Becoming a Limited Partner (LP) in Syndication’s – My Story
In November of 2016 I bought my first home. It was a leap I knew would be smart to help me find financial freedom long term. My wife, (then girlfriend) also bought her first home within 3 days of my purchase. We each had our own first home.
Over the next 1.5 years I learned more about real estate and its cash flow benefits to long term wealth. It felt like the right thing to do considering I was a new home owner! I started listening to 1-2 Bigger Pockets (BP) podcasts a day and quickly became excited about the opportunity to invest more. For the first 6-9 months of listening to BP I was learning all about the Brrrr (Buy, Rehab, Rent, Refinance, Repeat) strategy, buy and hold, flipping, and all of the options. I wanted to take the Brrrr strategy, but knew my wife was not the type of person who would want to be living in homes being rehabbed and flipped for the next 5-7 years as we grew our portfolio. My goal was to get 1 rental per year. So we did just that, and we turned my wifes first home into a rental once we got married.
My wifes home was a C class property. Even with a property manager in place to manage the asset, it was hell. We cash flowed $250 a month, but it still took work that was not enjoyable. We had 2 tenants in 2 years. Throughout the time we had some massive damage done to the home due to lack of attention by the tenant. We were able to sell the home for about 60k over our original purchase price. We then were able to move those funds into our first 2 real estate syndications.
One of the things I learned after that 6-9 month window of listening to BP before we sold my wifes rental was that many investors said the same things over and over again! Most real estate investors would answer Brandon Turner’s question of “what is one thing you wish you had done differently or learned sooner”. Each of them would typically respond by saying “investing passively” through commercial real estate syndications.
The more I heard people who were deep in their real estate journey, say “I wish I had done passive syndications sooner” I knew there was something important about the hands off approach of a syndication that could never be done with single family or duplexes. These tips people shared on the BP Podcast also aligned with some things I learned at my workplace as I managed some very large marketing campaigns for Summit Management Living (SMSI) (a sponsor who was in the Colorado, NC, and Ohio markets at the time), and for Jonathan the Drone Guy in LA. I will break down some of those things below:
- What really caught my attention was the fact that there was scale. I had a client in 2016 who was a drone pilot for RE agents. I asked him, “what is your main job outside flying drones”, and he responded “syndications”. Naturally, I asked “what is that?”. Once it was clear the scale of buying hundreds of doors, I saw the vision as to why this is such a valuable investment tool.
- Next was resiliency. The multifamily housing market was very strong during the housing crisis, and has been over the last few decades. And there is a shortage of apartments until 2030. With Covid, that has exacerbated the issue even worse. Affordable housing is in high demand in our economy and will be for years to come.
- I also loved the tax incentives and benefits. The 2017 Tax Cuts and JOBS Act accelerated the depreciation so that you can front load deductions instead of depreciating the asset over 27 years. This is awesome because most syndications are only held for 5-10 years. It also must be said that long term investments like real estate cap out at 20% currently vs. the 37% for people like myself in higher tax brackets.
- I also love the value add component paired with NOI. In single family/duplexes, homes are priced based on “comps”, basically what other homes or residential assets in the area are selling for. With commercial multifamily real estate, assets are valued based on NOI (Net Operating Income). NOI is the calculation that equals the revenue of the property minus the expenses. This means that if I partner with a great sponsor/General Partner on a deal, they can improve the NOI through great management and value adding to the asset. For me, this is FAR less risk than the residential market.
- Most importantly of all. TIME. My heart is to spend as much time with my wife and kid as possible, while also creating time for me to give back to my local community and help others achieve their personal goals whatever that may be. So if I can get more time back through this investment, that is a massive win!
Overall, thousands of hours of podcasts, reading, and talking to other smart investors has led me to the decision of being a LP and investing into deals with high quality sponsors and partners like http://thegrowthvue.com/. There is incredible demand for affordable living and there will be for years to come. This is why I choose to keep part of my portfolio in multifamily apartment syndication investments.
I hope this was helpful and gave some insight as to why I love these asset types and the time it can give me along with returns that are sustainable. Over the next 5-7 years I want to find creative ways to get 2-3 million dollars invested into syndications so that I can enjoy more time with my family and utilize my time best to love and serve my community.