Apartment Syndication 101

Foreign welcome to Think Outside the Stocks. I am Madhavi Nadechen. I'm your host today. I'm so glad to have here have all of you here to join our educational event of the evening which is Syndicated investment with multifamily 101. Gonna start by sharing my screen. So again I'm Madhvi Nare Jain. Think Outside the Stocks welcomes you to syndicated apartment investment 101. We are gonna take a look at it from scratch what this syndicated or group investments are. So if you are looking at diversification in your portfolio, in your wealth portfolio, we will take a look at it how this kind of investment is going to be helpful for you a little bit. Disclaimer on my side. This is information and education purpose only. This is not an offer of the investment that we are soliciting from you today. And I'm not a cpa, I'm not a lawyer. If you want to seek any professional services about any of the investments, please do so to do your own due diligence. And again example contained in this slideshow today are examples only. Just use it as an information education purpose. Little bit About Me My name is Madhvi Nade Jain. I'm president and wealth strategist at Think Outside the Stocks. Think Outside the Stocks is focused on education and investment of passive investment as the name says outside of the stock market and kind of outside of the box strategies too. I live in Austin with my husband and two kids and in my past life I was part of the IT industry for 17 years. I worked almost most of it is with Deloitte Consulting mostly in project management. And when I quit my job 5 years back I started creating the alternate investment portfolio real estate mostly single family Airbnb. And as I found out about the multifamily my mind was exploding. I felt I wished I had known about this before. And I feel the same thing by the way about the savings vehicle. That's a topic for another day called Infinity Banking System. These are the game changing strategies that I learned about and I feel so passionate about bringing this knowledge, this strategies to you know, just the community around me or the community I come from. So that's the passion that's really what drives me to educate and pass on this more information. If you feel it's appropriate for you guys in your portfolio, it makes sense. Get in touch with me and I'll help you implement it as well. So agenda for today we just will look at what multifamily is, what syndication is, what the typical deal Structure looks like. And we'll take deep dive into the advantages and also go over how you can be a part of this deal. These are the apartment complex that you see around you where you're driving by, new building is getting built or the old apartment complexes are there. And you would wonder that this must be millions of dollars in play and people who are really, really super rich are getting a chance to invest in them. That's not true. People like you and me can invest in this model with a group syndication model too. So we'll go over that and I'll also insist I also elaborate on how think outside the stocks can help you. Who can benefit from this live stream, this education event? If you're a busy professional, tired of stock market volatility, have high tax liability last year and trying to look for something new with tax advantages, you're either new to real estate or you have a rental portfolio. You are a landlord and looking to scale. I mean you can't have like 30, 40 rentals and be able to manage that, right? So scalability is important. If you are that you are curious about the growth in Citi and the Fix and Flip kind of a show motivates you, but you think that hey, I can't put that much effort into it or time into it, that this is the right, right presentation for you. In short, if you're a busy professional looking to diversify high growth investment opportunities that are completely, completely pass with the tax advantages, you are at the right place. So we will take a look at it. Before that, we will look at what is really a problem area today when it comes to the investing. So we do typically invest in our retirement accounts or outside of the retirement account in stocks, in rental, real estate, etc. The problem with this investing is first of all, it's highly volatile. We have really low growth. If you look back 10, 20 years and if you are on Facebook and LinkedIn, I actually posted a couple of days back a video how you can calculate your annualized growth of your retirement account. So just take a look at it, follow that formula, calculate your growth. I highly encourage that. On top of it, there's a tax liability that sits on top of it. Whatever extra earnings that you have is going to get impacted by the taxes. The risk is really high. This is a volatile market and it's not really managed by or backed by by a tangible asset. In terms of diversification, if you go to any financial analyst, any financial advisor, they will create your diversified portfolio, but all tied to the stock market and when it comes to active versus passive, I mean, don't get me wrong, I'm not against the stock market. People who can do it, who can achieve great growth. And this year people have achieved really great growth in stock market. It's great. What I would advise is take your gains, make it secure outside of the stock market so you can stop babysitting. You cannot monitor, keep monitoring that life, you know, that stock market volatility and manage your lifestyle and your family and live the life too, right? So take out some money, some gains so you can diversify. Don't need to babysit it. Kind of create that passive income cash flow. And again, another problem that sits on the top if you have rental or something like that is the asset protection. Are you protected from any attacks like if something happens to your tenant or somebody falls on your driveway? Those are the kind of attacks that are really expensive if you are to create LLC for that rental real estate. So we're going to take a look at all these problems. Our investment objective today is going to be looking at high growth, lower volatility, truly diversified, which can be minimizing your tax liability. And while doing all that, keep it completely, completely passive for you. When it comes to rental real estate, that's passive as per the tax code. But there's so much involvement still the landlord has right from finding the asset, looking at the loan options, renting it to the tenant, I mean so much and more, right? So the focus, today's focus is going to be on real estate as an alternate investment. Now in real estate there are multiple ways to invest. Two major classification is the single family style and the commercial style. On the single family side, you have either equity in your home and everybody by this time has a significant equity in their own home. So that's great. You might have a single family rental, a single family home, you might be interested. Or some of you must be doing fix and flip or the strategy called brrr. Basically it's buy, rehab, rent and kind of refinance, repeat that process or foreclosure, auction, tax, lien, many options. There's just too many options when it comes to single family. And that's where it gets confusing. You wanting to invest into real estate. Just don't know out of all these options what is really suitable for your scenario. So especially busy professionals who want to have something completely passive. On the commercial side there is multifamily, that is apartment investments, self storage, mobile home parks, hotels, student housing, assisted living, commercial real estate, like retails glamping. And there are many more. But that's at the high