Owning an apartment building will always seem like a big deal regardless of where you live. It could be due to concerns with cost or the magnanimity of the project. While that may seem like a justifiable concern, the reality remains that purchasing an apartment building is not so different from buying a smaller rental property.
The most significant flex that apartment owners enjoy is the protection of cash flow by the many tenants, even when there are a couple of vacant units in the complex. Investors like yourself may find this real estate investment interesting. However, expanding your commercial real estate portfolio through apartment buildings may still be challenging as many of these complexes require you to make a down payment of at least $100,000.However, the good news is that not all apartment complexes are that expensive, and there are several financial options you could explore to buy your apartment building. It is even possible to purchase commercial real estate with no money.You will find in this guide how you can go about owning an apartment building and how to recognize good deals. Let's get right into it.
Should you Consider Owning an apartment building?All good investors consider the risk-adjusted return of any investment before putting their money in it. Apartment buildings generally have a substantial risk-adjusted return, implying that apartment buildings are a good investment. But it is not uniform across the board. Different apartment buildings have unique risk-adjusted returns, often based on the purchase price.
In other words, buying apartment complexes could be good or bad business depending on many factors. As a good investor, you must take time to evaluate properties before buying, taking into consideration several aspects like the state of the apartment building, rental/ownership demand in the location, the relative price of the property to other similar properties, and local real estate trends.The big takeaway from real estate investments is that people will always need a place to live. It is even a more significant win considering that apartment buildings are often the most affordable option. There's currently a shortage of affordable housing in many American cities, which plays well into the hands of mid-level housing apartment owners.Furthermore, there are several luxury apartment buildings currently in construction. These same rental properties are the first to reduce rent or face massive evacuation whenever the economy nosedives.
Advantages and Disadvantages of Owning an apartment building
As mentioned earlier, buying apartment complexes can make you profits or losses. This caveat leaves full responsibility to the investor to make an informed decision when considering apartment ownership.
Cash FlowThe most notable advantage with apartment complexes is the cash flow, which is almost incomparable to what you can get from other investments like stocks and annuities. Apartment buildings afford investors stability and cash flow protection even when there are some vacant units in the complex. Rental income is steady, thus making it a massive reason to own an apartment building.Tax Benefits
Apartment buildings fall under commercial real estate even though these properties are often for residential use. This dualism makes an apartment complex attractive from a tax benefits perspective, implying that investors enjoy depreciation deductions and huge mortgage interest. This depreciation schedule is often much faster than other commercial assets.
Apartment buildings are great for risk management. While you may need more money to maintain your apartment complex, these rental properties provide less risk than other typical real estate assets while increasing potential profits. Owning an apartment building differs from a single-family home as an investor is still sure of their rental income from occupied units even when tenants vacate some units.
It becomes a massive advantage for property owners when they can spread operation, maintenance, and renovation costs among individual units in the apartment complex. Depending on the utilities and miscellaneous expenses, apartment buildings offer investors lower per-unit operating expenses than other investment properties.Take, for instance, the all-too-common roof replacement. The cost of this operation being spread between the units drastically reduces the burden on the property owner. Simple as that!Although this is not a direct function of an apartment building, the cost of renovations can also be less expensive if considered on a per-unit basis. After all, buying materials in bulk saves you money.
Inflation is a situation where the purchasing power of people deplete due to the rising cost of goods and services. The effect of inflation can take different forms depending on the particular business. While it could spell doom for some, it may not hinder some firms in the same breathe. An apartment building is one of such real estate investments that fall under the latter category.An apartment building generally has a one-year lease term compared to other commercial real estate leases, typically locked for about 3 to 5 years or have an annual 1% increase. This model affords the apartment ownership ample time to study comparable rents in the present market. The implication is that with the right strategy and timing, an apartment complex owner can adjust the rent to rise with inflation, thus maintaining rental income flow.
Auxillary Income Stream
An apartment complex has the potential to generate extra income separate from the rental income from tenants but through amenities. Apartment building ownership can create new passive income streams by setting up and monetizing laundry rooms, pools, vending machines, extra parking lots, gym, or office spaces.Even more interesting is that cost of these amenities doesn't have to be paid out of the owner's pocket, as the investor can quickly spread such expenses between all units in the apartment complex, making it easy to recoup everything put into said amenities. Good apartment investing is being able to recognize and reduce recurring costs to maximize net operating income.
