Have you thought about investing in commercial real estate syndications?
In this article, we take a look at some of the better information for the passive investor that is being shared online by looking closely at a podcast interview by John Casmon of Casmon Capital Group.
John talked to James Kandasamy, author of the book Passive Investing in Commercial Real Estate and some great insights were shared.
Here are the key insights:-
What are the benefits of passive investing in multifamily property?
The number one benefit is that it is passive. Investing passively in real estate syndication allows you to make money out of the skills and experience of the syndication team.
Why choose multifamily over single-family or even the stock market as a means of investing?
It is rare to find anyone doing syndications for single-family homes but there are advantages to investing in real estate in general.
Regarding the stock market, it’s very difficult to make a lot of money on stocks unless you are monitoring the stocks daily and doing a lot of intensive day trading, the statistics show that there is only an 18% chance of making a lot of money on stocks compared to a 30-40% chance in real estate investing.
Stocks are high risk and potentially high return, bonds are low risk offering low returns but real estate investing gives you the best of both worlds. It is a perfect middle ground.
The other big advantage is the tax benefits, especially for high net worth investors.
How did you get started?
I started with single-family homes and we did some rentals and the rentals were what made sense. But single-family was a lot of work for not much money. Flipping is a lot of hard work. I realized that scalability was the way to go.
Multifamily is also a lot of hands-on work for the sponsor and their team. That’s why I recommend passive investing in multifamily. When you are investing passively with someone you are investing in the skills of the sponsor, negotiation skills, leadership, and management. To be an active syndicator is not for everyone; those skills take time to develop.
Where are you investing?
Texas. San Antonio and Austin are our primary focus.
Because of the population growth, from 2010 – 2018, 50% of all population growth in the nation is in Texas.
So many moving in, Austin had 152 people moving in per day. It’s a landlord-friendly state and a business-friendly state.
Between 2010 – 2019, Austin has a basis point of 1,000% growth between homeownership and home renters, so it has become a renter city, so it is a great place to invest in multifamily.
What other data points are you looking at?
I look for the submarkets to demonstrate growth in rental income and I look for some upside, maybe the units can be rehabbed or rents are too low, etc.
It is important to try to figure out where is the path of progress and get a little bit in front of it.
Deal flow is very important. For example, Dallas is a very hot market but the deals are too thin, not enough deals are happening.
Austin is a great market. It is booming like crazy and will increase more with the Apple announcement (earlier this year).
San Antonio, except for the East, is good but it is more of a slow and steady market so you need to look for a deal with upside.
What are you doing to navigate through any changes in the economy?
Now that I am known by the brokers I do sometimes get offered off-market deals and that way I can look at deals that can cash flow and not just appreciate.
I’m trying to take my time and do off-market strategy.
How are you structuring your deals?
We are a lean operation because we have property management in-house. This enables us to be more competitive. We also do a lot of guerrilla tactics. For example, approaching sellers directly; we try to be the first person the seller talks to.
What is your number 1 tip for winning your market?
Know your market and know the submarket very well. Know the real estate barriers very well. Sometimes if you just cross a highway the prices can change. Know your real estate ‘artificial barriers’ very well.
What is your best tip for identifying market changes?
That’s a difficult one because all the news feeds that you keep an eye on can help but everyone wants to give positive news until it is too late. I tend to rely on my own data which cannot lie.
What daily habit keeps you focused?
I would wake up at 4.30 am.
Gary Keller’s The One thing
Best digital resource?
Although this article focuses on passive investing, you may prefer the hands-on, active investor role. You may even be contemplating the role of one who initiates real estate syndication. In that case, you need to be concerned with presenting a professional online image in order to attract passive investors to your deals.
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