level. That's what we have the difference between the single family and the commercial real estate. What is the problem when you as a basic professional decide that you want to invest into the real estate? Right. So really narrowing down that problem. First of all there are just too many options to choose from. And when you think about those EDV shows the fix and flip, there is just so much of risk associated with it. There's so much of time component to it, hidden surprises or just the intensive money intensive commitment or effort intensive commitment that you have to commit to these kind of different options. That creates a problem scenario for you. And if you want to get involved in it. This market is actually so saturated saturated. There you know people who are wholesaling, who are finding deals, they're driving for dollars or doing advertisements. Such a saturated market. Unless you have really great expertise or experience, it's hard to get into market and start looking at really identifying this really good quality deals. Because by the time you see the, you know, the rental real estate in the, in the listing services, by the time you see it there in the realtors list, it's by all the time it's already too late in terms of what you can achieve with that, with that real estate. Again most of the times there are, you know, opportunities which are available. The education becomes tricky because there is a lot of advertisement people will advertising free education. And when you go into the education, 10, 15 minutes into the education they will start talking about hey there is this next course which is 10,000, 20,000 and you have to do it because in order to grow you should be doing it. Otherwise you'll have so much of risk associated with it. So you see all this real estate guru baits where you just don't know where to spend that money. And that's the purpose of think outside the stocks that for being a passive investor you really don't need to be spending so much money into all these classes. All these different. Just trying to identify and narrow down what where you want to really invest into real estate. When it comes to single family owning a single family and having a tenant placed in there, there are just number of problems. I mean in terms of the expensive repairs, the eviction, the vacancy. When you have the vacancy it's either 0% or 100% right? So either you have a tenant in there or you have to take care of all these expenses including the mortgage, the electricity, everything by yourself. If you have a damage by the, by the tenant, there's you know, there's just a sever component to that. I recently had a tenant move out of the property and I had, we had to spend five figures literally to bring it back to its real glory so somebody else can literally stay in there. I had to pay somebody $5,000 just to empty out the trash that they left behind. So that's the kind of problems that, you know, rental real estate. It just takes one bad tenant to wash off your cash flow past and the future as well. And that's what happened to one of our rentals too. I wish, you know, we had known about multifamily before. That's the quest that I want to bring this multi family investment in front of you. So by this time either you have invested in single family or not. Don't worry about it. Evaluate the multifamily for your scenario, see if this style suits you and jump into it. So even if you don't own any single family home, don't worry about it. It's not too late. It's actually good that you haven't done that. Why multifamily statistics is a strong suit. When I look at anything, any investment, I want to look at the data driven. The statistics is really what I focus on. I want to look at numbers. The numbers kind of are black and white. There is nothing gray in between. When it comes to numbers, it's really important to see what the numbers tells you about this particular class of asset. Why multifamily? First of all, the occupancy statistics, right in multifamily industry, there are nationwide about 40 million apartment residents who are contributing to almost $175 billion economy. So that's just 58 billion in taxes. That's how big this industry is. We see the apartment complexes placed throughout our city. That's every city and that's how much the growth of this market is. The demand versus supply equation is really skewed here. We had in 2019 328,000 new apartments that were needed annually. And that's the 300k is just what is being built now. The 2020 scenario is little different. So we will just consider the growth of this sector over the period of years and we will consider 2020 separately. If you want 95.8% OCC the last year occupancy, of course the occupancy has gone little bit lower. But by 2019 it was at its highest since 2000, 96.1%. So remember when it's multifamily investment, if you have apartment complex that's even 80% occupied. It's still going to cash flow because there are still some tenants going to pay for it. The mortgage component, the expenses are getting taken care of and then there's going to be that cash flow. So the breakeven point of this investment, when you're trying to invest is really great to look at. The point is when it's a single family is 0% versus 100%. But in multifamily, even if you have few apartment complex apartments empty, it can still have the sustenance model, it can still cash flow. So in 2019 it was at peak 96.1% occupancy. And it has gone down in 2020, but it's still at 95.8% occupancy. The rent growth in few years we have seen consistent 3.2% rent growth. It has gone down a little bit in this year too. So that's the statistics about the occupancy. Now again, look at, let's look at what is the style America is moving, Is it changing the style? There used to be, you know, initially there used to be the American great American dream is to buy a house. But now the American dream has been changing from buying a house, owning a house to two, to have financial freedom. So people are seeking for financial freedom more than owning the house itself. So in terms of why is this really impacting, what is the reason behind America becoming the rentons nation? The number one is the affordability. The prices are soaring. People are really not sure about where these prices are going. Are they going to go down, are they going to go up? They just are not certain. The economy is highly high, highly uncertain. 2020 has done really big damage. But economies is going through the cycles of uncertainty. The financial freedom dream is impacting and the baby boomers actually are downsizing big time. One of the most important reason for baby boomers is they lost a lot of Money unfortunately in 2008 recession, that's around the time they were retiring. And because of that they had to sell their houses, move to apartment complexes so they can sustain their style with the money that they have in their retirement accounts or Social Security supporting it. They cannot afford, they cannot even maintain these big houses. So they are moving towards renting the places too. So in the graph here on the right hand side, it kind of shows the comparison of renters versus owner population growth in the decade. And now you can see that the renters population is kind of creeping up and the ownership is declining. So that's where America is moving towards as a whole, right? Another change is really millennials. So not only the baby boomers, but the millennials, since their focus is the financial freedom, they want independence in terms of jobs. They are not staying in their jobs for more than two years, three years. They want to change jobs, they want to change cities, heck, they want to change countries, they