Evaluating Risk Management in Multifamily Investing
Risk Management in Multifamily Investing
Hello readers, Myles Spetsios here, and today I want to talk about an essential aspect of investing in an apartment complex: proper risk management.
Investing in an apartment complex can be a great way to generate cash flow, long-term capital gains, and take advantage of tax benefits. However, like any investment, it also comes with risks. Proper risk management is critical to ensure that the investment remains profitable over time.
One of the most important things you can do to manage risk when investing in an apartment complex is to conduct thorough due diligence. This includes researching the local market, analyzing the financials of the property, and thoroughly inspecting the property before making a purchase. This will help you to identify potential risks and make an informed decision about whether or not to invest.
Another important aspect of risk management is diversification. Diversifying your portfolio by investing in multiple properties, or by investing in different types of properties, can help to spread risk and reduce the impact of any one investment on your overall portfolio.
Another aspect of risk management is having a well-defined exit strategy. This means having a plan for what to do if the investment doesn’t perform as expected. This could include selling the property, renovating and renting it out again or even converting it into a different type of property.
Having a good team of professionals such as the JCORE Team, attorneys, and accountants can also help to manage risk. They can provide valuable insights, advice and support throughout the investment process.
In conclusion, investing in an apartment complex can be a great way to generate cash flow, long term capital gains, and take advantage of tax benefits. However, like any investment, it also comes with risks. Proper risk management is critical to ensure that the investment remains profitable over time. This includes conducting thorough due diligence, diversifying your portfolio, having a well-defined exit strategy and having a good team of professionals.
Hope this helps and happy investing!
Myles Spetsios – JCORE
P.S. If you want to learn more about what we do, check out the JCORE Investor Club Link Below!
Economic Conditions and Your Investment Choices
How Do Economic Conditions Impact Your Multifamily Investment Choices?
Hello readers, Myles Spetsios here, and today I want to talk about a factor that can have a significant impact on the profitability of a real estate investment: economic conditions.
Economic conditions refer to the overall state of the economy, including factors such as unemployment, inflation, and interest rates. These factors can have a direct impact on the performance of a real estate investment, particularly in the case of rental properties like apartment complexes.
For example, when the economy is strong and unemployment is low, demand for rental properties tends to be high. This can lead to higher rental income, which in turn can lead to higher cash flow and higher appreciation. On the other hand, when the economy is weak and unemployment is high, demand for rental properties tends to be low. This can lead to lower rental income, which in turn can lead to lower cash flow and lower appreciation.
Interest rates can also have a significant impact on the profitability of a real estate investment. When interest rates are low, it’s generally easier for investors to secure financing, which can make it easier to purchase properties and can also lower the overall cost of borrowing. On the other hand, when interest rates are high, it’s generally more difficult for investors to secure financing and the overall cost of borrowing is higher.
Inflation can also have an impact on the profitability of a real estate investment, as it can affect the value of rental income and appreciation. Inflation can also affect the cost of maintaining the property and the overall cost of doing business.
Economic conditions are constantly changing, and it’s always a good idea to keep an eye on the current and future economic conditions when evaluating a real estate investment. It’s also a good idea to diversify your investments and have a plan for managing the risks associated with economic conditions.
In conclusion, economic conditions can have a significant impact on the profitability of a real estate investment, particularly in the case of rental properties like apartment complexes. Factors such as unemployment, inflation, and interest rates can affect demand for rental properties, rental income, cash flow, and appreciation. It’s important to keep an eye on current and future economic conditions when evaluating a real estate investment and to have a plan for managing the risks associated with economic conditions.
Hope this helps and happy investing!
Myles Spetsios – JCORE
P.S. If you want to learn more about what we do, check out the JCORE Investor Club Link Below!
Evaluating A Good Multifamily Investment Deal
Real Estate Investment: What makes for a good deal and what to look for?
Real estate investment can be a lucrative opportunity, but it’s important to understand the key players involved and the factors that can impact the success of the investment. This article will discuss the role of sponsors in real estate investments and key considerations for evaluating market areas. That’s what JCORE is here for! To help you understand and be able to apply that knowledge when considering investment opportunities.
What is a Sponsor in Real Estate Investment?