Potential PartnershipPurchasing one apartment building alone might seem too massive a project to undertake on your own. The positive is that there is no reason to do it solo. Unlike stocks and bonds, investors can work as a group in apartment investing. You need to link with other investors interested in the same type of real estate investing. This way, you can purchase an even bigger and better investment property, thus maximizing your potential profit.Cons
Suppose you want to enjoy fast returns from your apartment complex investment. Apartments may not be the best form of investment property to consider. Unlike stocks and mutual funds that you can quickly sell for more liquidity, it would take longer to sell off your apartment building for the same.
ManagementManaging a multifamily property is much work, and it spans several aspects that would naturally compel you to consider hiring a reliable property management company. A good property management company will help you handle aspects like:rent collection
background checks for new occupants
advertising for vacancies
landscapingOutsourcing these tasks allows the investors to focus on their daily job and other things of interest. What about when you are unable to outsource these tasks? You'll have to do everything independently, which means much more work.You may think that hiring a good property management company is all you would need to be confident in management, but that is only one-half of the job. You also need to supervise the management company to ensure things are going in the direction you require.
Huge Down Payment
A hefty down payment continues to be a significant challenge in owning an apartment building. An apartment complex is a massive property, and the down payment at the point of sale is always higher than what you would have to pay for a single-family home.Although there are financing options to curtail the humongous down payment an investor must pay for an apartment complex, these vast sums make it difficult for new investors to buy lots of apartment buildings. This situation further makes it challenging to diversify your portfolio in different market classes.
Occupants' Problems and Vacancies
Every apartment owner's goal is to fill the multiple units in their complexes with tenants, as the bulk of returns will come from them. But managing human beings can be complicated if you do not have the grace for that kind of thing. You may have tenants who fail to pay their rents on time, those who would rather face eviction than pay, those who damage amenities, and those who commit to long-term leases but leave unexpectedly. All of these situations could become a real headache to handle.
Good apartment investors often protect their commercial real estate with a robust insurance policy. But sometimes, even this measure proves inadequate in certain situations. Property owners are liable to face the law for accidents or crimes perpetuated from or on their property. However, investments like stocks, mutual funds, and bonds do not have this risk.
Changing Market Factors
You never can predict how the market will look a few years from today. You can only project, and projections fail. You may buy an apartment complex in a fantastic area with all checkpoints of a great neighborhood and then witness a spike in crime over time, thus driving tenants out in troves. The real estate market is unstable, and you must prepare to mitigate its effects on your cash flow and tenant base.First, you must make room for rental price adjustments and then lower the rent if needed. This margin allows you room to meet the debt service on your apartment building.Reducing rents when the market takes a dip is sometimes inevitable, but good investors compensate for this loss by boosting their income. The positive is that there are many ways to boost your apartment complex income independent of the typical rents. Remarkable ways to achieve this goal include increasing fees for laundry facilities, reserved parking, or any other amenities in the complex.You can also utilize the ratio utility billing system (RUBS) to generate more income from your property. RUBS calculates utilities based on square footage, occupancy, number of bedrooms, or a combination of all or some of these. RUBS transfers utilities and their financial burden from the property owner to the occupant.
Time FactorYou must dedicate enough time to your apartment investment to make the most of it. It is a long journey from when you choose a suitable apartment to the financing stage and finally to completing the purchase. It could take several months to wrap up this process, which is only one phase. In a situation where you cannot afford to hire a property management company, you take on those responsibilities yourself. That screams more work!
But does transferring these day-to-day responsibilities to a syndicator mean you do not have any other role to play? Of course, not! You still need to supervise the syndicator to ensure that your investment is still on track to raise profits.
Pathway to Owning an Apartment building
Define your Goal
Investing with a goal is always the right thing to do. Because without a plan, it only feels like you're heading somewhere but without an actual destination in mind. Make it clear where you are heading and why. Ask yourself what you want from owning an apartment building, and then study how much income you need to generate from your complex.
Define your Budget
Defining your budget is crucial as it helps to keep your finances on track. Budgeting is where you determine how much you're willing to invest in an apartment. You must leave some money for repairs and portfolio diversification. Good investors know better not to overload their portfolio with one investment.
Study Cash Flow Forecasting
To make the best deal, you must be ready to commit to extensive study. Forecasting is where you must determine where to focus your time and energy. You will achieve this by modeling prospective deals to determine how much profit you can expect from buying a particular apartment complex.
Select MarketIndeed, you have to start looking from somewhere. For many reasons, it is always better to begin from the local market. It is easier to manage an investment within a driveable distance, plus the advantage of understanding the workings of the neighborhood. Model a few deals and see if it is attainable before spreading your tentacles to other states.Obtain Financial Pre-approval
Scout for different lenders to compare their rates and products to choose the most suitable. Push to get pre-approval from at least 2 of the lenders. Getting this pre-approval is crucial as it gives you comprehensive quotes to compare and contrast after finding your suitable apartment complex.