want to have this new term called digital nomadic lifestyle. They want to be able to work from anywhere. And 2020 has proved that you literally could be anywhere in the entire world and still be efficient, still be working. So that's what, you know, that's what they're moving towards. And if they're moving in the city, they're looking for more urban lifestyle. So that's why the urban lifestyle to support that. They cannot afford this city condos, but they can afford paying the rent and staying in those city condos. Next few statistics here, why America is becoming the renters nation. This is a statistics for the decade which kind of shows that where are we moving, right? The American household who are even in the high earning scale above 150, 157% increase in the renters. So even these people who are earning really high amount, they are also moving towards the rent, towards renting versus owning because they want all that flexibility when it comes to the 60 plus age group there, you know their ways to move into the rented household that has gone up by 32%. And when it comes to the demand versus supply, what we are providing as a nation, we need to build more and more apartments every year. So that apartment building, you know, over 300, 300k every year and being absorbed in the economy, that kind of shows that. But it's just immense amount of demand in terms of being in this apartment complexes. So few more statistics about the commercial real estate itself within the commercial real estate, when we are looking at different asset class in retail or office or everything else, multifamily has the lowest vacancy level. So this on the right hand side, what you see, that's the multifamily, the vacancy levels and that's the lowest. In 2019, more than 320,000 multifamily units got absorbed. And six years straight, 250K plus units were being absorbed in the economy. So it's a really strong demand in terms of the vacancies has gone lower and lower and the rents also are creeping higher. So 3.2% in 2019. That's the rain growth that we have seen in real estate market cycles. Also multifamily has been performing really Good. So there's a real estate market cycles of recovery, expansion, hyper supply and recession. But when it comes to just comparing it. And now I have the chart here which compares the cycles, the economic cycle side, so against the stock, which is the red here against the stock, how the real estate performed. Now this comparison here talk just tells you about the rates, but rates kind of give some implication about it. But it doesn't show exactly what the commercial real estate or what the multifamily has been growing. But you can still see if you look at the compounded formula, the stock market has been performing 5.5% against the 8.7% when it comes to real estate. I have a quick Q and A here. Great slides. Oh, thank you so much. I really appreciate it. Please. That reminds me, if you have any questions, please try to put it into Q and A so I can answer that at the end of the presentation. I'm trying to cover a lot of grounds here, but I do want to provide you a lot of insight towards this particular asset. So please feel free to put your Q and A and we will take a look at it. Single family versus multifamily. Right. 2008 was the year when the housing market crashed severely. And what got impacted really bad was single family market. Now single family during that time also, right? Single family, when they were coming out of their houses, they needed a place to go. Where are they going? If they are foreclosing or they're short selling their homes, they're moving to actually apartment complex. So that's what happened in 2008. So if you look at the delinquency, delinquency kind of tells the rate of delinquency tells us that what is this asset class doing over the period of time. So if you look at the single family delinquency, it went up really high during 2008, 2009 crisis. It even touched 12% at certain point. But if you look at the multifamily delinquency, it's less than. I mean all this time it has stayed lower, lower than 1%. And even in 2008, 2009 it stayed low. A little bit later it is still going maybe about 0.8% or something like that. But that tells them that these assets are sustaining. What it means is when you're invested in these assets, it's not just getting going belly up. You're not just losing your capital. That's the lowest, you know, the lowest percentage which tells you that what it is doing to your money too. When you are investing it. So that's about the multifamily. Why we should be investing, why should be thinking about investing in multifamily supported by such great statistics. Now you'll ask me, Madhvi, what is really multifamily? Well, multifamily by definition is a unit which is five plus. So till it's four units, it still stays as of like four plex, maybe duplex with two units. When it's five plus units, suddenly that class changes. It becomes multifamily. The economies of scale though it's not, you know, it's not about purchasing that five plus units. The economies of scale start when you can have like the professional team managing it. Professional, you know, CPAs, lawyers, etc. You can afford the cost of it is in, you know, upward of 100 plus units. So now you'll ask me that. Then what do we do? Do we just purchase the hundred units or 150 unit apartment complex that we see? Do we create a group of people and move into this investment together and purchase it? Where is that experience? Where is that? You know, I don't know what to do after that. Is that how you do it? That's not. That's not how you would do it. The solution to this question is multifamily syndication. Syndication is nothing but the group investments. But somebody who has great experience and this expertise in this field actually is driving the shape of this syndication of this multifamily investments. Any questions so far? Please, please go ahead and put it in. But okay. Multifamily syndication, why is it better way to invest? Has if you look back last 15 years, it has provided above average growth. So in terms of growth, we are looking at about 13 to 17% growth. It is backed by a real tangible asset. So this there gets your risk gets managed. The real tangible asset, it's not going to drop its value over the period of one day or one month. How stock market can fluctuate. It's there, the value is there. In fact, the valuation of multifamily, because it's a commercial real estate, the valuation is based on the net operating income. So it's not based on whether the next apartment complex, just like how in single family, the next single family value drops, then your value drops. It's not like that. It's based on the net operating income and the cap rate. We'll talk about it in a minute. I'm not just trying to throw this abbreviations at you. We will talk about it. Get you familiar with these abbreviations. Too this terminology too again truly diversification, it is completely outside of stock market. You can even have the diversification inside. You don't have to invest just around your city. You can invest throughout the US in emerging market. You can look at the statistics of the market of the city, you can invest there. There are different classes, you know, newer buildings or older buildings. So you can do diversification within this class of investment itself. It has multiple tax benefit, not just one, but there is multiple tax benefits. And above anything else, I think the most important aspect of it for you as a passive investor, that it's completely passive. Only thing that you have to do as your due diligence is whether when you want to move into the investment that whether it's investment