In real estate, a sponsor is a person or company that provides the capital for a real estate investment, such as a real estate investment trust (REIT) or private equity fund. The sponsor plays a critical role in the investment process, as they are responsible for acquiring, renovating, and managing the property. They also make decisions about the investment on behalf of the investors. To this end JCORE has an experienced team whose entire goal is to make the entire process seamless and easy for our investors to benefit from.
In exchange for their investment and expertise, sponsors typically receive a portion of the profits generated by the real estate investment. This can make sponsors an attractive option for investors who lack the expertise or resources to manage a real estate investment on their own. On each and every investment deal we provide a detailed description of the profit breakdown, so our investors can always be informed!
Evaluating Market Areas for Real Estate Investments
When evaluating a potential real estate investment, it’s important to consider the market area in which the property is located. There are several key factors to consider, including:
- Demographic Trends: Population growth, median income, and education levels can indicate demand for housing and potential renters or buyers.
- Economic Indicators: Consider the local job market and economic growth, as a strong local economy can drive demand for housing and support property values.
- Real Estate Market Conditions: Analyze local home sales data, including average sale prices and the number of homes sold. This will give you a sense of the current demand and supply in the market.
- Location: Proximity to schools, shopping, public transportation, and other amenities can make the property more attractive to potential renters or buyers.
- Competition: Research the other properties in the area, including the types of properties, their prices, and the quality of their amenities.
- Zoning and Land Use Regulations: Understand the local regulations regarding land use, zoning, and building codes. These regulations can affect the property’s future value and potential for redevelopment.
We at JCORE always consult with our Brokers and do our due diligence to get a more comprehensive understanding of the market area. This helps ensure that we make informed decisions about every potential investment. We are of the belief that knowledge is power, and when it comes to investing you can never have too much knowledge!
Conclusion
Real estate investment can be a lucrative opportunity, but it’s important to understand the key players involved and the factors that can impact the success of the investment. JCORE is here to provide valuable investment capital and expertise, but more than that we are here to provide the tools and information to investors considering making a successful real estate investment. By considering demographic trends, economic indicators, real estate market conditions, location, competition, and zoning and land use regulations, you can make informed decisions about your real estate investment.
Hope this helps and happy investing!
Myles Spetsios – JCORE
P.S. If you want to learn more about what we do, check out the JCORE Investor Club Link Below!
In Multifamily Investing What Does "CAP Rate" mean?
What is a CAP Rate?
Hello readers! I am Myles Spetsios from the JCORE team. I want to talk about how the capitalization rate (or “cap rate”) can affect the sales price of an apartment complex.
First, let’s define what the cap rate is. The cap rate is a metric used to determine the value of an income-producing property, such as an apartment complex. It is calculated by dividing the property’s net operating income by its purchase price or current market value.
When it comes to apartment complexes, the cap rate is a key factor in determining the value of the property. A high cap rate means that the property is generating a higher cash on cash return on investment, and therefore the income stream is considered less valuable. On the other hand, a low cap rate means that the property is not generating as much income per purchase price and therefore the income stream is considered more valuable. This generally means high cap rate properties have higher risks associated with them (but not always).
So, how does this affect the sales price of an apartment complex? Simply put, a property with a high cap rate will generally command a lower sales price than a property with a low cap rate. This is because investors and buyers are looking for properties that will generate a good return to risk ration on their investment.
However, it’s important to note that the cap rate is just one factor that can affect the sales price of an apartment complex. Other factors such as location, condition of the property, and the current state of the real estate market can also have a significant impact.
That being said, it’s important for investors and buyers to take into consideration the cap rate when evaluating an apartment complex for purchase. A high cap rate can indicate a higher risk investment opportunity and may be a red flag, while a low cap rate may indicate a more stable investment.
In conclusion, the capitalization rate can have a significant impact on the sales price of an apartment complex, but it’s just one of the many factors that buyers and investors should take into consideration when evaluating a property.
Hope this helps and happy investing!
Myles Spetsios – JCORE
P.S. If you want to learn more about what we do, check out the JCORE Investor Club Link Below!
What We Are Thankful For in 2022
What the JCORE Team is Thankful for in 2022.
Teams are central to accomplishing your goals, and this is no different in real estate. The JCORE team has been working together for the past few years and as we reflect on 2022, we wanted to share a few things we are thankful for this season.
Tom Groves
This year, I am thankful for so much growth professionally and personally. My daughter got engaged in September, my wife and I have attended the Pay it Forward conference in Denver (we’re looking forward to the next one), and our team has bought and sold properties in Texas and Pennsylvania. I thank God for such an amazing opportunity to work with JCORE and and great people across our country!
