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What is Value Add Real Estate Investing and How You Can Make It Work For You

We know that Commercial Real Estate Investments have some of the best advantages for returns when compared with Residential Real Estate. What strategies allow us to achieve great returns for our investors? 

When it comes to Commercial Multifamily real estate investing, there are three main strategies:

#1 – Core Investments

The Core Strategy is for those looking for a conservative return with minimal risk. Regarding multifamily properties, a core real estate example would be Class A properties. These are newer properties in upscale neighborhoods with high quality luxury amenities. Typically, core properties have higher rents with a lower vacancy rate. 

This in turn helps to mitigate risk generating a lower cap rate in exchange for the decreased amount of problems with the property.

#2 – Opportunistic

Unlike the core real estate strategy, using opportunistic strategies are the riskiest of all. These investors are looking for the potential highest returns in “opportunity” which is usually property that is bought low with the hopes of selling high for a quick profit. 

These projects often initially have minimal to no cash flow with a larger potential later once the property has been rehabbed. 

An example of this type of investment in the multifamily space would be new construction of an apartment building. Usually large amounts of capital are needed due to high construction costs which in turn will hopefully attract tenants that can pay an above average rent. 

The key to success in this area is using a highly successful team with experience in:

  • land development
  • repositioning buildings from one use to another
  • ground up developments

#3 – Value-Add Real Estate

Most of the syndication deals we’re invested in reside in the value add class which consist of Class B and Class C property.

Most are familiar with fix and flips as this would be a type of value add in the single-family home space. This is where someone finds and purchases a home that needs some TLC, rehabs it then sells to a new owner for a profit.

So this person is rewarded for taking on a high risk hoping to improve a home to the point where it’s sold to someone at a cost that will at least cover the home’s price and rehab cost.

The value-add component is similar to the fix and flip model when it comes to the multifamily space except on a much larger scale. 

Instead of renovating one unit, we’re talking about multiple units depending on how large the apartment complex is. 

What Are the Risks In Value Add?

As you can imagine, when purchasing a property that needs improving, its condition could be lacking in several areas. 

Depending on how run-down the property is, the amount of construction could be quite high which would significantly add to the risk of the project. Usually the more involved renovations (major overhauls) needed, the higher the risk

Other risks can involve the tenants.

Typically rents can be increased after the rehab has been completed. Occasionally this can cause some to move out and also make it difficult acquiring new tenants which contributes to the overall risk of the project.

Value-Add Examples – Physical Improvements

Value-add real estate is typically a B or C class property that has outdated appliances, peeling paint, distressed landscaping and more. Many times updates need to be made to both the exterior and interior of the buildings.

Here’s a few capital improvements that can be performed.

Interior updates

Common value add interior updates include:

  • upgraded fixtures
  • new flooring/carpet
  • granite countertops
  • stainless steel appliances
  • new cabinets
  • painting units
  • new lighting

Exterior updates

Adding value to the exterior of the buildings along with some of the shared spaces include:

  • new signage
  • update fitness center
  • new pool or rehab existing one
  • parking lot
  • painting 
  • update clubhouse
  • new landscaping
  • covered parking
  • playground update
  • shared spaces (BBQ pit, picnic area, etc.)

3 Reasons Value-Add Investing Can Work For You

#1 Rent bumps

One of the major reasons why a value add play can work has to do with increasing rents.

Many times the property has below average rents which sets it up nicely for the sponsors to justify the increase.  Once they make interior and exterior improvements, the net operating income (NOI) will increase which can greatly increase the building’s value (an example of this is below).

#2 Additional income streams

We all love extra conveniences, right? Your tenants will too when it comes to making their lives easier. And they’ll also be willing to pay more for these such as:

  • covered parking
  • high-speed internet
  • cable/satellite
  • Amazon package lock boxes
  • washer/dryer

#3 Analysis of existing operations

On occasion, the property’s different revenue streams and expenses can be placed in incorrect categories on the profit and loss statement making it tough to find opportunities for value add (poor management).