Begin Search for Suitable Properties
The next step is to start scouting properties. Several popular real estate apps and websites facilitate a seamless connection between investors and owners. Another option is to link with brokers with off-market properties.
It would help if you summoned your full negotiation prowess. Everyone at the table is there to negotiate the best possible deal. There's no reason to be emotional about presenting your offer, even if it is lower than the listing price. Owning an apartment building is an investment, so you must only offer an amount that seems reasonable to you.
Go on InspectionsYou want a quality assurance check to ensure you get what you saw in the advertisement. The property's condition needs to be intact as it could lead to extra expenses for repairs. Carefully assess the electrical, roof, plumbing, and airconditioner as these can be pretty expensive if they need repairs.Hire a Reliable Syndicator
You will need a reliable property management company to manage many aspects of your investments. It is crucial that you interview different companies, compare their reviews, and carry out a thorough assessment of their background and achievements before committing to a syndicator. The role of this company is too crucial to fumble this choice. Your decision here will make or break your investment.
Lock in Financing
Return to where you got pre-approval with the deal you found, compare their rates and get full approval from the most suitable lender.
Finalize the purchase by signing the paperwork. Then never forget to celebrate your win. Hurray!
Buying an apartment complex can be good and bad, depending on several factors. It certainly is not suitable for every investor as investment goals differ. Spend time considering all the points in this guide to enable you to make an informed choice. Guard against uninformed decisions as they can drive you out of the market.
Most times when the question of how much an apartment complex costs comes up, the first thought that comes to mind is the monetary cost; how much does it cost to buy, build, rent or lease one. The other side to the story is the ongoing costs of maintenance, repairs, rehabbing, and countless other expenses tied into the asset. Getting into the real estate business as an investor or a developer can be a lucrative venture, though it carries significant risk and extensive upfront and ongoing cash injections.Even the cost to build an apartment is not a straightforward question. It involves many factors and questions that have to be considered, which we're going to explore in this article. We'll also look at how you can tap into the profitability of an apartment complex without the ludicrous upfront expenses in a way that's more palatable to individual investors.
Apartment Complex vs Apartment Building
According to the Collins dictionary, an apartment complex is a group of buildings that contains apartments and is managed by a company. Apartment complexes are set up with property managers who ensure the proper running of the apartments.Apartment buildings, on the other hand, refer to a single building with apartment units. They are independent buildings, rather than multiple structures under common management comprising shared facilities such as a swimming pool, gym, or convenience store.
Types of Apartment Complex
Despite apartment complexes containing several units of housing alongside other facilities, they are generally categorized into high, mid, and low rise.
Just as the name depicts, high-rise apartment complexes are characterized by up to 50 floors of apartment units. These high-rise buildings often contain luxury units like penthouses and condos.Due to their structure, they are located in larger and more urban cities like New York, Los Angeles, and Chicago.
These are apartment complexes with about 5-20 floors. Mid-rise buildings are usually the most common complexes, present in cities, suburbs, and even in schools.
Predominately residential with floors ranging from 2 to 15 apartment units. They are common in suburbs and less populated towns.
Apartment Construction Costs BreakdownIt has previously been mentioned that the costs of an apartment complex go beyond the money. The costs involved in building a multifamily apartment complex are divided into different aspects.
These are expenses that go into the physical aspect of apartment construction. This aspect of the cost accounts for materials, labor, equipment, utilities, and other physical activities that are involved in the construction process. The hard costs usually make up more than 60% of the entire construction budget.
These expenses are responsible for taking care of the technical and non-mechanical aspects of apartment building construction. They involve things like taxes, permits, legal fees, architectural fees and development fees, and other service charges.
In some instances, real estate developers do not have all the funds required for apartment complex construction. When this happens, they are provided with the option of seeking investments or loans from financial organizations. These investments come with interests and financing charges, all of which are added to the total cost of construction.
Long Term Costs
This aspect of the budget is as important as the apartment construction cost. Although it is not part of the construction cost, it includes the expenses that are needed to maintain the building systems and utilities. Altogether, in the breakdown of the development budget that includes the land purchase. Hard costs make up about 40% of the entire project costs; soft costs about 25% and 20% for land costs, and in instances where investors are involved the remaining 15% to equity returns.