right for you or once you hand over your money to the investment to the syndicator. They literally take care of everything from that. I mean by this time they have also, you know, looked into why where the asset is, what the asset is, if it is going to serve and anything after that, you know, taking loan, managing that everything is taken care by the syndication team. So what is really a syndication? Syndication in a very simple way it's a. It's an effective way for real estate investment where the investor pulls their financial resources and the intellectual resources to invest in the project or a property that's much bigger than they could afford individually or they could manage on their own. So that's the definition of syndication. In terms of the structure. This is how it looks like. There is going to be a. A sponsor team which will have some equity coming in. Then there is going to be the investor equity that's coming in. And this second box is essentially you, the limited partner, the investor equity coming in. Then there is a bank loan, there's a leverage and with that you purchase that asset. So in terms of the percent wise, you will have 25 to 30% together with the sponsor and the limited partner that is you. And then you get the rest of it from the bank and then you purchase that property and manage that. I have a question here. I'm just going to see how does it work if I want to pull out of my investment. We will answer that at the end of it. But we will definitely. That's a really good question. We'll address that. So in terms of the multifamily syndication, it's an LLC itself. Every syndication is a separate llc. So there itself, your asset management, your asset protection, it's already taken care of. It's. It's LLC inside LLC where you sit is right over here. The LP is the, you know, either 20, 80% or whatever, that distribution, the cap, this, that the equity split that you have in within the investment is different for different investments. And the general partner is the sponsor team who is basically managing that asset, providing property management. They're executing this deal in terms of sale or refinance or closing that deal. So that's really their responsibility. So another interesting representation of what the roles in the syndication are. Syndication team, before even they present this deal to you, they are literally underwriting hundreds of deals to come to one particular deal. They're doing the inspection, they're doing the budgeting, they're putting it under contract. Not everything goes under contract. They can actually, they get outbid a lot of times. Once they have that property under contract, they seek for loan. And that's the point they actually bring into the passive investor. They show that, hey, this is the investment that's coming up. Do you want to participate now as a passive investor, which is this green box, like the turquoise box here, that's your responsibilities that you typically get to attend the overview, like a presentation. They tell you about the investment and if something makes sense to you, you will soft commit at that point and start your due diligence. You'll make sure that if you want to move into that asset class, into this particular investment or not, and if you do want to do it, you sign those paperwork to sign the ppm, which is the private placement memorandum, which is the legal document, and you wire your money and that's about it after that. They're the one who are closing on the loan, closing on the investment itself. So they will have the lawyers, cpa, everything that's integrated in their team, they will pay for it as a part of that investment. Once it's closed, they will manage the property, they will do the rehab, whatever they plan the business plan, they'll execute that business plan. They will manage the financials, they will manage through the CPA team. They will provide your income tax paperwork that you need every end of the year. And as a passive investor, what are you really doing now? You're really, you know, it's. If you are not in driving seat anymore, you just sit back and relax. You will get a newsletter from time to time from them telling you what is the progress of the particular investment is you will receive a cash flow in the bank account that you have provided to them. Sometimes it's monthly cash flow, sometimes it's every three months. If it is, you know, different loan types, they'll have to provide six months. So depending on what that cycle that they have already told you, they will provide you that passive cash flow. They will provide you the K1 that is a tax form that typically will have your paper losses or you can file with your cpa. It's a simple form, you can file it yourself once you're used to it. That's really about it during the life cycle that you are doing. And that's why I'm saying that this is a complete, complete passive investment for you. They will apply the tax strategies, they will provide depreciation, cost segregation, different types, and they will provide that on your cable. And once their business plan is successful, in three years, five years, whenever that's successful, they have increased their rents to whatever they wanted to increase as per their business plan and they decide that, okay, this is the time to exit. They can close that business plan, either sell or refinance or close the loan, distribute the upside to, you know, to the investors. That's a passive investor. So that's again you'll come in picture where you'll get your equity that you have built in or whatever that investment returns are in your bank account. Again. So really what you did is just passively sat there looking at your cash flow, really flowing through your system. So again, just highlighting that's just simply the roles of the passive investors that you have here. Now let's dig a little deeper into what different type of investments in multifamily are. Like I said, this is that multifamily 101. So we just scratched the surface right now. We looked at why we should be looking at multifamily as an asset class. We looked at what really the syndication is, what really the roles are. Right? Let's look at the type of investments. So there are different types of investment. There is something called yield play. Again, get familiar with the terminology if you want to invest in it. Yield play is typically a cash flowing asset. There is no, like a component where they can, you know, increase the rent by adding some renovations or rehab potential to it. The second is the value add. That's where they can actually, you know, do a lot of things. They, they can increase the rent by adding a few of the upgrades. If you may say it, you and me have all lived into apartment complex. So think about it. If you had like a really dingy apartment complex and somebody comes and says that hey, I'm gonna charge you $100 premium rent premium every month, but how about I give you stainless steel appliances and wood like floor and add a unit washer, dryer for you or you know, have granite countertops or really nice countertops. So that's basically what the potential, what the typical business plan looks like for value add that they will provide the value add, they will increase the rent. And when they increase the hundred dollar rent for a unit that's 12,000, sorry, that's 1200 per year. And for 100 unit complex that's even more. Right. So that increases their net operating income and that increases their value of that particular asset. And they can come out of it once that's implemented by having the upside. We will take a look at it in a moment what that upside would look like. They can also increase other incomes. They can offer a covered