capital into the property ASAP to increase valuation. By doing this we were able to quickly convert $1.3 million cash in the bank to $75k NOI – a 50% increase.   At the end of this project: We increased rent by $130 per door Reduced expenses from 67% to 48% NOI increase of 86%- with a value increase from $6.9 mil to $13 mil Cash flow increased 7/8% based on the initial investment Altogether an INCREDIBLE 117% return from Initial Investment! Boston Woods is a prime example of Achieve’s focused strategy, skillful execution, and top-tier returns. Key takeaways from this investment include strategies of off-market acquisition, choosing a property with a value-add component, choosing to name the property with a marketing advantage, using a near-to-far rent comp, having multiple crews for the rehab- utilizing a partial plus full rehab to keep occupation and rent up during the process.

Austin Housing Market Predictions 2022-23

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The Austin housing market is shifting. The market reflects what is happening in other major cities across the country. While activity appears to have slowed slightly in recent months, home prices in Austin are still on the rise. Home values are over 13% higher than they were in June 2021, when compared with historical averages of 5-6%. As a result, the Austin real estate market is exhibiting indications of slowing down. However, it should be noted that fewer homes are being sold than in previous years. The trend of a slowing growth rate in sales indicates market stabilization, but the demand is still outpacing the supply in a market where housing prices have reached all-time highs. As a result, Austin home prices are skyrocketing, and buyers are bearing the brunt of the burden. Low inventory, high buyer demand, and rising prices will continue throughout the year; however, there are signs that the market will eventually cool off when inventory rises or prices reach their apex. The median sales price is surging in double digits and will continue to rise over the next twelve months. The Austin Board of REALTORS®‘ Mid-Year 2022 Central Texas Housing Market Report shows that a triple-digit gain in active listings year over year pushed housing inventory levels over 2 months. The market is moving towards pre-pandemic sales activity and inventory. The Austin market is not balanced, and it still favors sellers. Homes still closed at over 100% of the list price on average in June. Residential home sales declined 20.3% year over year. There is an influx of homes on the market. The median price rose 13%, setting a record of $537,475. New listings jumped 19.6% to 6,160. Housing inventory increased to 2.1 months of inventory, up 1.5 months from last June — a sign of a seller’s real estate market. Austin Housing Market Predictions 2022-23 Austin’s housing market is likely to continue the trend of recent years as one of the hottest markets in the nation. The biggest drivers of residential real estate demand are Austin’s economy, which has diversified and strengthened over the past two decades, and companies like Google and Tesla moving operations here. As more companies move here, that means more people looking for homes, and Austin is also attractive to outside investors. With a steady influx of job creation in the pipeline, the housing market will continue to post strong numbers well into 2022. Big companies moving here will also play into what happens to the housing market.Corporate relocations are at an all-time high and the housing demand is rising rapidly. Because of this, the supply cannot meet the demand, and this region has a higher probability of withstanding economic downturns.According to their report, the value of the Austin Metro housing market grew by $141 billion or 126% in the past decade. In 2010, the market was worth about $111 Billion. In 2019, Austin’s total housing value grew $22 billion or 9.5%, year-over-year.NeighborhoodScout’s data shows that real estate in Austin has appreciated 169.47 percent over the last ten years, which is an average annual home appreciation rate of 10.42%. This figure puts Austin in the top 10% nationally for real estate appreciation. During the latest twelve months, Austin’s appreciation rate was 26.34%.According to the Zillow Home Value Forecast (ZHVF), Austin-Round Rock Metro’s home values have gone up 25.2% over the past year and are expected to rise by 7% by June 2023. Austin High Rise Deal Coming Soon..!!! Stay Tuned for more updates. If you would like to be notified of our future opportunities, please join our investor network below.  Join Our Investor List