Of course, if you want to make money from a multifamily housing or apartment complex investment, you don't need to be positioned to sign up to a multiple-million dollar debt, or ongoing risky cash injections. With Holdfolio, you can own equity in a highly-profitable apartment complex, receiving regular dividends and capital appreciation with as little as $20k in the bank.Simply create an account, select the apartment building you want to invest in, and deposit your money to start passively investing in multifamily today. Get in touch with Holdfolio to learn how to get started.
What is the Construction Cost of an Apartment Building?
In the United States real estate and construction industry, the construction cost of building an apartment complex is calculated per square foot. This construction cost does not include many things, and should not be mistaken for total building costs. Due to variations in the price of building materials and other charges like sales tax, construction costs vary by location. They also vary based on the type of apartment; for example, the construction cost of a high-rise complex is considerably 'higher' than that of a mid-rise building.Similarly, the construction costs of a luxury apartment building are more than that of a regular apartment. Typically, in the United States, a mid-class apartment complex with 4 to 5 stories costs about $170 to $300 per square foot and varies greatly in total costs between about $5 million - $14 million. This is quite small in comparison to prices as high as $120 million for a luxury high-rise apartment complex containing up to 100 apartment units.
Costs of Apartment Complexes by Type
As previously mentioned, there are three types of apartment complexes; which are different in the number of floors they have, and how high they 'tower'. The higher a building is, the more complex the construction of the same building becomes. Complexity in building an apartment equals more money per square foot. Building high-rise real estate involves more equipment, expertise, precision, and higher quality materials, all of which are considered in the cost estimates.
We will start with the big guns, the towers, the skyscrapers, the 25 to 50-story apartments, or as we generally call them, the high-rise apartment buildings. The price to build one of these ranges from $235 to about $500 per square foot. These types of complexes are subject to zoning laws that dictate exactly how high they can be. Also, developers make up for the presence of non-residential spaces such as corridors, gyms, laundry rooms, lobbies, and apartment managers' offices by increasing the price per unit cost..
Mid Rise apartments
Mid-rise apartments are more common and the average building costs are slightly lower than the high-rise buildings, at prices ranging from $190 to $280 per square foot.
The construction costs required to build a low-rise apartment are not far off from the costs of a mid-rise building. Lower but fairly the same, with prices ranging from $160 to $250 per square foot.
How Much Does an Apartment Cost Per Unit?
Another way to look at construction costs is to estimate how much an apartment complex costs per unit to be built. This better fits the needs of some investors or real estate companies rather than the per square foot billing. As of 2020, building a multi-family apartment complex would cost prices ranging from $64,000 to about $86,000 per unit. The flaw that arises with this technique of estimation is that in some apartment complexes there are different unit types. For example, you can have a combination of studio, one-bedroom, and two-bedroom apartments, all of which may not be the same size. Therefore, it can present a serious miscalculation in the budget and financing costs of the apartment complex.
What Affects the Cost of Building an Apartment Complex?Now that you have a fair understanding of what an apartment building might cost you, it is also important to note the factors that influence the variability of these costs.Interestingly, these factors relate to one another, meaning that one factor can influence another, and they do not only affect the cost of construction but also that of maintenance and the returns from the investment (how much and how often rent is paid).
Location and Land Costs
Location is arguably the most important factor affecting project costs. Just as with anything else, location determines the value of the real estate. For example, eating at a middle-tier restaurant in Upper Manhattan or New York would be more expensive than even a 5-star restaurant in parts of Ohio or Delaware. The same thing applies to the real estate and construction industries. Location affects land purchases, which usually make up about 10-20% of the proposed budget for the project.Areas with high demand and reputation would have land scarcer and be more expensive, both of which translate to higher rent prices. There would also be opportunities for rentals, a great means of real estate income.
Compliance and Development Fees
Compliance and development fees could quickly whisk away most of the building budget. The amounts to be spent on these depend strongly on the proposed location of the apartment complex. Location in terms of local, state, and federal laws and regulations guiding multifamily housing and real estate construction in general. These laws have provisions for charges, dues, and taxes to be paid by a developer before, during, and after construction. Getting building permits falls under this category and again, getting this is dependent on the location and type of building to be built. Building permits are easier to get in developing areas of the country, where commercial real estate is needed. While for already densely populated regions where land isn't readily available, and the purchase and demolition of buildings have to take place to create space for construction, getting approval to build in such areas might be strenuous.
