First Time Investor?

For the new and even seasoned investors out there, here are some questions you MUST know prior to investing your hard earned money. These will give you a good picture on who you’re going to be trusting, as well as if the deal is the right one for you!

Find Out More About Who You Are Investing With

  • Who are the operators?
  • Who makes up their entire team?
  • What is their background(s)?
  • What values do they instill in their company? 

Business Plan

  • Have they partnered with the correct people in place to carry out the business plan?
  • How is this plan going to be executed?
  • Location of the subject property and why this is a good area to be in?
  • Is the team I’m investing my money with going to follow through with the plan? 
  • What is the exit strategy?

Returns

  • What is the Cash on Cash?
  • What is the Annualized Rate of Return (ARR)?
  • Ask about the Internal Rate of Return (IRR)
  • What is the anticipated timeframe we plan to own the property? When will you get the liquidation check??
  • Total projected return as time of sale?

Your hard earned money is valuable and you obviously want to invest in something that will reap the highest returns. Doing your homework is important to making sure you’re investing in something secure with a team that will always deliver. At True American Capital our goal is to not only save you money, but provide you with opportunities to put your money to work in an investment that has potential for high returns with low risk.

 

Drake Stratton

Managing Partner – True American Capital

 

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Value Add Opportunities

What are value-add opportunities? These are actions we take to increase our property’s Net Operating Income, thus increasing the overall property value. Here are some examples of what a value-add opportunity may look like:

  • Remodeling units
  • Fresh paint on the exterior of the building
  • Adding covered Parking
  • Adding a dog park
  • Leasing washer/dryer
  • Reducing the vacancy of a property

By implementing these opportunities, tenants are more comfortable paying a higher premium, thus increasing our investor’s cash flow, returns and the entire value of the property. Multifamily investing is a lifestyle, each property is a business, and our tenants are out customers. We improve their life, they are willing to pay more. Everyone wins. I challenge you to get creative in coming up with more own value-add opportunities and ideas! Just ask yourself: if I were living in an apartment complex, what would I like done to my unit, community spaces, parking lot, or management policies? What could I adjust/change that would my life better?

 

Drake Stratton

Managing Partner – True American Capital

 

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You are an Investor.

Everyone can be divided into three types of investors. You have the pre-investor, the active investor, or the passive investor. Since we mentioned active and passive investors in an earlier blog, let’s take a look at what a pre-investor is. Effectively, a pre-investor is an individual who is not actively investing capital, but does have an awareness of the value of investing. A pre-investor may have a retirement plan but typically does not keep tabs on it. Again, this type of individual has the awareness of the value, but has not taken measurable steps into fully educating themselves or allowing for the opportunity for someone else to educate them. He/she may simply not have the time due to work schedules or ongoing obligations. Understandable!

Pre-investors are some of the hardest working people in this country; they often make a great living for themselves and their family. However, their persistent work ethic narrows their focus and time on their job/career which takes their mind off of financial education. Being educated financially will set one free. Literally. How is it possible for someone to work 40+ years of their life, retire, and then still have to rely on social security or government aide of some kind to get them through. You’re working your entire life, making someone else rich, and you’re no better off, (financially), than when you started. After working 40+ years, you MUST be SO financially free that your kids and your grandkids have a level of financial freedom. 40 years is a long time!!

A great work ethic is admirable, no doubt about that. But work for yourself, make YOU rich, not someone else. Don’t want to start your own business? That’s fine! It’s not for everyone. But, American’s must take measurable steps in financial education to learn how to invest their money. Educate yourself or be willing to be educated because there is no reason to be financially dependent on government aide or your job in this day and age. It makes me so sad to see how hard people work and not achieve financial freedom. 

True American Capital is a real estate investment vehicle who’s sole purpose to to get as many Americans in the upper and upper-upper classes as quickly as possible. We do this through apartment syndication (see blog: True American Capital: What Do We Do?). It is our driving mission to educate our pre-investors of this great country into becoming passive investors so they are able to get their time back and not have to work so hard for 40+ years of their life.