Noel Walton
This year, I am thankful for, The support of my family, the abundance of amazing relationships I’ve made in this business and the ability to make a difference in the lives of Veterans along the way.
James May
This year, I am thankful for my family and the great year we had together. We are really enjoying being back in the U.S and starting a new life here in Florida
Myles Spetsios
This year, I am thankful for my wife who works hard as an interventionist teacher and is a great life partner. I’m thankful for my in-laws and nieces who had us over for Thanksgiving and cooked a wonderful meal. I’m thankful for my job that allows me the honor to serve my country
I’m thankful for my dogs that are super adorable and always brighten my day
Joey Arora
This year, I am thankful for the opportunity to work on financial freedom with a great team of fellow veterans. The chance to grow and work together in a virtual environment has been a joy in my life. I have enjoyed working in the commercial space and the chance to visit India with my family this year.
We also want to give a thank you to all the investors who have trusted us with their capital in 2022. This journey happens because of you! To join our investor club visit: https://join.jcoreinvestments.com/investorclub
-Thank you from the JCORE Team!
Want to Learn more about JCORE:
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!
What is a Real Estate Syndication
What is a Real Estate Syndication?
The concept of a real estate syndication is not difficult to grasp especially if you’ve ever played poker.
In a syndication, you’re throwing money into a “pot” with others with the difference being in poker, you’re trying to win the entire pot.
In a syndication, you’re able to split the pot with the other players (investors) in a deal including the dealer (syndicator).
This “pot” of money is used to purchase property (apartment buildings, hotels, self-storage facilities, etc.) and hold for an extended period of time.
By “joining forces” with other investors, this type of investing becomes a team sport where everyone wins.
Basics of Real Estate Syndication
So when I get the question, “James, how does a real estate syndication work?”, I typically will compare it to traveling on an airplane.
There are several groups of people involved such as:
- pilots
- passengers
- flight attendants
- mechanics
- luggage and ground crew
Using this analogy, the deal sponsor of a syndication are the pilots and you and I (passive investors) represent the passengers.
Even though both groups are traveling to the same destination, each have considerably different roles during the process.
If surprises occur such as unexpected weather conditions or engine problems, it’s the pilots who are responsible for the flight.
They’re the ones who will monitor and update the passengers during the flight:
(“Good afternoon, this is your captain speaking. We’ve hit an area of turbulence but should be through it shortly….”).
And it’s the passengers job to sit back and allow the pilots to make the decisions on what’s best to flying the plane.
Make Sense?
“90% of millionaires become so through owning real estate.” – Andrew Carnegie
Hopefully you now get a gist of what’s involved during this process as real estate syndication deals works much the same way.
There’s several groups of people that all share a vision and want to improve a particular asset such as:
- Sponsor (general partner)
- Passive investors (limited partners)
- Brokers
- Property management
However, each person’s role within the project is different.
Let’s take a look at the two main groups involved:
#1 General Partner (GPs)
They’re also known as the sponsor group and typically:
- find the deal(s)
- get it under contract
- arrange inspections
- evaluate the numbers
- obtain financing
- keep it leased
- manage the property
#2 Limited Partner (LPs)
This group is made up of those that choose to invest passively with limited risk.
Remember, they have no active responsibilities in managing the asset.
How can you profit from a Real Estate Syndication?
Now that you understand the basic operation of how a syndication works, let’s discuss how you can profit from investing in this type of deal.
Profit in any type of real estate opportunities, regardless of a syndication or not, comes from:
- rental income
- appreciation
Profit is generated when the operating costs of the property are LESS than the rents collected.
This is known as the NOI or net operating income which represents the cash flow distributed to the limited partners via distributions (monthly or quarterly).
Investors will receive an additional benefit as typically a property’s value usually appreciates over time. Because of this, the investors can net higher rents and earn larger profits when the property is sold.
Syndication example
In order to drive this concept home, let’s use an example.
Let’s say that you’ve been researching about the syndication process via blogs and other forums and decide to jump in and invest.
A group buys a 350-unit apartment complex in Charlotte, NC for the purchase price of $50 million.
Everything you need to know is outlined in the Private Placement Memorandum (PPM) which you read BEFORE investing.