Another important factor that determines the total cost of a project is the type of units to be built in that apartment complex. Are there going to be affordable units or high-end luxurious apartments, or maybe both?Although the building costs per square foot of any of them are relatively similar, how much you spend on a luxury apartment largely depends on how luxurious you need it to be. This is why the costs for site improvements have to be included in the initial budget. As much as many real estate developers would like to build an apartment complex with only luxury apartments, many states have inclusionary zoning laws.
What Are Inclusionary Zoning Laws?
These laws regulate housing costs and provide affordable housing to those who cannot afford a regular apartment. Different states have different zoning laws that state the number of affordable housing units to be included in an apartment complex. While the rent of these affordable apartment units does not correlate with construction costs, the government offers incentives such as tax breaks and subsidies to developers.During the planning stages of construction, it is important for every developer to do the necessary research regarding the zoning laws of the state and city, where they intend to construct their apartment building, and how these laws would affect their investment and eventual returns.
Construction Materials and Labor
In a way, the type of material you use in construction is dependent on the type of units you want to build. This falls under the hard costs and it includes expenses for construction materials such as steel, concrete pipes, and so many others. The tricky part about these materials is the high tendency for fluctuation in price, which can be a burden if adequate preparations are not made. Therefore, it is advisable to make provisions in the budget and give room for eventual price increases, considering inflation and all that is going on with the supply chain.Labor costs include the fees for hiring any personnel involved in the construction project, including structural engineers, architects, contractors and subcontractors, and others.
This is dependent on the type of apartments in the complex. How many affordable units are therein? How many studio units, 3- bedroom, 2-bedroom, or even penthouse apartments are to be built? All of these are important to note because they would determine what the rent and income from the apartment would be and ultimately affect equity and the financing costs of the building.
Who is Involved in Building an Apartment ComplexGetting an apartment complex to translate from an idea to the actual building involves an elaborate amount of processes. However, amid these events, it is important to take note of the people who make them happen.
The architect has the first major responsibility in apartment building construction. Their job is to design and draw plans for the proposed building. They even go as far as creating small models of the building. During this stage, the architect might be required to make adjustments to the model or the design of the building until the final plan is agreed upon. This building plan is created to give the contractor a picture of what the developers have in mind, and because most architecture firms want their design to be executed properly, they have contractors that they recommend to the developers. Usually, the architect acts as the project manager alongside the general contractor.
We have two types of contractors based on their level of responsibility. The first type is the general contractor - the architect and the developer employ the general contractor, who is responsible for hiring and finding all the other subcontractors. They also handle and supervise the entire project. The general contractor is in charge of technicalities such as permits and compliance. It is important to carefully select a competent general contractor because they are in charge of everything and the success of the project depends largely on them. General contractor fees can be as high as 10% - 20% of the entire project cost.The subcontractors, on the other hand, are responsible for the different aspects of building an apartment complex, according to their specialty. From the carpenters to the engineers, masons, and others.Contractor fees differ from state to state because of differences in real estate sales tax laws in respective states.
Real Estate Attorneys
Apartment complex costs run into millions of dollars, and investments such as these require formal and legal backing. Legal processes such as acquiring necessary permits, understanding zoning laws, and land acquisition documentation usually require the services and input of a legal officer.
The amount of cash flow and exchanges that occur during apartment building construction is a lot, and all of these funds have to be accounted for during and after the completion of the project.Also, things such as payroll and disbursement of funds are the responsibilities of an accountant.
Apartment Complex Cost Calculator
Some resources are available to support people in estimating project costs. Whether it is per unit cost or per square foot cost, or even the total cost of an apartment complex. These resources make use of algorithms that consider market costs of materials, the state and national average land price, the average contractor fees, architectural fees, and other construction costs; essentially all the factors listed above, and run the maths to give you an estimate.
Finding out the cost of an apartment building complex might seem like an arduous task, but proper preparation takes away all the worries. As a developer or an investor looking to get into this space, it is important to make adequate consultations and ask all the necessary questions to get clarity on whatever you need to know. Building an apartment complex as an investment project requires a significant amount of capital, and that money should be put to efficient and good use. If you're an investor who is syndicating the deal or undertaking the project alone, it also entails a high level of risk. It's wise to ensure you have the skills, experience, and ability to do the project justice with due diligence before you more forward with the venture.If you're interested in investing in profitable multifamily real estate found in prime location without the risk, high capital investment, and managerial responsibilities, become a passive partner with Holdfolio today. Through your investment, you will receive quarterly dividends and capital appreciation without having to life a finger. Plus, you can invest with as little as $20k in the bank. Give Holdfolio a call today to learn how to get started.