The ripple effect of making that leap will flow with generational wealth. 

 

Hudson Robison

Founder/CEO – True American Capital

 

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True American Capital: What Do We Do?

In short, we purchase apartment buildings by pooling money together with other investors; everyone who invests then shares ownership of the property and thus receives distribution checks as we collect rent from our tenants. This is called Real Estate Syndication or more specifically: Apartment or Multifamily Syndication. 

A ‘Syndication’ is the acquisition of the property, (the way in which entities purchase/acquire a property). The literal definition of syndication is: the transfer of something for control or management by a group of individuals or organizations. You could probably guess there are numerous people involved in a syndication. There are the general partners, GP’s, and there are limited partners, LP’s. 

The Limited Partners are our passive investors. The number of LP’s on a deal could range from 3 to as high as 60, potentially more, depending on the price of the property. LP’s typically own the most equity in the property. The LP’s (generally speaking) do not make managerial or operational decisions during ownership, which works well for them since the classic ‘passive investor’ does not want to deal with the day-to-day operations of the property; they merely want to invest and enjoy the cash flow.

On the other side, the General Partners’ ownership equity share in the property less than the LP’s, however there are less general partners as a whole. The GP’s are made up of usually 3-7 people who take on various roles in sourcing and closing a successful syndication. Some examples of GP roles are: underwriter(s), capital raiser(s), a deal sourcer(s), a sponsor, a due diligence expert, asset manager(s), etc. The GP’s are also referred to as the operators and they are active investors. The GP’s do an extensive amount of research and networking in order to find the property. They then underwrite the property’s financials, confirming it is a true cash-flowing asset that will provide the return investors are excited about. There is a substantial amount of due diligence performed both with the financials (income versus expenses) of the property and physically inspecting the property including vetting every unit thoroughly.

Apartment Syndication is most certainly a team sport.  To bring such an amazing team together to acquire properties that provide financial freedom to everyone involved is truly amazing. 

 

Hudson Robison

Founder/CEO – True American Capital

 

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How do Limited Partners Make Money in a Syndication?

So many of you may be wondering: “What the hell is a syndication? If I invest, how soon will I get my money back and how often?” Excellent questions!

Syndication means a group of individuals or organizations combining their resources to promote a common interest. In our real estate syndications, we effectively pool money together from like-minded individuals to purchase large multifamily properties. This allows everyone to share ownership and enjoy great  cashflow until we sell the property (our hold-time is usually 2-6 years). We typically distribute the largest check to our investors at the time of liquidation.

 When you invest in a deal with us, once we close on the property we immediately begin the process of renovating units and increasing the overall property value by implementing value-add strategies. When the additional income starts to flow, we begin our quarterly distributions to our investors. Our investors usually start seeing returns during the 3rd quarter post-closing on the property.

Our deals include a 7%, sometimes 8% preferred return to our investors. Now let’s dive deeper into this by using one of our recent deals as an example. Say you invest $100k into a $17.5mm property to be held over the course of 4 years before liquidating.

  • 7% preferred return
  • 19% ARR
  • 4 year hold

See how the distributions would play out.

  • Year 1- $4,319
  • Year 2- $6,119
  • Year 3- $7,000
  • Year 4- $7,297

Over the course of 4 years you will have accumulated $24,735 in cashflow. Next, we liquidate the property with a projected net equity of $51,585 (on top of your initial investment of $100k). This investor walked away with $176,320 over the course of 4 years.

Common next question: “Well it is actually a lot less than $176k because of taxes, isn’t it?” Not true! There are various tax incentives that save you from giving your profits back to the government.

 

Keep an eye out for the next article explaining different tax incentives you may be able to capitalize on!

 

Drake Stratton

Managing Partner – True American Capital

 

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Will Multifamily Thrive or Dive?