parking, reserve parking close to your apartment. I mean $20 for a reserve parking right outside your apartment, the unit that you're living in. Why would you not pay for that? Right. They could have storages, valid trashes. That's kind of the newer, you know, newer increase other income possibilities that they have been seeing. They also work on decreasing the expenses. So the operating income increases by increasing the income and decreasing the expenses. So they will look at the payroll efficiency, they look at the water billing it back to the resident. Sometimes it's not done. And the third type, it could be hybrid. Now in value add there is again two classes. There's a light value add which is just small enhancements that they can quickly do it come out of it. Or there's really, really deep value add where the occupancy is really low of that apartment complex and it needs like every unit needs a major rehab. So that's a deep value add. So that's, that's different types. And there is a hybrid where there's a combination of kind of that cash flow for rent and as well as a value add. So in terms of the key roles in multifamily syndication, there is that sponsor team which is also called as syndicator or deal sponsor or general partner asset manager. So GP is a term that's typically used for them. They are overall responsible for pretty much everything from sourcing, executing, managing, you know, executing the business plan, closing that asset, coming out of it. KP is the key principal who's kind of the loan guaranteed on the loan. And limited partner LP is passive investor like you. So limited partners just has that limited involvement. They just hand over that money and everything is basically taken care of for you. In terms of the key definitions, you will see cash on cash, it's essentially just your annual income Divided by the total dollar invested. So for eCamp, if you have 100k invested and you get $8,000 every year, that's your 8% is your cash on cash. IRR considers it's pretty complex formula. It actually considers the upside at the end at the sale too. But it's basically your total return divided by the number of years. So suppose you invested 100k and you got 120 back. So that's about, you know, what, what the rate of return for you over the period of years, maybe six years, five years, whenever you have invested it. And cap, it's a very important formula. The cap rate, if you see that's a capitalization rate, that's net operating income divided by the value, that's excluding the debt services. So that doesn't account for the mortgage services because typically it's just calculated. If you had like a cash value, then how would it look like? So that's the cap rate. The classes of multifamily. There are three classes of multifamily. When I was mentioning about the diversification of different classes, this is the diversification that we're talking about. The class A are typically newer buildings. They are looking really nice. The downtown buildings will have nice amenities. They have a very desirable location. The income around the surrounding area is really high. And then they typically don't have much of the different maintenance, really new 10 years on your assets. They will have high rents. Class B is 10 to 25 years old asset. They might have some deferred maintenance in terms of maybe, you know, the inside the units, maybe the AC needs to be replaced or something else. So some deferred maintenance, they will have a medium cap rate. They will be still desirable area. But the median income around the house, around that area would be like average Class C is like those older properties with, you know, outside of the city maybe and they have lower rents. They are typically in the less desirable area. They will have the higher tax rate because the risk is higher in them and they will have really high maintenance and maybe the roof needs to be changed or you know, really high, high value, high cost maintenance items for them. So that's class A. This is typical class A would look like for class B. That's the typical class B how it look like, you know, it's a little bit older but not that old. And class C, that's you know, typical how the class C will look like. All right, so we are at 45 minutes. I have still a lot more to go if you guys are okay with going Past one hour. We have a lot to cover. Let me know, just you know, put it in the chat or Q A. Just let me know if you're okay to go a little bit above. But we do have a lot to cover and I would love for you to have have this kind of insight in this asset class. So the typical investment opportunity, how it look like? So it will say that hey, this apartment complex in so and so class, so many units. This is the purchase price 20 million purchase price. We have secured a loan which is 4% for 10 years at 75% loan to value. It's a value add means they are having some rehab potential. The preferred return annual cash flow is 8% to you. The total annual return returns. The total returns is 80% and the equity multiple is 1.8x. So what it typically would say is basically if you invested 100k then this with 80% is 180 at the end of the 5th year or whenever that cycle is closed and they will tell you what that exit is going to be and what's that annualized IRR for you. So if you get your 100k turns to 180k by end of say five years, it's about 16% annualized retail returns for you. Right. You're not getting all 16% throughout, you're getting 8% you know, throughout. If they can manage that and at the end of it you will get that upside again. This is the plan. This is not something that they're promising that they will give but this is the pro, this is the plan. So in some. Yeah, that's essentially what it is in terms of advantages of the multifamily syndication. Right, we looked at that how it's passive for you, provides diversification, has tax benefits, relatively recession resistance backed by tangible asset. This is the highlight on the top level. This is what we are looking at. But in terms of deep dive into the advantages of it, there are other advantages and we'll talk in a bit. The advantages are the forced appreciation. That means how you can actually push the value up for this independently independent of surrounding apartment complexes. The economies of scale is also really works well. You can actually leverage the sponsor experience. So even if you don't have experience to run these apartment complexes, you choose, you can choose people who have done multiple cycles, they have years of experience or you know, have you know, multiple units, multiple apartment complex under their belt. The loans are non recourse. So you know, typically when you are a landlord in a single family home, you have recourse loan that means if something happens to that house and they cannot recoup, they can come after your assets. In this case, the multifamily loans are non recourse, so they cannot go by the syndication. The investment is kind of a standalone itself. They cannot go for assets for even syndicated. And the greatest advantage for passive investors that you're not even on the loan, you're not even exposed to your credit reports are not exposed, you're not even on the loan. If something happens, you are not liable for anything. The asset being in the LLC that provides you that automatic asset protection. And you can leverage multiple professional teams in terms of property management, financial management, CPAs, lawyers, you can afford as a part of that syndication because that's the expenses that they cover through that investment. So you're not paying for it. It, it's actually taken care for you. So that's that. Those are the advantages. Let's just deep dive