If you live in a region where real estate is costly, investing in out-of-state property may sound attractive. If you currently own a house but want to diversify your assets, it may be appealing. It's possible that all you want is to purchase a vacation house. Alternatively, your motivation might be a combination of all of these factors or something else entirely.Regardless of your motivation, out-of-state real estate investments are great for passive income. But how do you get started in a state that you don't know?Here's Holdfolio's guide to out-of-state real estate investing.
What is Out-of-State Real Estate Investing?
First, let's talk about what exactly out-of-state real estate investing is. It literally means investing in a real estate property that is not in the state that you live in.There are four primary reasons why investors buy rental property outside of their home state:Investing in locations where population and employment rates are both significant.
Diversifying a rental real estate portfolio by investing in locations that fit your investment plan.
Concentrating on the kind of returns you want, such as maximum cash flow, high appreciation, or total yield throughout the holding term you've set.
In areas with fewer restrictions, cheaper real estate taxes, and landlord-friendly legislation, maintenance costs are cheaper.How To Start Investing Remotely The Easy Way
Investing in out-of-state rental properties starts with doing your homework. Making informed judgments can help you make great selections. First and foremost, you should be pre-approved for financing so that you can make an offer promptly when you locate the right bargain.Locate the markets where you're most likely to meet your financial objectives, then do comprehensive research on the area, the property itself, and the seller. Because you won't be able to meet the seller in person or even view the property, you'll have to compensate by doing as much research as possible.Now let's get real.In order to be able to make the best decision about your investment, the local market, type of property, laws, and regulations, financing, and more it will require enormous amounts of time and effort. As a busy investor already you would not want to travel to different states or spend days, if not weeks, online researching.But there's an easy way to do all of this. You can just sign up for Holdfolio's online real estate investing platform and let us handle all this work.When you sign up for Holdfolio's online platform, you can handpick the properties you want to invest in from the listings provided and updated by Holdfolio's team of realtors. You can invest as little as $20k and start enjoying your passive income because when you invest with Holdfolio, you won't have to find a property manager or physically visit the property. Holdfolio has it all for you.There's a team of professionals to help and guide you through every step of the way such as preparing to buy a property, finding information about the local real estate market, finding tenants, managing the property, the day-to-day liabilities of the landlord, and more.Contact us and let our team of professional realtors help you find your next passive income resource! Before Starting Your Investment Journey...
Before putting your money in an out-of-state real estate investing make sure to think through your goals and your finances. You can draft a business strategy and take notes of how much you want to invest and how much you want to have in return in a year or so by using the Return on Investment Calculator by Holdfolio (Scroll to the bottom of our online real estate investing page to find it).Make sure to have a strategy in mind because that will make it easier for you to reach your goals. If you are not sure about how to advance with your investment, Holdfolio is ready to help you. As mentioned earlier when you invest with Holdfolio, you will be provided with a property manager and you will have constant assistance from our team of professional realtors who can help you build a solid strategy.Make sure to utilize the available online tools to save time and money, like Holdfolio's app.
How And Why Out-of-State Investing Works
There are various benefits to out-of-state real estate investing:
Higher Returns on Investment
There are two significant financial advantages of investing in a property out of state:When you can afford a larger down payment, your cash flow improves. For example, if you have a $25,000 budget to work with. When you buy in a market where property values are $100,000 vs $200,000 or more in a high-cost location, your LTV will be more reasonable and your revenue stream will be higher with a reduced loan payment.
When you invest in out-of-state markets that make sense, your return on investment is higher. Purchasing rental property in an undervalued market with a big population and job growth potential might result in considerable market value appreciation over time. With greater equity from appreciation, your return on investment is maximized.Finding Real Estate Market DiversityThe location of your rental property has a significant influence on your investment plan.Single-family homes are ideal in family-friendly suburban submarkets and some urban districts. Millennials and singles are prepared to pay a higher rent for a smaller space, on the other hand, like highly populated mixed-use areas where people live, work, and play.To comprehend what you're looking for before exploring out-of-state areas to buy a rental property in, you need to know what your preferred investing plan is.
Diversifying Your Portfolio
Diversification is the fundamental guideline of risk management in investing. And, if you're seeking to flip houses for a livelihood, buying a house out of state is one method to diversify your real estate portfolio and keep your business afloat.Instead of focusing on finding the greatest rental property in a single market, smart investors focus on owning one or two properties in the correct out-of-state real estate markets to reduce risk and increase profit.If you invest only in one market, you might end up losing all of it if the market crashes.