A good sponsor team will be able to find creative ways to create extra income if some of the expenses found can be passed along to tenants.

Also, the Net Operating Income (NOI) can be increased if some of these expenses can be somehow reduced.

Conclusion

The bottom line is that every commercial real estate strategy has both risks and benefits. Higher risks have the potential to produce higher than average returns, but when making the decision to invest passively, be sure you know the team’s track record and experience with that specific strategy.

What This Means For You

We have created a system for you to invest directly into cash-flowing, hard assets that don’t require you to manage tenants or deal with any of the headaches that come from owning Single Family Homes. This gives you the freedom to use your time as you wish while we grow your wealth through these amazing assets! 

If you are looking to secure your financial future, we would love to connect with you and explore partnership opportunities! 

To Learn More about the many benefits of investing in Multifamily Apartments, Download our Free Passive Investor Guide today!

You can set up a complimentary discovery call to join our investor network with one of our team members here!


www.jcoreinvestments.com

What is the Capital Stack?

A Commercial Real Estate Investment’s ‘Capital Stack’ is arguably one of the most important concepts an investor needs to analyze the equity, debt, and risk return profile of a project. Ultimately, as with any investment, commercial real estate comes with some downside risk. Investors who understand the Capital Stack can assess risk and repayment, where they fall in the pecking order of cash flow, and whether or not that investment is worth the assumed risk.

Let’s Dive In!

The Capital Stack is the structure of all capital that is invested into a company. At a high level, this means that the capital stack includes both equity and debt invested. More specifically, though, this means all types of both equity and debt.

  • Tiers of financing sources – such as equity and debt
  • Order in which investors are paid back through income and profit distributions over the entire holding period.
  • Repayment rights in the event of a default

Layers of the Capital Stack

  • Capital Stacks prioritize different capital types by seniority, with the least senior on the top and the most senior on the bottom. Equity positions are registered first, with debt positions below.
  • When it comes to properties that are unable to generate enough cash to pay all investors or lenders, capital listed on the bottom of the stack will be paid first and any leftover cash then flows to the capital that holds the next lowest position.
  • Should issues arise and the property goes into default, claims to assets are processed in order of seniority in the capital stack with the lower placed capital retaining foreclosure rights superior to those higher up in the stack.
  • In most cases, higher risk capital sits at the top of the stack, while lower-risk sit below, and the lowest at the bottom. In a similar vein, higher return potential typically sits at the top of the capital stack, with expected returns that decrease as you go down the stack.

Here is a run-down of primary sources of Capital most commonly seen in the ‘Capital Stack’:

Common Equity

Common equity sits on top of the capital stack and offers the highest potential reward in exchange for the highest level of risk. People who invest in the common equity of a project own a piece of the property and receive a share of the recurring cash flow and percentage of profits when the property is sold. However, funds are distributed to common equity investors only after the debt has been serviced and the investors at the lower levels of the capital stack have been paid.

Preferred Equity

Similar to the way that a first position mortgage has priority over a second position mortgage, preferred equity holders have priority over holders of common equity. Investors with preferred equity have the first right to receive a pro rata share of the monthly cash flow, along with a percentage of the profits when the property is sold, before the common equity holders are paid. Although preferred equity has priority to common equity, the rights of a preferred equity investor are lower than those of the debt holders.

Mezzanine Debt

Mezzanine debt is similar to a second position lender, and is usually unsecured by the real property. The rights of mezzanine debt holders are subordinate to senior debt holders, but hold priority over preferred equity and common equity investors. Because holders of mezzanine debt are not paid until payment has been made to senior debt holders, the interest rate paid to mezzanine debt holders is usually higher than senior debt. Sometimes mezzanine debt holders will also receive a small percentage of the profits when the property is sold, or an interest rate ‘kicker’ if the project performs better than expected.