a little bit into the advantages. Now what's the forced appreciation? Right, the forced appreciation. Let's take a look at this particular property, a property with a 10 million value. The equity raise is 2 million. For example, simplicity 6. Let's just assume that 80% is coming from the bank, 20% is what the group of investors are pulling together. The net operating income is income minus expense. So let's consider when we enter this investment, it's 1.4 million minus 400k. That's about 1 million without considering the mortgage again. Right. So 1 million is the net operating income of this particular asset. The cap rate gets calculated, you know, that 1 million divided by the 10 million. So the 10% is the cap rate for this particular asset. Now these are not real numbers. I just, you know, took these numbers for the ease of understanding so that it's easier for understanding for your purpose. So in this case the strategy is to increase the income, discrease the expenses. So say for example, they were able to increase the income from 1.4 million to 1.5 million. That's just 100k every year. And they're able to decrease the expenses little bit. So from 400k they went to the 300k. I can decrease the expenses a little bit by 100k. Now the net operating income, the new netted operating income, if they can achieve that in three to five years, is 1.2 million. So 1 million changed 1.2 million. Now the formula is still the same. The cap debt is equal to net operating income divided by the current value. So for the current value now you have to take the Net operating income divided by that same cap rate. So 1.2 million divide by 10%, that's 12 million. So the property value, irrespective of what the next apartment right next to it, what its value was doing up and down, it's completely stayed independent of that market. It has its individual forced appreciation in play. So 10 million apartment complex turns 12 million. Now you would say that's what, just 20% gain. So where, where is the profit in that? You know, just a 20% over the period of three to five years, that's, that's not desirable. How would you get that income? Think about it. What is your invested amount in it? Your invested amount is 2 million 8 million came from the leverage that the bank gave you. So your 2 million, when you contributed in that 10 million asset, which turned 12 million, now your 2 million you have on top of it sitting 2 more million. So 4 million is the total returns from this. That's 2x of your, what you have invested. So what Everybody invested. So 2 million turned to 4 million. That's 200% right. So that's, that's the magic of the leverage that you get to utilize in the syndication with the forced appreciation. So that's the biggest, biggest advantage of this, that you get to use that leverage. So that forced appreciation of terms 2 million improves your rate of return for you. The second advantage, economies of scale works on multiple level. You know, there is for example in single family house, you will just have one roof for each unit, right in here you have one roof to maintain for about six to 12 units. You can have dedicated property management, you can have a dedicated maintenance crew. We all have lived into apartment complex. We know that, you know, there is a property management we can, there is an office you can go to because, because that's just how many number of units they are supporting. There is a maintenance crew who is like literally we call and they come and they fix things for you. So that's happening in terms of rehab also it works really better. They can literally buy this appliances at the wholesale prices or whatever the material that they want for flooring, for granites, for anything that they want to rehab. They can also have, have because of the economies of scale, these professional teams in terms of property management, legal representation, taxes, the vacancy. Even if they have say 10% vacancy, it's still sustainable because 90% of people are still paying that rent that's coming in every every month. They're pro, you know, they are supporting that mortgage payments. And then there is, there is more which is the cash flow supporting the cash flow for the investor. And typically the breakeven occupancy is really lower. So in terms of insurance as well or in terms of mortgage also, there's just one insurance, just one mortgage. So that's how the efficiency of the economy of scale works. For the multifamily non recourse loan. We talked about it. The passive investors are not on the loan. Their credit check does not, you know, the credit history does not get checked. There is no impact on your credit history. And then in case of default, if something happens, the collateral is collected which is the property. Lenders are not allowed to pursue any, anybody's personal assets, not even the sponsor teams. Of course there are some bad boy carve outs. It's not that easy that they can just say that hey, it's just not performing. The lenders will make sure that they are more involved if something is not performing well. So that's advantage for you. From the passive investor point of view, there are three ways of tax benefit. Again digging deeper into the tax benefits. There is a depreciation. If you have, if you have ever been a landlord, you understand the depreciation. It's essentially there is a land value, there is a structured value. The structure depreciates fast, you know, faster. And that you can depreciate that amount and take it as a paper loss against your income. So that component is there in this multifamily as well. On top of it you can do a cost segregation study which can provide you up to 60, 70% depreciation. And with the tax laws, you know, tax cuts and job acts laws, you can apply that 100% bonus depreciation into first year itself. This is a little bit complex topic for today. I will have another advanced session or you know, some more videos where you can access these videos and learn about this tax strategies in more detail else. But essentially those are the three ways that at least what you're earning as a cash, as a cash flow, as a passive investor, you get it against, you know, you get those write off against that income. If you are a W2 income, there's only so much that you can take this passive loss against your W2 income. There is limitations on that. But as a bonus if you, you know, if one of you are not working or you could qualify as real estate professional, there's a whole different system to that. But if you could do that, you can apply this loss on the active income of the other spouse. So that actually is a very good strategy. I'm not gonna in interest of time jump into the details of this. You know, tax benefits. I had a little bit more digger deeper, you know, dipping deeper. But we will talk about it in later. So how do you make money as a passive investor? How do you get paid? Right, so the first of all passive cash. You know, the cash flow distribution, the rent that's collected every month, the other income that's collected. So you typically get the distribution in your bank account every you know when whatever the frequency this indicator has assigned to it, the rent pays the portion of the mortgage and it also is building equity every month. So the in the mortgage there is a principal and interest. Right. So just like your home payments, it's adding to that principle every month. Then there is a tax benefit. You can write off your losses, depreciation, cost segregation, all these different ways. Then there is that forced appreciation which I just explained some time back which applies when the asset closes and it doesn't have to be sell, it can be refinanced and they can