There is limited opportunity for property prices to rise without considerable income growth when the ratio between local incomes and home prices becomes too high.In a healthy real estate market, the ratio of house prices to household income has historically ranged from 2.5 to 4. However, according to the Brookings Institute, average property prices in certain places are more than ten times greater than average wages. Without higher wages, it's just not feasible or sustainable for these places to experience much more appreciation.Challenges That You Must Consider When Choosing Far Away Properties
Investing the time and energy to study the market is one of the most difficult aspects of buying rental property out of state. While the potential returns are higher, investing outside of your local market comes with a steeper learning curve.Here are a few potential downsides of renting a property out of state, as well as ways to prevent making a costly mistake:
Not doing the research before investing in an out-of-state property is one of the biggest mistakes an investor can make. Make sure to complete in-depth research and connect with local investors and investment companies.Hiring a knowledgeable and experienced property maintenance company that can support your due diligence and property assessment can help you eliminate the most common mistakes that investors make.
Long-distance real estate investors are attracted to rental properties because of the revenue they provide. As a result, they concentrate on full rental properties and modest multi-family ventures. Cash flow from a turnkey rental property begins the day escrow closes if the property is already occupied.
Unfamiliar Local Real Estate Markets
When you're investing in real estate in another state, you will need to study the local market. Unfamiliar local real estate markets can be challenging to understand.For example, in some areas, the laws are substantially stacked in favor of the tenant.While there may be a high demand for rental properties in certain areas, regulations and policies that favor tenants may limit ROI and cash flow. Investigate local regulations and market norms by speaking with property managers and joining local investment organizations to have a better understanding of the real estate market.
Unfamiliar Real Estate Laws
Another problem is deciphering the rules and regulations governing property ownership and property taxes in your desired location. Even if you study every line of the municipal laws and regulations, what is written on paper does not necessarily correspond to what occurs in the actual world. Talk to local property owners to obtain a better grasp of the issues.
Similarly, it's difficult to correctly estimate remodeling expenses and, therefore, how much it would cost to flip a home without seeing it firsthand.Of course, photos are helpful, and you may acquire many prices by consulting a local Realtor. However, it's difficult to be certain about the repair bills and financing of a house fix and flip if you haven't visited the property in person. It's a danger that's amplified when you choose contractors you've never worked with before, and it might jeopardize your house-flipping business strategy. Tips For Finding A Great Property Manager
When buying an investment property in another state, the principles of how to pick the appropriate Realtor remain the same.Their expertise working with investors is one area where you should pay special attention. When they stroll through potential houses, you'll be relying on their knowledge and vision. Realtors who have worked with investors and investment homes before will know what to look for—and what to look out for.You should look for property managers who are experienced and well-trained in the type of property you want to invest in.
Your property manager should be an expert who is able to forecast an approximate return on your investment.
Your property manager should be able to provide you with pre-inspected properties.
Your property manager also should be able to tell the indicators of economic growth in the region you are interested in.Finding a property manager can be a time-consuming task as you cannot just trust anyone you see online. It'll take lots of research, asking for referrals, related documents and certification, and more.But as we said before, when you invest with Holdfolio, you don't need to worry about finding a property manager. Holdfolio has property managers who are experts in their areas and can help you with everything you need.
Letting Someone Else Operate Your Investment Property
Consider turnkey homes if you want to invest in out-of-state rental properties that require less maintenance before being rented. A turnkey property is a fully refurbished home or apartment that is ready to rent. In certain situations, the property is already leased and has a renter, so you'll have a tenant and cash flow right away.Hundreds of firms around the United States, such as Holdfolio specialize in finding, maintaining, and selling rental properties.Working with Holdfolio has various benefits for out-of-state real estate investors such as:Accessible investment with low minimum investment, you can become a partner with an investment of as little as $20,000!
Easy and transparent--you can calculate your potential returns on your investment by using the Return on Investment Calculator on Holdfolio's online platform.
Small diversification, you can decrease your risk and increase your returns with multifamily investing.
Vertical integration includes a construction company, a property management company, and a real estate firm, all under the same name: Holdfolio.You can learn more about out-of-state real estate investing online with Holdfolio here.
More Reasons To Become An Investor In Different States
There are various reasons why investors choose to invest in out-of-state real estate. We've listed some of them before in this article but let's dig deeper.
Grow Your Portfolio While Diversifying It
Other investment options may be discovered through out-of-town rental homes. For example, you may start investing in rental homes in another state and your real estate professional may also be able to assist you to find attractive commercial property deals. You could find yourself diversifying your real estate portfolio to include commercial properties or fix-and-flip chances.Buying a commercial property will broaden and diversify your real estate portfolio and experience. You may also be able to acquire additional real estate assets because you are in a more inexpensive market.