Senior Debt

Senior debt sits at the bottom of the capital stack and serves as the foundation for financing a real estate investment. Because the real property typically serves as collateral for senior debt holders, investing in senior debt comes with the lowest level of risk. Holders of senior debt receive periodic interest payments before all other investors higher up in the capital stack are paid, and are first in line to have any outstanding debt repaid when the property is sold. Interest rates paid on senior debt are usually lower than rates paid on mezzanine debt, and may be viewed as having bond-like characteristics for investors seeking a truly passive income stream.


We at The Joint Chiefs of Real Estate have created a system for you to invest directly into cash-flowing, hard assets that don’t require you to manage tenants or deal with any of the headaches that come from owning Single Family Homes. This gives you the freedom to use your time as you wish while we grow your wealth through these amazing assets! 

If you are looking to secure your financial future, we would love to connect with you and explore partnership opportunities! 

To Learn More about the many benefits of investing in Multifamily Apartments, Download our Free Passive Investor Guide today!

You can set up a complimentary discovery call with one of our team members here!


www.jcoreinvestments.com

Build a Multifamily Real Estate Investment company during a Pandemic!

All of our lives have been forever changed since the COVID-19 Pandemic hit the U.S. in 2020. The economy experienced major shifts that made everyone uncertain about the future that still affect us today. 

Although fear gripped the world, The Joint Chiefs of Real Estate (JCORE Partners) a multifamily real estate investment company, was formed in the midst of this uncertainty. Our goal is to provide opportunities for investors looking to reach a state of financial peace through any economic event while working to make a difference in the lives of military veterans struggling with homelessness and PTSD. 

In this post, I’ll explain more about why these causes are so important and why investing alongside us can not only set a successful course for your financial future, but make a difference in saving the lives of our U.S. Military Veterans!

Our Story of Military Investing

After my wife and I spent several years investing in Single-Family Homes while I was on Active Duty in the Army, we realized that we were limited in Residential Real Estate investing. In 2019, we learned more about the scalability of Commercial Real Estate, specifically Multifamily Apartment Buildings and made the decision to pivot into that industry.

After spending the time, money and energy to receive the right education and mentorship to dive into the industry, I met Myles Spetsios, an Air Force Captain in early 2020. After a meeting over coffee, we discovered we shared the same goals and vision and we each possessed skills that were varied, but complementary. This began the journey to the formation of JCORE, which was completed with the addition of James May, a Marine Corps Veteran and Foreign Service Officer and Tom Groves, a 26-year Navy Veteran.

We faced many challenges during this time, as there was so much uncertainty in the Real Estate Industry due to the pandemic. We were all working remotely from various locations in the country but we molded as a team, sharing a common vision to acquire Apartment Complexes with the partnership of Passive Investors, providing them high yield returns through these tax-advantaged assets. Additionally, we set goals to give back from our own proceeds toward causes directly serving homeless Veterans and those struggling with the effects of Post Traumatic Stress Disorder.

Despite the challenges, we learned many great lessons on how to start a real estate syndication company and we closed on three acquisitions from 2020- 2021 – totaling 250 units! We are working tirelessly to become one of the top real estate syndication companies in the industry, creating wealth for Investors like you.

What This Means For You

We have created a system for you to invest directly into cash-flowing, hard assets that don’t require you to manage tenants or deal with any of the headaches that come from owning Single Family Homes. This gives you the freedom to use your time as you wish while we grow your wealth through these amazing assets! 

If you are looking to secure your financial future, we would love to connect with you and explore partnership opportunities! 

To Learn More about the many benefits of investing in Multifamily Apartments, Download our Free Passive Investor Guide today!

You can set up a complimentary discovery call with one of our team members here!


www.jcoreinvestments.com

Active Income vs Passive Income

Why keep working hard, paying the highest amount of taxes possible when you can work smarter?

The goal is to get your passive income to match, at some point in your career, your active income and that’s what we’re going to be talking about today….exactly how to do it.

3 Types of Income

Let’s discuss the basics when it comes to earning money.