You learn that the bank financing the deal requires a 30% down payment ($15M). Of this amount, the sponsors cover $1.5M and then they raise money from limited partners (LPs) for the remaining $13.5 million of the required equity.
A syndication is now formed (Limited Liability Company or LLC) between the general partners and limited partners and the apartment complex is purchased.
The projected hold time for this project was initially set forth at 5 years. During this time period, the business plan including “forced appreciation” as it was a value-add deal.
Improvements to the property were made such as:
- upgraded fixtures
- new flooring
- granite countertops
- stainless steel appliances
- new cabinets
- new signage
- update fitness center
- rehab existing pool
- parking lot upgrades
- painting (interior and exterior)
- new landscaping
- internet and wifi update
During this time period improvements were being made, the rents were gradually raised to the same amounts being charged by other local apartments with the same amenities.
Due to the increased rental income, the syndication sends the passive investors a share of the profits from the rental properties every quarter. (Profit #1 rental income)
After five years, a buyer is found and the complex is sold for $15 million ($65M) over the original sales price.
At this time, the limited partners get back their initial investment plus a share of the $15 million profit from the sale. (Profit #2 appreciation)
Remember, during this five year hold period, all of the passive investors received distributions on a quarterly basis from the profit made with the rental income.
What’s the Investing Process?
The next logical question you’re probably asking yourself is, “How do I invest?”
Here are the steps for getting into the syndication game.
- The sponsor sends out a “deal offering” email that an investment is open.
- Review the offering memorandum (property description) and make an investment decision.
- Submit the amount you want to invest to the sponsor.
- The sponsor holds an investor webinar, where you can get more information and ask questions.
- The sponsor confirms your spot in the limited partnership and sends you the PPM (private Placement memorandum)
- Fund the deal via wire or check.
- The sponsor confirms that your funds have been received.
- You’ll receive a notification once the deal closes and what to expect next.
Multi-family prices will not come down significantly.
Multi-family prices will not come down significantly
We know that Commercial Real Estate Investments have some of the best advantages for returns when compared with Residential Real Estate. In this new post-COVID higher interest rate market, our strategies for buying apartments is changing. Here is what we see, and what we are doing.
If you think we are on the precipice of another 2008, keep waiting, I’ll keep buying. It makes for good rhetoric, but this is not going to happen.
Here is why;
- More demand than supply, this is still increasing in the areas we buy in.
- Rents are still going up-they will not fall. Look at the historical MF Rent charts for the last 50 years. Rents don’t do down. Ever.
- Increase in rents continue to drive NOI and values.
- Sellers have been “price anchored” by 2021. They think their properties are worth a lot, and they won’t take significantly less.
- Single Family housing is more expensive now. Rates are making housing MORE unaffordable. We are seeing, and will continue to see, a shift in the total economy. The American dream is dying. The house and white picket fence? Not anymore. Now its the 2 bedroom with a community pool in a pet-friendly complex.
Multifamily prices have come down a bit, this is true, but are a far cry from the bloodbath of 2008.
Our Strategy – Focus on debt, not the purchase price.
This is how you are going to get ahead in this cycle and be looking smart in the next 5-10 years.
Here are the tactics;
1) Lots of great debt was placed over the last 3 years. Take advantage of it. Assumption loans used to be the red-headed stepchild, now they are the prom queen. If you have to pay more to assume a loan of 3.63% with a 7-10 year fixed term, pay it. Run your underwriting taking into account your new debt will now be 5.5%-6.5%, and over 8% for bridge!
2) Get the seller involved. Sellers want a high price, so get them on the equity side of your deal. Offer them a piece of the new deal, or maybe a promissory note, or pref equity. Every dollar they finance to you is a dollar you don’t have to raise, a % of equity not given away, and bump in IRR for your investors.
3) Shy away from the heavy lifts. Cash is king, and they need lots of it. Big remodels don’t work with assumptions typically. Grab the operational play, bump those rents, pay down the loan, and ride the inflation wave.
4) Inflation is your friend, not the enemy. For every dollar your rent rises, your long term fixed debt becomes easier to pay off. In fact, the “powers that be” know this, and because inflation benefits the wealthy land and business owners, it will always just be a political talking point. Remember-they will never stop inflation. Grab as much good debt as you safely can, and manage your costs.
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!
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!
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!
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!
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
- active (earned) income
- passive income
- 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!!!