Midyear Multifamily Market Outlook

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As the Federal Reserve has increased interest rates and inflation has risen, the likelihood of a recession in the near future has grown. The sharp rise in interest rates has already impacted volume as borrowers and investors may have sidelined deals until volatility levels out. Despite the increased uncertainty, multifamily performance is expected to remain strong for the year. Multifamily fundamentals have begun to moderate in the second quarter – a trend which is expected to continue throughout the rest of the year – with growth projections still well above long-term averages: Gross income is projected to increase by 6.8% and the vacancy rate to remain unchanged at 4.8%. Rental growth has been exceptionally strong, up 16% over the year ending in June. Occupancy has remained above the long-term average. Tight rental markets indicate that the number of construction permits issued and the number of housing starts will have a limited impact on the market this year. Due to the volatility of Treasury rates, we expect total originations for the multifamily sector to contract slightly in 2022 to $440-$450 billion, but underlying multifamily fundamentals will continue to attract investors. Texas Multifamily Outlook – July 2022 According to most objective metrics and standards, multifamily assets in major Texas markets still represent strong investment propositions relative to other commercial sectors and the stock market. Houston After losing thousands of jobs to the flu pandemic, Houston recovered all of them by 2022, with multifamily construction directly benefiting from the bounce in economic growth. Rents rose 0.7% in April from three months earlier, to $1,293, while the occupancy rate for stabilized apartments in the 12 months ending in April was 94.1%. Average Rent: $1,293 (0.7%) Unemployment Rate (%) : 4.1% Average Occupancy Rate (%): 94.1% New Apartment Units Under Construction: 23,382 Dallas-Fort Worth In Dallas-Fort Worth, the pace of growth in apartment rents continued in the first half of 2022, driven by in-migration and company expansions and relocations. The average rent rose 1.2% on a trailing three-month basis through May, to $1,525. The occupancy rate was up 90 basis points in the 12 months ending in April. Average Rent: $1,525 (1.2%) Unemployment Rate (%) : 3.2% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 47,011 Austin The growth of the Austin metro area has been spurred by its reputation as an eclectic, creative community. The population grew by 28% in the last decade and housing demand is on the rise, which has led to a trend of rising rents. Although the rates softened during seasonally slow periods, rents have since picked up again and reached $1,744 on a trailing three-month basis through May. Occupancy rates are at 95.7%. Average Rent: $1,744 (0.8%) Unemployment Rate (%) : 2.5% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 42,118 According to research from the National Multifamily Housing Council (NMHC) and National Apartment Association, roughly 4.3 million new apartments will be necessary by 2035 to meet increasing demand. Texas, Florida, and California account for 40% of future demand and will collectively require 1.5 million apartments by 2035. Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.

Multifamily Real Estate As A Hedge Against Inflation

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Inflation is a serious concern for investors. When inflation is up, interest rates tend to be up as well. That’s because the Federal Reserve will raise interest rates if inflation increases to keep it in check. When interest rates are high, it makes sense for investors to look at other ways to make money. One way is through multifamily real estate. Multifamily real estate is a good hedge against inflation because it’s an asset that can increase in value and provide income. As inflation increases, the value of your property will increase. In addition to selling it at a higher price, you also have the option to rent it out and make money from your investment. When you buy a multifamily property, you’re purchasing more than just a house. You’re buying an asset that can be rented out and generate income for you. This means that if inflation increases, your property could also increase in value. This is one of the most important reasons why investing in real estate is one of the best ways to protect yourself against inflation. High Inflation And The Stock Market When inflation rises rapidly, it becomes difficult for investors to make money on the stock market because stocks are considered long-term investments and tend to increase more slowly than inflation over time. For example, if inflation were 10 percent per year, stocks would have to go up 11 percent just for the investor to break even after taxes and fees were removed from their returns. Multifamily Real Estate As A Hedge Against Inflation Inflation is a severe concern for real estate investors. Inflation can erode the value of investments in real estate and other assets, making it harder to generate income. However, there are several ways that investors can hedge against inflation to protect their portfolios. One way to hedge against inflation is through multifamily real estate investments because this asset class has historically withstood the economic pressures of rising prices. This makes sense when you consider that the cost of living also increases over time. As rents rise, so does the demand for more affordable housing options such as apartments and condominiums. Multifamily real estate is an asset class that can hedge against inflation in a few different ways: It can provide a relatively stable cash flow over time. It can act as an inflation hedge because it increases in value over time. The property’s value is based on its income stream, which increases as rents increase due to rising rents and inflation. For example, if you own a building that brings in $2 million per year in rental income and your annual mortgage payment is $1 million per year, your net cash flow (income minus expenses) will be $1 million per year (assuming no vacancies). This means that if you are paying 6% interest on your mortgage loan, the value of the building is $20 million ($1 million / 6% = $20 million). If the building appreciates by 3% per year (which would happen if rents were increasing), then after five years, it would be worth $22 million ($22 million – $20 million = $2 million). While you still pay off your mortgage loan at 6%, your net worth has increased by 3%. Another way to hedge against inflation is by ensuring that your properties are well-maintained and managed effectively. If you own an apartment building with tenants who are happy with their living situation, they’ll be less likely to move out or complain about problems with their apartments. This means your property will remain more valuable than others in its area and allow for future appreciation in its value over time. Final Thought Overall, multifamily real estate is an excellent investment to hedge against inflation when prices rise. Of course, it’s still important to research before you dive in and buy property, but once you’ve chosen the right location and established a sound financial plan, you can start building wealth with prudent and practical means. Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.