There are only three types of income

  1. active (earned) income
  2. passive income
  3. portfolio income

1. Active income

Active or “earned” income is the most familiar to us as it’s what we make while we work at our jobs. It is also the highest taxed of the three income types. Unfortunately, we focus all of our efforts on earning this type of income which causes us to pay the highest amount of tax.

If you earn active income ONLY, you’re trading your time for money.

2. Passive Income

Passive income is income derived from a rental property, limited partnership or other enterprise in which he or she is not actively involved.

Passive income from real estate is not subject to high effective tax rates. Why? It’s typically sheltered by depreciation which results in a lower effective tax rate compared to earned income.

3. Portfolio income

Portfolio income is generated from dividends, interest, and capital gains from selling stocks.

Education Doesn’t Prepare Us

Unfortunately our education system doesn’t prepare us financially. It ONLY focuses on earning active income.

This includes

  • Work
  • Labor
  • Time

They teach us how to work and trade our time for money. Again, this type of income is the MOST highly taxed.

For Example, the Mr Smith gradates with a Bachelor’s Degree and is making $100,000 in their office job.  He’s so excited and tells his friends that he’s making $8333 a month and doesn’t have to live off Ramen noodles anymore.

Little does he know that he’s getting ready to only focus on work that trades his time for money. If they give him $8333 a month, then the government is going to take 24% of that money. Uncle Sam is going to get his share no matter what.

In Mr. Smith’s case, $2000 comes off his $8333 a month leaving him with $6333 a month. Unfortunately, most people don’t even know what their taxes are.

If he was earning $8333 a month in all passive income, only $1250 would be taxed so he’d end up with $7083. Which would you rather have?

Most people have never been taught about active income and taxes. I know I wasn’t

You Still Need Active Income

Now, you can’t just go out and make passive income today. You need the active income first. Also we need workers. People need to work as it gives them a purpose. Even if I had more money than I knew what to do with, you’d still see me working (only difference is work that I’m passionate about not about how much I’m making).

Financial Freedom

I thought the way to get there was hiring a financial advisor but after awhile I learned they were pitching their products and services for their commissions. They did do a good job though of laying out investing advice with regards to retirement plans. Only thing was the financial advisor focused on active income only and gave different scenarios of how compound interest would cause my money to grow after I worked for 30-40 years.

For most of us, this is the only financial advice we know about…work our entire live, invest our money, hopefully have enough saved to retire and never run out.

My financial planner nor anyone else ever mentioned passive income, specifically real estate passive income. If you want to someday experience financial freedom, then you must have passive income coming in.

We call Real Estate Syndication investing mailbox money and a great form of passive income.

I know some of you think the stock market is the way to earn passive income but compared to Real Estate you would be surprised. Read my blog on What’s better the Stock Market or Real Estate? 

Real Estate Investing For Passive Income

Whether you realize it or not, everybody is an investor. People are constantly investing their time and energy and exchanging it for money.

What you have to learn is how to invest your money so that it continues making money so that you don’t have to invest your time for it to grow.

Also there are many friends of mine that I talk to that have cash that they’re sitting on. When I ask them about that, they tell me that it’s for a “rainy day.”

Cash money is going down in value. If you think saving it will get you somewhere, it won’t. Unless you enjoy your money not growing.

Get rid of the money and buy hard assets.

Summary

If you want to stop trading your time for money then you’ve got to get out of playing the active game. The active income game that is. I want you to go all in playing the passive game.

Invest in yourself, focus on growing your active income and begin putting money on the side. Once it grows then buy assets that are going to go up in value and start paying you passive money on a routine basis.

Do you know what holds most people back from doing this? FEAR. That’s right, fear. Any book on being successful or any person that’s made it will tell you the same thing.

It starts with a mindset shift. It takes courage to deplete your cash reserves and put it in something such as real estate.

It’s up to you. You’ve got to make a choice.

Do you continue to let your money sit in a bank and die or not?

If you are ready to begin replacing your active income with passive then join JCORE Investor Club.