Proposal in U.S. House of Representatives bill prevents use of IRA funds for real estate deals
The current bill that is being proposed by the House Ways and Means Committee has a proposal that limits how investors can invest their retirement savings. Investors will no longer be able to invest retirement funds in real estate deals and must remove existing capital from these deals.
Section 138312 of the current bill states the following:
- Prohibits an IRA from holding any security if that security requires the IRA owner to have a certain minimum level of assets or income (any deal or fund that requires investor accreditation).
- If an IRA has invested in such securities, that IRA will be disqualified and the investor must pay taxes on that account.
- The effective date is December 31, 2021 with a 2 year transition period for IRAs already holding such investments to dispose of the asset.
The impact of this bill is significant to our industry and our investors. Real estate sponsors will no longer be able to take IRA money from investors for real estate syndication deals or any type of debt securities.
Even more concerning, any IRA money that is currently held in these types of investments will need to be removed by the investor by December 31, 2023 to avoid their retirement accounts from becoming taxable. So if an investor has invested a portion of their IRA funds in our deal, those funds will need to be exited from the deal to avoid their complete IRA account from becoming taxable
In the last few years, investor desire to diversify their holdings beyond the stock market & into real estate has exploded. This has not gone unnoticed by the companies that make revenue with a constant flow of IRA funds directly to the stock market. Clearly, there are forces working behind the scenes to reverse this trend and Section 138312 is an example of this.
What can you do:
- Reach out to your elected officials in the US House of Representatives and the US Senate and tell them that you oppose Section 138312 and that it impacts your investments.
- Send an email about this proposed legislation to your other investors and educate them about this change and request they email their elected officials to oppose this legislation because it limits investor choice and diversification.
- Let your friends and family know about this so they can also oppose this proposal.
Below is additional information on the proposed bill:
Summary of each section of the House proposal:
Section 138312 of the House bill can be found on the bottom on page 689:
Forbes article:
Links for investors to search for their elected officials:
https://www.house.gov/representatives/find-your-representative
https://www.senate.gov/senators/senators-contact.htm
Sample text that you can provide your investors to write to their elected officials:
Dear {insert name of official},
As an investor, I am writing to you about my opposition to Section 138312 of the US House bill. This proposal has a direct impact on investor choice and limits my ability to diversify my retirement savings. By not allowing me to invest my retirement savings in private investments, you are requiring me to keep all of my IRA money in the public markets.
Additionally, by forcing me remove this capital from existing deals or lose my tax-free status, you will have a significant impact on my retirement savings. I ask that you oppose this proposal.
Thank you.
{investor name}
We must come together, act with urgency and push back on legislation that clearly is not in the best interest of our industry and our investors. We ask that you join us and get the word out to your professional network and your investors on this proposal and make our voices heard to our elected officials.
If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com
The Importance of Time Value of Money
You’ve probably heard about the importance of time value of money.
But do you know what it really means?
What Is The Time Value of Money?
The time value of money (TVM) is a useful concept that enables you to understand what money is worth in terms of, you guessed it, time. This is expressed in a formula which basically states that money is worth more NOW than it will be in the future. This is mainly due to inflation which increases prices over time and decreases your dollar’s spending power. Many of the financial decisions we make now and in the future involve the importance of time value of money.
Examples include:
- taking out a 15 vs 30 year mortgage
- buying a car on credit (no thanks)
- investing in stocks, mutual funds or bonds
Inflation Examples
Here’s a handful of examples of how inflation increase the price on everyday items.
First Class Stamp – Back in the mid-80’s, you could mail a letter for 22 cents. That same letter today will cost you 55 cents to mail thanks to inflation.
Ticket to a movie – If you wanted to go see a movie back in 1985 such as Back To The Future or Rambo: First Blood Part 2, you’d have to shell out $3.55 per ticket. That same ticket today is right around $13.00. If you throw in popcorn and coke then you may have to borrow money from your kids!
Honda Accord – One of the most popular cars in the ’80s was the Honda Accord. Back then the base price was $8,845. Today one can be yours for $24,770.
Human Nature
It seems like kids grasp the concept of the time value of money better than adults. Don’t believe me? Try asking one if they’d rather have $100 now or pay them 10% interest and give them $110 a year later. How many would wait? I’d guess close to zero. Heck, most adults wouldn’t either!
I think that many savvy investors are starting to grasp this concept and changing the way they invest. Instead of socking away money that will be locked up in a 401K for 30+ years, they are investing for cash flow that can replace their expenses now (accumulation model vs cash flow model).