How To Underwrite a Multi-Family Deal

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underwriting multifamily deals

Multi-family deals are one of the most popular investments for real estate investors. Unlike single-family homes, multi-family properties have several units and can help diversify your portfolio. However, underwriting a multi-family property is different than underwriting a single-family home. The first step is to learn how to underwrite a multifamily property. This includes understanding how to calculate the value of the property, what expenses are involved and how to determine if the tenants will pay their rent on time. Underwrite a Multi-Family Deal in 6 steps Step 1. Cash Flow The first step in underwriting a multi-family deal is to evaluate the cash flow. The cash flow is the difference between income and expenses, which is profit or loss. So, if you take all the expenses and subtract them from all the revenues, what do you get? If that number is positive, then you have a profit. If it’s negative, then you have a loss. The cap rate is a measure of how much the building will earn on an annual basis, expressed as a percentage of its value. For example: Let’s say that your property has 100 units, each with an income of $1,000 per month and expenses of $800 per month. So your total income would be $100,000 per year (100 x $1,000) and your total expenses would be $80,000 per year (100 x $800). Your cash flow would be $20,000 ($100,000 – $80,000). Step 2. Cap rate? The cap rate is the most important metric in real estate underwriting. It is the rate of return you expect on your investment, and it is calculated by dividing the net operating income (NOI) by the sale price of your property. This calculation will tell you how much money will be left over after all expenses are paid. The second step in underwriting a multi-family deal is to determine the cap rate. The cap rate is the ratio of net operating income (NOI) to the value of the property. Cap rates are used by lenders and investors to determine whether a property is worth purchasing. The formula for calculating the cap rate is: Cap Rate = Net Operating Income / Property Value For example, if you have a property that generates $1,000 per month in NOI and it costs $100,000, then your cap rate is 10%. This means that you would need to pay at least $10,000 per year (1% of $100,000) just to cover your mortgage payment and maintain current operations. Step 3. Net Operating Income Ratio (NOIR) The third step in underwriting a multi-family deal is to look at the Net Operating Income Ratio (NOIR). This ratio measures how much of your net operating income goes towards paying for your debt service (including principal and interest). You want this ratio to be as high as possible because it means that you are using less of your income just paying off debt instead of investing it back into your property or throwing it away on other expenses related to operating your business. Net Operating Income Ratio (NOIR) is a measure of the ability of a property to pay its operating expenses. It is calculated by dividing the Net Operating Income by the total value of the property. The formula is as follows: NOIR = NOI/Property Value The higher the NOIR, the better the deal. For example, if a property has an NOI of $50,000 and its value is $1 million, then its NOIR would be 5%. Step 4. Determine occupancy rate One of the most important factors in underwriting a multi-family deal is understanding occupancy rates. If the building is occupied at 90%, that means there are 10% of the units available for rent. If there are 40 units in the building and 10 of them are vacant, that’s only an occupancy rate of 30%. In this case, it’s unlikely that investors would be interested in purchasing the property because they would have to bring in tenants before they could make any money off it. This can be especially tricky if you’re buying a distressed property where tenants have already moved out or been evicted due to non-payment of rent or other issues. The occupancy rate gives you a rough idea of how much revenue will be generated by your property. The higher the occupancy rate, the more revenue you can expect to generate from your investment. The main factors that determine occupancy rate include: Location – A desirable location will have higher occupancy rates than an undesirable one. For example, if you own an apartment building in the heart of New York City, then you can expect much higher occupancies than if you owned one in a rural area without many amenities nearby. Rent levels – The rent level determines how desirable your property is to potential tenants and therefore influences its occupancies rates. High rents also increase your profit margin because less money has to be spent on marketing efforts and rent concessions (such as free months). However, high rents also mean higher vacancy periods which will reduce your overall income from your property over time Step 5. Calculate expenses: When underwriting a multi-family deal, it’s important to understand how expenses are calculated and what they include. Expenses can be broken down into two categories: operating expenses and debt service. Operating expenses include items such as taxes, insurance and utilities. Debt service includes the mortgage payment, property taxes and any other obligations that must be paid on time by the owner of the property. Calculating operating expenses can be complicated because there are many factors that go into determining what a fair rent is for a unit. If you don’t calculate these figures carefully, you could end up paying more than your expected return or losing money on the investment all together. To calculate operating expenses, you must first determine how much income your property will generate each month. This can be done by analyzing similar properties in the area or using an online rent analysis … Read more

Is It Good Time To Invest In Real Estate?