I’ve heard this question a lot recently because it’s a VERY logical question…
“If multi-family properties weather a downturn better than most asset classes, why do you feel some owners will be in trouble? I don’t understand how multifamily can dive and thrive at the same time.”
Can something be good for one person and bad for another? The Encyclopedia of Ethics states that a ’thing’can’t be both good and bad, reasoning if one ‘thing’ appears good to one group and bad to another, it’s due to each groups history of persuasion, rather than the ‘thing’ itself.
Let me wax poetic on you for a second. The biggest “persuasion” is to think ‘things’ are the asset. Multifamily is neither good or bad, because it isn’t the TRUE asset. The TRUE asset isn’t ever about the property, stock, or business… it’s the people behind the properties, stocks, or businesses.
People, not ’things,’ are the TRUE ASSETS.
Multifamily, like a Ferrari, is just a vehicle with a lot of potential. A Ferrari driven by a toddler will lose to a Ford Festiva driven by Mario Andretti every damn time… unless the toddler driving the Ferrari IS Mario Andretti… but we digress.
Good operators are the assets. Bad operators are the ass hats… err, I mean the liabilities.

SHORT TERM OUTLOOK FOR MARGINAL OWNERS

Now that we have that cleared up, we can discuss why some operators will THRIVE and some will DIVE.
There are a number of short term issues multi-family owners are battling right now, one of the biggest being The CARES Act Eviction Moratorium which restricts owners from evicting tenants or charging late fees for non-payment. Owners who don’t have solid operating procedures in place will certainly have a hard time collecting rents with those restrictions in place.
If rent collections suffer obviously owners will struggle to pay their bills. If they overpaid for the property and/or don’t have proper reserves in place this problem will be further escalated. This will force them to cut costs and many will decide to stop handling maintenance requests… which is the #1 reason people leave!
As tenants leave, owners will loosen screening policies in attempts to drive up occupancy, which results in a lower quality tenants. Shitty neighbors are the worst though, am I right? Which means, as good tenants, the ones who actually pay their rent, see lower quality tenants arriving, they choose not to re-lease. Maintenance requests are the #1 reason people leave but having a sense of community is the #1 reason people STAY.
Despite the overall demand increasing, marginal owners will find themselves in a spiraling problem due to short term strains.

LONG TERM OUTLOOK (DEMAND)

There is a need for affordable housing across the United States and the coronavirus will only fuel that need. For example, the unemployment rate went from ~4% in March to ~23% today, which will force many Americans to downsize into more affordable options. Multifamily provides one of the best affordable options out there.
We continue to be a nation of renters as well. Home ownership among boomers is by far the highest at 75% but even that rate is starting to decline. For comparison, home ownership rates for Generation X (ages 39-45) and Millennials (ages 23-38) are 60% and 32% respectively. Generation Z are just coming out of college and seem to be bigger vagabonds than even the millennials.
Lending requirements have already become more strict as well. JP Morgan just tightened the belt by requiring borrowers to have a minimum credit score of 700 and a 20% down payment.

LONG TERM OUTLOOK (INVESTOR ADVANTAGE)

Multifamily offers great tax advantages to investors. You can read more details on this HERE, but chances are investors will pay $0 in taxes on any cash flow. If income has been affected, this is a great way to hedge against that.
Interest rates are also at historic lows. You can lock up long term debt as low as 3% right now which provides amazing opportunity for long term growth.

CONCLUSION

Multi-family assets that are controlled by good operators will weather the short term storm and then benefit from the long term upswing. Marginal owners will be exposed by the short term storm, leaving them with properties that are underperforming and at risk.
Remember, multifamily valuations are determined by the income, and marginal owners struggling with physical and economical vacancy will see income go down. When income decreases, the overall value of the property will decreases, causing the short term cost to go down but the long term potential VALUE to go UP!

Good operator’s, the ones who swoop in and buy properties from marginal owners who have let income DIVE, will without question, THRIVE! So will their investors!

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Covid-19 & Multi-Family Real Estate

Covid-19 has many apartment owners nervous about preserving investor capital and adhering to the needs of tenants.

This video will bullet point some advice on how to make sure you take care of your tenants AND your investors! You don’t have to sacrifice one for the other… but you do have to be extremely proactive!

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