Why?
Because they want options NOW and know that buying stuff is only going to become MORE expensive each year. They’d rather have that money now rather than later.
Why Is the Time Value of Money Important?
Remember that Inflation increases prices over time so every dollar in your pocket today will buy MORE in the present than it will in the future. This makes investing even more important than most realize.
The TVM helps in that it allows you to make the best decision about how to handle your money based on:
- inflation – Inflation causes the cost of goods and services to continue to rise. You can buy more with $100 now than in twenty years. Money you have today has a higher purchasing power.
- risk – You understand that a lot can happen in the future. Due to unforeseen circumstances, you may not get all of your money, or any at all. But you can lower your risk to zero if you’re paid today.
- investment opportunity – There are a lot of ways you can make your money grow today (real estate investing). But if you wait ten years to receive your money, you’re losing the opportunity to invest.
The Importance of Time Value of Money in Real Estate Investing
You didn’t think a real estate investing blog would leave out how the TVM could help them too now did you? Real estate investors can use this concept to help determine what future cash flow from a real estate investment would be worth in today’s dollars. It can also help to determine whether you’re better off using your cash now for something such as a rehab, or borrowing money and conserving cash for another purpose.
The Importance of Compounding Interest
Even though we now know that the TVM teaches us that money is worth MORE today than in the future so we should spend it now versus save it for later; we also know that sometimes that isn’t the case. While inflation works against you, eating away at the value of your money, compound interest works for you to raise the value of your present dollar tomorrow.
What Is Compound Interest?
Compound Interest is simply earning interest on interest.
In other words, it works by calculating the interest on your entire account balance which also includes the interest that’s been accrued. Here’s a compound interest formula:
For example, if you have $1,000 and it earns 10% each year for five years, in the first year you’ve earned $100 in interest (10% of $1,000).
In year #2, things start to pick up as you’re actually earning interest on the total amount from the previous compounding period, which would be $1,100 (the original $1,000 plus the $110 in interest earned in year one).
By the end of year two, you’d have earned $1,210 ($1,100 plus $110 in interest). If you keep going until the end of year five, the original $1,000 turns into $1,610.
The Time Value of Money Formula
Now that we’ve learned what the importance of the time value of money is, how then do we go about measuring it?
We do so by using a specific formula which takes the present value, multiplies it by compound interest for each payment period and factors in the time period when the payments are made.
Formula: PV = FV / (1+I)^N
- PV: present value
- FV: future value
- R: rate of growth or interest rate
- N: number of periods (typically measured in years or months)
Using the Time Value of Money Formula
I get it. Who wants to use a complex formula? It’s essential if you want to answer questions such as:
How much would I need to save beginning today if I want to become a millionaire in 20 years, assuming a 7% growth after inflation?
You could also use this formula to calculate anticipated future costs like college, purchase of a home, weddings, etc.
If I start with with an account balance of zero today and put away $500 a month, what will I have in 10 years if I get a 6% growth after inflation?
This is a great way to see the direction you’re headed in.
Using this calculation with kids is a GREAT way to motivate them to focus on saving money at an early age.
Here’s an online calculator that you can use to speed up calculations.
Conclusion
Now you’ve come to realize the importance of the time value of money and that it tells us that money we have now doesn’t have the same value in the future. By knowing this, we’re able to make we’re able to set goals and make choices that affect our financial life.
If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com
Multifamily Market is on fire!!!
We were outbid again on a phenomenal asset in the Dallas Fort Worth (DFW) Area. It fits perfectly into our wheelhouse on every angle so we were prepared to push hard to get it.
Our initial underwriting put us at $12MM – in line with the guidance we were receiving. After some further research, we felt comfortable pushing to $12.2MM, maybe even $12.3MM if we had to. Not bad to have a few $100K to play with if need be. Our lender even mentioned we could still get 70% LTV at $12.5MM. While our returns began to take a hit at that point, it settled out in the 8% COC and 13% IRR. While that may seem a little low, you have to remember that we’re talking a home run asset in a home run market so you’re going to have to give a little with the expectation that the team and the market will allow you to outperform in the long run. Long story short the word on the street says this deal went north of $15MM before the dust settled. WOW!