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Recently, the U.S. labor department data suggested that the annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November 1981. Inflation is a volatile variable when it comes to managing your portfolio. The effects of inflation can devastate your assets, as we have seen in the wake of a downturned economy, war, political unrest, a disturbance in resource availability, or a chilling response to a surging global pandemic. Inflation means that your money doesn’t go as far as it used to. This is true whether you like it or not, and while nobody likes losing money, some people always seem to profit from inflation. What do they know that we don’t know? Multifamily real estate can be an excellent hedge against inflation. To understand why it’s essential to know how inflation works and how it affects the value of money. And when you know those things, you may discover that multifamily real estate can help you protect yourself from inflation’s adverse effects—and even profit from it. Before you begin to understand how residential real estate appraisals differ from commercial multifamily appraisals, it’s important to understand the different approaches these two types of properties take in arriving at their values. Commercial vs. Residential Appraisals Commercial real estate, unlike residential, is appraised using the income method. The more income property brings in, the more it is worth. The commercial real estate valuation formula is Value = Net Operating Income / Capitalization Rate. Net Operating Income (NOI) equals all revenue from the property (all rents, fees, and other income), minus all reasonably necessary operating expenses. Capitalization Rate (Cap rate) indicates the rate of return that is expected to be generated on a real estate investment property. Cap rates are expressed as percentages and vary from market to market. Within each market, cap rates have a historical range. For example, if a property had $300,000 in NOI and the cap rate in that market was 5%, you’d expect it to be valued at around $10 million ($300,000 / 5% = $6 million). Have You Heard About C.A.P.T? Among the key concepts, you should be familiar with are cash flow, appreciation, principal paydown, and tax benefits. Cash flow is the current and ongoing payments to the investor from rents. It is also referred to as yield. In addition to yield, there is equity growth from the appreciation of the property and paying down the mortgage each month. This equity component is realized upon liquidation of an apartment building—we’ll look at an example below to see why this makes apartment investments so attractive. Multifamily real estate has a long track record of beating inflation. Over the last 43 years, multifamily has beaten the inflation rate 37 times. In comparison, the S&P 500 has only beaten inflation 29 times. How can multifamily provide these more stable and consistent inflation-busting returns? Let me run you through three different scenarios: one in which rent growth exceeds CPI, another in which rent growth equals CPI, and a third in which rent growth lags behind CPI. Our hypothetical apartment investment looks like this: 100 – unit property $10 million valuation $1 million in gross operating income (GOI) $500,000 in operating expenses $500,000 net operating income (NOI) 5% cap rate (steady) 5% inflation rate (CPI) 7% rent growth (case #1) 5% rent growth (case #2) 3% rent growth (case #3) Case #1 – High Inflation / Higher Rent Growth When inflation rises, apartment rents tend to rise even more quickly. Since multifamily properties have short lease contracts—typically no longer than one year—they are nimble enough to respond to inflationary pressures and raise their rents in response. This is a real benefit for apartment investors that is not available to other segments of the commercial real estate space. Typically office, retail, and industrial properties utilize longer-term contracts making it difficult for them to respond to inflation. As a result, the only way for them to achieve higher rent growth than CPI is through the re-leasing property at higher rates than those specified in their leases. In this case, we are assuming a 7% rent growth and a 5% inflation rate. GOI – $1 million x 7% rent growth = $1,070,000 Expense growth – $500,000 x 5% inflation = $525,000 NOI – $1,070,000 – $525,000 = $545,000 NOI = $545,000 Our NOI increased by $45,000, so it is clear that our net distributable cash flow (yield) to the investors increased. Now let’s use that NOI number to see how much our equity grew. Value = NOI / Cap rate $545,000 / 5% = $10,900,000 Value = $10,900,000 So, in this case, our yield increased by $45,000 (from $500,000 to $545,000), and the value of our property increased by $900,000 (from $10 million to $10.9 million). We are not losing money to inflation; both values are increasing equally. Obviously, this is an ideal situation for the investor. But what happens if rent growth does not exceed the rate of inflation? What if they both go up equally? Case #2 When High Rent Growth Equals/Keeps Up With High Inflation In this case, both the rate of inflation and rent growth are equal at 5%. Let’s do the math. GOI – $1 million x 5% rent growth = $1,050,000 Expense growth – $500,000 x 5% inflation = $525,000 NOI – $1,050,000 – $525,000 = $525,000 NOI = $525,000 Value = NOI / Cap rate $525,000 / 5% = $10,500,000 Value = $10,500,000 Even when rent growth merely keeps up with inflation, the investor still wins (and profits from inflation). An increase in income of 5% equates to a less than $42 increase in rent for each unit per month. The owner’s expenses also went up 5%, costing him or her less than $21 per unit. The increase in yield is cash in your pocket as well as an increase in the equity value of the property. Everybody wins here. Case #3 When the Rent Growth Lags behind High Inflation … Read more