take out your money and give it back to you. And really that sale or refinance is a significant upside that you can, you can achieve in terms of the downsides or the risk. You know. And this is one of the questions Lavanya, you had asked about the liquidity can I withdraw my money? One thing you have to remember that this is an asset where you moving into this investments and your money is locked for that three to five years. So if you're looking for flexibility and you were looking for liquidity, maybe it's not right investment for you. Or if you have like two buckets of money where you want money that you don't want to be accessible for three to five years because it's giving you providing high returns, you can do that. And the second bucket which needs to be liquid, you can do something else. And infinity banking strategy is a great way to look to have that hundred percent flexibility and liquidity for you. I have that another webinar coming up soon on the topic. But. But is it like completely not accessible? Not accessible, but things happen in case of emergency, something happens and you say that no, I really really want my money back. This is the money that I depend on and I really want to want it back. What happens typically is either the sponsor teams would say that okay, I'll just buy your share out or somebody they will just put it to your other shareholders and say that other LP investors and they'll ask them that anybody wants this share, they will, they will purchase that share. So you will get your, you know, the money that you want to access, access to that money. But you have to keep it in mind that the equity gain happens really when it closes. So you will have to compromise your gain. So if you want to access that, you would have maybe gotten that 7%, 8% cash on cash, you might have to compromise the returns and give up the end of the cycle returns on that. In terms of volatility, right. I mean, there's a lot going on in the market. So, you know, you have to remember that this is an investment. Every investment has a risk. It is real, it has the real tangible asset. So it is backed by that asset. So it's a little bit lower, tied up to the market volatility. But there is still, I mean, it's an investment after all. Right. And the third thing that's, you know, maybe some of you may like it, really like it, or some of you may not like it is the lack of control. That, you know, the sponsor team, because they are the one who are subject matter expert, they are the one who is making this decision. So you can't you just go and say that hey, can we just sell this asset right now? If it doesn't make for that business sense for that particular asset, they're not going to take that decision that time. So those are basically the considerations that you'll have to ask yourself that is it really for me? I mean, if I'm not agreeing with that, is it really for me? So those are the things how you'd get to invest that. There are two classes of investment investors, accredited and sophisticated investors. Typically there is a minimum of, of 50,000. Some good investors also have 75,000 as a minimum. So in terms of relationship, these are SEC regulated investments. So in terms of relationship, so if I'm participate, I'm part of a sponsor team and I will bring this investments to you. That's how it will work. And once these investments are there, you will have some timeline to take a decision and move on this investment. But you will, you know, some of the investments need that relationship with you and me. So I need to know you so that you get to invest in this. So that's why I highly encourage that, you know, have that strategy session with me. Let's start talking, let's start communicating. Let me understand what level of sophistication that you have when it comes to investments and we can take that relationship further so that you get more access to these deals, to this investment. Typically whole period is three to five years and you know, you have multiple ways. We look at multiple ways how you can invest it doesn't just have to be cash. You can use your retirement accounts to invest, you know, multiple ways of investing it. As a passive investor you do due diligence and we will go over the due diligence in some other, some other seminar. We will talk about what the due diligence, different due diligence. In fact there is like a deep dive for passive investor due diligence that's coming in. In terms of SEC offerings that I was talking about, there are two types of offerings. There is 506B and 506C. 506B is, is what I need to know you and I need, you know, you need to be participating it as a sophisticated, sophisticated or accredited investors in 506Cs. Those are strictly, strictly for accredited investors only. So, so that's essentially what it is. And in terms of accredited investors, the definition of it, if you are an individual with 200k plus annual income or 300k joint income or your assets, your net worth is in excess of 1 million excluding your primary home, then you are an accredited investor. And if you have enough knowledge and have pre existing relationships with the sponsor team, anybody in the sponsor team, then you can participate in the 506 BS. So that's the typical investment options and we are almost to the end of it. And I'll start taking some more questions in terms of the problem areas, right? I mean when I came to know about this class of asset in terms of investing there are really three high level problem areas and that's what I'm basically trying to solve it for you. One is, you know, if we decide real estate investments, where do I invest, there's just plenty of options. You know, a lot of information is blinding to see the information overload. It's just you know, coming left and right with Google and with all the online resources that you have so narrowing it down that what's most efficient for you, that's most suitable to you and that we narrowed down to that multifamily investment investments. The second problem is the right education to even become a passive investor. There are literally several investment clubs where you get to be an investor or even if you want to learn about it, there is a lot of cost to it. I believe that all this investment education that I'm providing with think outside the stocks, I suffered a lot when it comes to education, invested a lot of money in terms of providing this education. That's my passion that I want you to Educate yourself for free as a passive investor. If you want to be active. Yes. Go ahead and spend that $30,000 or $35,000 be part of those groups. And that's basically what I'm trying to solve here. And the third problem was the access to this investment opportunities generally they just fill so fast and they just rotate because of Also with the SEC regulations 506B you can't even see unless you know somebody. Right. So that stayed in that elite clubs or access with the membership model kind of an investment. And that's what from time to time when I vet the sponsor team, when I vet their deals, I underline those deals. From time to time I'm bringing this investments to you. You will get notified being you know. So if you're interested in investing with Think outside the stocks the deals deal flow to look at the deal flow just by having signed up on the Think outside the stocks website is not enough enough. You need to sign up as an investor in investor interest and then I can start sending these deals to you. Otherwise even if I know that deal is suitable for you, I cannot send that deal to you. So go ahead and sign up AS Investor on www.thinkoutsidethest.com. so again how I can help. I'm helping you with the education that it's going