With yet another crazy price in the books, we went to go back to double check our data. Are we being too conservative, are we missing opportunities with too much of a rearview mirror? We don’t think so. We think our pricing was spot on and takes into account the upside in the market. On the flip side, I also don’t think that 4-5% returns are market either (which is what the deal would have penciled at $15MM).
We’ve been tracking the market pretty closely the past few months given all the money that’s flooded into our space and have made a couple interesting observations.
First, beginning in March of this year, rental rates literally took off on a tear. We’ve been seeing healthy rental rate increases across the board for the past decade, but something happened in March to really amp that trajectory significantly. Traditionally leasing season gets underway in a serious manner around that time for southern states, but usually doesn’t get it’s stride until May or June up north. However, this trajectory was pretty consistent across all of our markets regardless of geographic location – and it’s not a small deviation, it’s massive!
Second, the spreads and rates for debt have gone to yet another record low level. Bridge debt, the more risky debt for value-add deals, which even a month ago was 4.5%, is now in the low 3% range. Lenders are practically climbing over themselves to sign up multifamily debt. While occupancy, rental rates, and collections continue to make new highs as the economy improves, we suppose it’s not too hard to understand some of the enthusiasm. This is interesting, though, considering we’re about to, hopefully, see an expiration to the eviction moratorium and potentially millions of evictions from people who have chosen not to pay rent for the past months (or year). Maybe the market has already priced in this potential downside?
In the DFW market, the average effective rent growth was 1.9% for the quarter. Yes, that’s the quarter, not the year. While Class A and B took the lions share of that rent growth, that’s still an amazing statistic. Lease concessions drove much of that increase as properties phased out previous leasing concessions that were no longer needed as demand came roaring back. We’ve seen the same in our properties as rental rates and collections reach all time highs. With new construction moderated by the inflationary situation for raw materials, this continues to bode well for stabilized assets.
All this to say, it is somewhat understandable why some buyers are throwing caution to the wind just to get their hands on a deal – especially in Dallas. And while it can be frustrating and the old FOMO (fear of missing out) can set in, we have to remind ourselves that this is a long game and these are times when it’s easy to make mistakes. We’ll continue to push forward and do the best we can to adjust our expectations (within reason) to the current market conditions, but don’t expect us to throw caution to the wind just to put another notch on the deal belt!
If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com
Why we like the Texas market
With COVID-19 cases continuing to fall and vaccination rates rising, things are beginning to feel a bit more normal. The economy is growing, and the outlook remains positive as the health crisis abates. Here’s a quick look at current conditions and our latest projections for business activity in Texas.
Texas has recovered more than one million of the nearly 1.5 million jobs lost in March and April of last year due to the pandemic. The state added 13,000 jobs in April (on a seasonally-adjusted basis) as strong gains in a few industry groups, such as leisure and hospitality and professional and business services, were partly offset by losses in construction, manufacturing, mining and logging—which in Texas is essentially oil and gas activity—and several others. The state’s unemployment rate has improved significantly, but is still above the national level. The bottom line is that while we’re moving in the right direction overall, there are still a few bumps in the road.
One issue is worker shortages, which were already a significant problem before the pandemic. Competition for knowledge workers and other skilled occupations is intense, industries such as restaurants and hospitality are having difficulty coaxing employees back, and school and childcare challenges restrain the entry of many (particularly females). Supply chain challenges also remain. The pandemic disrupted the entire global manufacturing and distribution complex, and it is quite a process to restore the relatively smooth functioning that typically supports production processes. This situation results in both cost escalation and bottlenecks that inhibit or even interrupt activity.
Our most recent forecast indicates an estimated 1.6 million net new jobs are projected to be added to the Texas economy by 2025, representing a 2.39% annual rate of growth over the period. This expansion is somewhat front loaded, as the state continues to regain the activity lost during the downturn and returns to long-term patterns. Services industries will drive job gains, with wholesale and retail trade businesses also forecast to see notable hiring. Real gross project is projected to gain $424.4 billion over the next five years, and output in all major industry groups is forecast to expand, with the mining and services segments leading the way. In particular, the energy sector is expected to continue its strong comeback.
I expect Texas to reach pre-pandemic employment levels in the next year or two. The state’s combination of natural resources, a large and growing population, and expansion in emerging industries position it well for expansion. While there are challenges ahead, such as providing the requisite education and training for future jobs and assuring the provision of essential infrastructure, Texas has the potential to remain a growth leader for the foreseeable future. Stay safe.
If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com