Investment Opportunities For Accredited Investors

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Investment Opportunities For Accredited Investors

There are a lot of things you can invest in as an accredited investor, but it can be tough to know where to start. The SEC offers a number of investment opportunities for accredited investors. These investments are usually more complicated than simply buying a mutual fund or opening an IRA, but they also have higher potential returns and fewer restrictions on investment. Accredited Investor Definition Accredited investors are individuals who meet certain income or net worth thresholds set by the Securities and Exchange Commission. An accredited investor is a person who: Has an individual net worth of at least $1 million (excluding primary residence), or joint net worth with spouse of $2 million; Has an individual income of at least $200,000 each year for the last two years (or joint income with spouse of $300,000 each year), and reasonably expects the same for the current year; or Has earned income exceeding $300,000 (or joint income with spouse exceeding $600,000) in each of the prior two years and reasonably expects to match or exceed that income level in the current year. How Much Can an Accredited Investor Invest? The amount of money that you can invest depends on your individual circumstances. The SEC sets a minimum amount of income that qualifies as accredited investor status, which is $200,000 in annual income (or $300,000 with a spouse) for at least two years. If you qualify as an accredited investor based on your income alone, then you can invest up to $1 million in any single private offering. If your income doesn’t meet the minimum requirement, then the total value of your assets must also be high enough to qualify as an accredited investor. The current limit is $1 million in either assets alone or combined assets and income. You can also qualify for accredited investor status if you have a net worth of over $1 million. Types of Investments for Accredited Investors? There are many types of investments that accredited investors can make. These include: Private equity/venture capital: Private equity and venture capital funds are pools of money that allow investors to pool their money together to purchase interests in companies. The investors receive a percentage of the profits made by the fund, usually in the form of interest payments. These types of funds are popular with many accredited investors because they have access to the best opportunities and can have an influence on how their money is invested. For example, if you have $1 million dollars to invest, you might be able to make suggestions as to how your money should be allocated among different companies or industries. Hedge funds: Hedge funds are pools of money that are professionally managed and typically invest in a variety of assets such as stocks, bonds, commodities and real estate. Hedge funds can be an attractive investment opportunity for high-net-worth individuals because they generally have low fees, have no minimum investment requirements, and offer investors the ability to participate in some of the highest returns available in the financial markets. Venture Capital: If you’re looking for long-term growth potential, venture capital is an option. Venture capitalists invest in early-stage companies with the hopes of making a significant return when those companies go public or get acquired by another company. The average time it takes to see returns on this type of investment varies widely, but it’s generally longer than other types of investments. Real Estate Investment Trusts (REITs): Real estate is another popular asset class for accredited investors interested in alternative investments because it offers diversification, steady income and growth potential over time. REITs invest in commercial real estate such as office buildings or apartment complexes, while mortgage REITs invest in residential mortgages like adjustable-rate mortgages (ARMs) or fixed-rate mortgages (FRMs). Real Estate Syndication: Real estate syndication is one of the most popular ways for accredited investors to invest in real estate. It allows an investor to pool their money with other people in order to buy a property. In this way, they can leverage their investment power and purchase properties that they wouldn’t be able to afford otherwise. The Bottom Line All investors should be aware of the various types of investment opportunities available if they want to diversify their portfolio and have a chance for long-term growth for their money.  Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.