It’s Free!!!


www.jcoreinvestments.com

Faith, Visualization and Belief in Attaining your Desire

We had discussed previously that DESIRE is the starting point of all achievement, but we must believe that our desire can lead us to something great!  Napoleon Hill wrote that FAITH is the head chemist of the mind, stating FAITH can be induced or created through affirmation or repeated instructions to the subconscious mind. Think about Olympic athletes and their constant visualization.  You can watch a ski racer, bobsledder or track star physically visualize attacking the course in front of them.  This is a discipline most of them developed over time through coaching and training.  Have you ever used this technique in your professional or even personal life to attain the desire that was within you?

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The actor Jim Carey wrote himself a personal check in 1985 for $10 million which was dated 10 years in the future.  He actually received a role in the movie “Dumb and Dumber “in 1995 for a sum of $10 million dollars.  This is just another example showing that “FAITH Visualization and Belief in Attaining your desire” fits with anyone no matter what their field of interest is.

Below are some practical steps to take to Attain your Desire!

  1. Be specific with what you want to achieve!  Do you want $25,000 a month in passive income a month?  Do you want to have 1000 rental units?  Be specific!
  2. Decide what you’re willing to give in order to achieve your DESIRE!
  3. Give yourself an achievement date!  WRITE IT DOWN SOMEWHERE AND MAKE IT VISIBLE.
  4. Write out a plan and begin moving forward immediately.
  5. Read your plan to yourself at least twice a day and share it with someone you know that can help keeping you accountable!

Know that so many people have used Faith Visualization and Belief in Attaining your Desire before they ever reached the goals they set before them.  Develop your mindset and charge after your goals!

If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com


www.jcoreinvestments.com

Be Specific - JCORE's Nuggets of Wisdom

We know that desire is the starting point of all achievements! What’s next?

You are sitting in your office wherever you are in the world and you have a desire to get involved and make money with real estate.  You know you have the desire to take action but you’re not sure what steps you should take.

STEP 1: Be honest with yourself!

  • Do you have the desire to own a rental property?
  • Do you desire to be active as a landlord while renting out your owned properties?
  • Do you desire to own a property and receive income passively?

STEP 2: Be specific with your available time to commit. 

  • Are you looking to spend extra time working with your individually owned properties?
  • Are you looking to invest with a team as a limited partner (LP) through a syndication?

Let’s be honest, most people want to increase their wealth with as little effort possible.  PASSIVE INCOME!  Passive income can be accomplished through investing in stocks, bonds, mutual funds and more.  If you’re specific with your goals and want to earn passive income, our favorite process is investing in multi-family housing as a limited partner through the process of syndication.

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Think of multi-family housing as your mutual funds of real estate. A single-family home is like an investment stock.  It can earn you a decent return but when it is not performing well, you are not earning any cash flow and you’re certainly not building any wealth.

 A multi-family home is similar to a mutual fund as you have several tenants within one property.  They collectively pay their rent and in turn, your property’s mortgage is paid.  You’re then able to earn cashflow through this investment and the property gains value through forced appreciation over time as you make improvements to the property.  Ultimately, building your long-term wealth!

So, what is your specific goal?

  • What amount of effort are you willing to commit?
  • What amount of time can you commit?
  • Do you want to actively work on growing your assets?
  • Do you want to grow your wealth passively while others are working to grow your assets?

If you are interested in learning more about Multifamily investing, please email me directly at James@jcoreinvestments.com. Also you can join our JCORE Investor Club to find out about active deals we have.


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NUGGETS OF WISDOM

Napoleon Hill was an American author; 1883-1970 who developed a relationship with Andrew Carnegie.  Obviously, Andrew Carnegie needs no introduction but in case you forgot, Carnegie revolutionized the American steel industry and became one of the greatest philanthropists in the United States as well as the British Empire.

Andrew Carnegie made an incredible impression on Napoleon Hill because Carnegie revealed the secrets to his success. Hill performed 20 years of research in order to find the biggest secret to achieve success, all done at the request of Carnegie.  Hill analyzed hundreds of well know men and women who admitted to achieving great success with the help of Andrew Carnegie’s secret. 