to be more education. Keep an eye on that. It's just quality value added education free of cost, no upsell. I'm not selling anything, just providing that free education. We'll also have that investments with the strategic partnership with the syndication team across us. So you don't have to invest right around your market. You can invest across the market. And for the first time investors. Those are the problems I felt that I just didn't know what to do, where to do from. And I provide that hand holding to you in terms of your first time investment. So that handholding, you know where to invest from. What's this process, what documents, what am I looking at? You know. So that one on one hand holding is what I provide you in many, many ways. So that's really the end to end assistance that that I have. And as a think outside the stocks, the approach I always always want, you know, don't want to do anything that you don't want to do or you don't need to do or you can't afford to do. And as an approach my intention is first of all to increase your net worth to reduce your tax liability and third to have that increase in passive income cash flow so you can move towards Your financial freedom team more sooner. So if you want to plan, you know, start looking at it. Just have a strategy call. It's free for you. Anything that I'm offered, my education, my services is free of cost to you. So just, you don't have anything to lose. Just have that strategy call and I'm keeping everything, trying to keep everything passive for you. You understand that's, that's really important for, for you as well. So keep an eye on educational events. I will have individual events, I will have guest speakers time to time which will add value to you. And then there's going to be the passive investor mastermind where we'll focus on due delicious process for analyzing these deals. All right, so I'm ready for questions. I see a lot of questions popping here. I Lauren, I think I got to your questions. Did I answer your question or do you have more, more question around that area? Her question was how does it work if I want to pull out my investment so it is tied to that period, three to five years and but if it is absolute emergency, you can pull it out but then you'll have to compromise on your game. So that's, that's the answer to that. Kristen asked, can you please explain more on what the passive losses mean? So passive loss is a paper loss, it's not an actual loss. For example, you know, one of my investments last year, I invested 50,000 in it and it gave me a write off of 48,000. The write off came from the depreciation as well as the cost segregation. Another topic for another day. But what it means that, that you know, there were the assets inside by tax law which says that it depreciates so I can, you know, reduce it from my cash flow. So this particular asset, if that gave me $8,000 as an income, my net net for that will become 8000 minus whatever that 48,000. So I did not get charged on 8000 any income tax. So that 8000 became completely income tax free. And then I, in addition I had 40,000 which I could carry over to next year if I have, you know, of course I have the rental real estate. If my rental real estate has a positive income cash flow that's going to have the tax. I could take that and apply on that income too. So Suppose I have $10,000 as an income, as a positive income from my rental cash flow, I could take out of this 40,000 that's left over, apply 10,000 towards it and still have 30,000. Now depending on where you are and where your Income is you can take some of this loss and apply it on the active income too. But if you are, you know, if your income is more than 150k, you can't really apply it on the active income, but you get to carry it forward to the next year. So that's how the passive losses work. It's not an actual loss. You gain that 8%, you get that $8,000 in that year, but it's just simply for the tax purposes. You get to reduce that as a loss so that the income doesn't get taxed. And that's the effort, we think outside the stocks that whatever the additional money that you're making, at least that should not be taxed or at least, you know, minimize that tax liability there. So that's Kristen, great question by the way. Is there a minimum investment in the syndicate? Yes. So typically the investor, the syndication team, when they present that deal to you, they will provide you minimum. Last year I even saw 25k which I've never seen as a minimum investment. But typically it starts at 50,000, sometimes it's 75,000. But that's, you know, depending on each syndication investment, syndication team, what they want to keep it as a minimum. So that's your answer. Philip says Madhavi, thanks for putting this together. You're welcome. That's, that's awesome. Any more question guys? I would, you know, love to answer your questions. Just trying to see if people have posted in the chat. Yes, your question got answered. Nital, thank you so much. Appreciate you guys hanging around. All right, so we are at the end of our presentation. Thank you so much for joining today. I have, you know, upcoming seminars coming up but as a, you know, just a free gift, I want to offer, offer you a work which is on the infinity banking strategy which is, you know, by Patrick Donahue, Paradigm Life founder, which I work with, it's called Head 7 and tells you those and you also get a free 60 minute strategy session with me just simply if you want that just simply text word think to 31996 and I'll get in touch with you and we will start doing that planning and just getting an idea what really you want to do with you know, your investments. Where do you really want to want to go from here year next year? What do you want to plan around that? So go ahead just either visit www.thinkoutsidethest.com and there's going to be a schedule call button there. Either you can access through that or just text think to 31996 and I'm available for you for that strategy session I have. I'm pretty much booked out for this entire year. So you know, in the new year I will start getting on calls with you. But if you have an urgent need that you really want to discuss something really quick, I can make her some room. So just give me a call and just be in touch. This is actually one of the topics that I did wanted to cover. Nobody asked about COVID Certainly there is some rent impact when it comes to multifamily and I did want you to talk about it. The rent paying ability has changed and there is, you know, there is a little bit like rent loss in terms of having the economic vacancy. So people are still there. You can't do. So there's an eviction memorandum. There is no replacement tenants that you can put in there. So what I have typically seen that it still hasn't gone to the point the break even kind of occupancy has met. So syndicators, they have been applying different strategies to it. Sometimes they have to hold a couple of distributions. Some of my investments did hold that distribution. So they kind of build a fort, kind of have that reserves built in. And with the loan, the loan forbearance from government and other efforts that's also it's adding some value towards the rentals as well as a multifamily owner. So that was one of the questions I was expecting from you and since you didn't ask, I'm just providing that answer. So again, thank you so much for joining in. I enjoyed doing this for you. The next every Thursday, Every other Thursday is when the education series will continue. On the 7th of January I will talk about Infinity banking system to make your savings more efficient. I will look forward to seeing you there. Thank you so much for joining.