These people included John D. Rockefeller, Thomas Edison, Henry Ford, Alexander Graham Bell, Charles Schwab, and even Theodore Roosevelt.   Each of these men utilized the “secret” with great excitement.  There are many tools that an individual can use and recognize while utilizing the “secret”.  The first tool or step an individual needs to recognize is his or her desire.  Desire is the foundation for any achievement in life.  How can we excel or be good at anything unless we have a desire to improve and become better? If there is no desire, then we should not expect to accomplish much of anything in our lives.  Also, no one should sit back and wait for the perfect time to act on the desire they have within their heart and mind.  Desire in the basis for any action you take in life. Desire is not a fleeting hope or wish, but it’s something that repeatedly rises up within us, and this can be your motivation to take action.

What is your desire?  What is the repeated theme in your mind that tells you what you are truly passionate about?  True desire is the thing that will push you through and obstacles you face in life.  Who do you keep company with? Who’s within your inner circle? Who have you shared your desire with?  Who can help keep you accountable?  Answer these questions for yourself and you’ll begin to understand how desire can be a tool you use while utilizing the “secret” in any venture you have.


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Since when did we decide good enough is good enough?

While growing up, I had the biggest dreams and ambition to become a famous actor.  I left home at 18 years old and moved to New York City in order to chase after my dream of becoming an actor.  My ambition and dream chasing took a big hit when I found out I was mentally unprepared to fight and grind in order to fulfill my dreams.  Simply put, I left New York City to return to what was comfortable and predictable.  This is when I decided;  although not realizing what I was doing, that I was comfortable with life being good enough.  There I stayed, living everyday for a few years and being just good enough.

I eventually served in the Navy for 26 years and began to learn day by day that good enough IS NOT good enough.  Understanding that it’s very easy to be average, and knowing the world is full of people who do very well at being average, there is a great opportunity to not be satisfied with Good Enough!

I eventually met with Jeff, another sailor in my command, and Mike who was a former Naval Officer.  They both had a similar mindset of chasing after their dream of doing tremendously well with something other than their typical “bill paying job”.  At this time, I realized that I am fully capable of running after a dream and being successful while doing it.

I had surrounded myself with likeminded people. I understood that most people would continue to run through life with a “good enough attitude”, meanwhile dreaming of being able to do more with their lives. I also realized that these are not the people I need to have in my inner circle of influence if I desired to chase a dream and excel.

This all brings me to now.  Through investing time and money into education, mentorship and beneficial relationship building, I have been able to capture some of my dreams of being an apartment complex owner.  It took building the right team, finding out how I could bring value to others and to do it all with integrity, while having an attitude of putting others before myself. This life-changing mindset continues to motivate and prepare me mentally in preparation for whatever comes my way.

Good enough should never be good enough for any of us anymore. If you want to do more and you’re not quite sure how to get started? Reach out to us and we can help.

If you are reading this, it’s never too late to chase after your dreams and be great at whatever you want to do! 


www.jcoreinvestments.com

Good Bye 2020

No one could have predicted the tumultuous year that 2020 turned out to be. However, from a multifamily standpoint, it was not as catastrophic as we feared in March and April. Some properties have suffered slightly lower collection rates as tenants lost jobs. At the same time, most tenants made it a priority to continue to pay rent. While there still is a federal eviction moratorium in place, rent is not canceled and almost all operators have been able to work with tenants to put them on payment plans if they fell behind.

We also continue to see a tremendous appetite for multifamily investments. Investors are looking for a return on their capital, and the returns on bonds, savings accounts, and CDs are so low that they don’t keep up with inflation.

Therefore, there continues to be an interest in investing in real assets. Low interest rates also make the multifamily attractive. Of course, this continued interest in the asset class makes it hard to find good deals, but our JCORE Team continues to develop broker and owner relationships so we can find a deal that makes sense to offer to our investors.