Having a Vacation Home
If you've been to the area more than a few times, you could always buy a vacation house there. You can utilize it for a few weeks or months each year with your family.When the house is empty, you may rent it out to guests on short-term leases or through services like Homeaway or Airbnb. Guests leasing out your holiday home for their holidays might help keep your vacation home's expenditures down and ensure that it is used all year. In addition, the revenues from your holiday property provide a second source of passive income.
Investing in out-of-state real estate can be a great source of passive income when you do it well. But doing all of that homework and research can be difficult.Having a real estate investment company like Holdfolio by your side to assist you whenever you need will ensure that your investments won't fail and you can just sit back and enjoy your passive income!Investing with Holdfolio is so easy! All you need to do is sign up to our online platform, choose the property from regularly updated listings and invest the amount of your choosing!Holdfolio helps real estate investors, both accredited and non-accredited, to find more secure investments with their years of experience and hard work.Sign up today and start growing your wealth through passive real estate investments!
Real estate is one of the most powerful wealth creation tools out there.There are, of course, multiple platforms that can make the research and investing process easier. Whether you are looking for information, real estate markets, real estate investment projects, properties to buy, or something else — you can find it online. You just need to know where to look.So we've prepared this list of real estate investor websites to help educate realtors. In this article, you will find 25 different websites that are useful for information, house flipping, services, tools, commercial investing, and more. Anything you want to know about real estate investments, we've got you covered.
Holdfolio’s crowdfunding platform offers passive real estate investment opportunities to both accredited and non-accredited investors. Holdfolio deals are equity-based, meaning they provide the upside potential as well as cash flow.One of the advantages of investing with Holdfolio is that we invest alongside our investors. Holdfolio invests around 4-10% in each deal. This means the investors are not being pushed to take risks that could potentially end up losing money. Our investors have high returns because not many crowdfunding platforms invest with their investors. Holdfolio aims for double-digit returns, at least 10% every year. Our investors have an average investment return of 18.87%. You can learn about the possible profits to be made on any property before investing in it.Investors find it appealing that Holdfolio’s investment requirements are as low as $20,000, and it can be done via a self-directed IRA. This is a type of retirement account that allows you to invest directly with Holdfolio. Our minimum investment rates are incredibly low compared to other companies with most companies requiring a minimum investment of $50,000.
SyndicationPro was created by real estate sponsors to provide transparency and increased access to syndicators and to provide investors with a high-end experience. The team behind this organization keeps SyndicationPro on track, making it the best real estate syndication platform on the market.Syndicators and fund managers who work in commercial real estate will find SydicationPro the most useful. While the software is advanced, it is user friendly for everyone, from first-time dealmakers to those in charge of multibillion-dollar portfolios. It's also perfect for co-sponsors.SyndicationPro offers a streamlined fundraising platform with a cutting-edge investment site, digital PPMs, the option to eSign agreements, and the capacity to add cosponsors to a deal.Transparency is crucial when it comes to managing your assets, thus SyndicationPro allows investors to receive full reports and updates, as well as delegate access to others. It also allows you to calculate and notify your investors about payouts.There is a lot of Real Estate Syndication Software on the market that can cost a lot of money. To provide better accessibility to real estate agents, SyndicationPro offers game-changing competitive prices. SyndicationPro pricing starts at $95.00 per month.
BiggerPockets is an online platform committed to assisting investors at all levels of expertise, whether they are seasoned commercial real estate owners or just aspiring investors looking to learn how to flip houses for extra money. For many people, the best way to get started in real estate investing is to listen to a real estate podcast, read a real estate blog, or participate in an online forum, all of which are available through BiggerPockets. This fantastic online resource can help you take the first steps toward owning a rental property or flipping a house. Millions of real estate professionals check the site first thing in the morning for the newest information on real estate investing fundamentals, landlords and rental properties, house flipping, mortgages, and innovative financing, and to sign up for special webinars. If you want to keep up with the real estate world, BiggerPockets should be one of your go-to websites!
Rental Kharma is a platform that uses your rental bill to raise your credit score. Yes, you've read that correctly. The company takes your biggest bill and uses it to your advantage. Rental Kharma simply adds your rental payment history at your present residence to your TransUnion and Equifax credit reports. That's all there is to it. You do not need to change your payment method. The company has a straightforward technique that is convenient for both the renter and the landlord.The company promises to increase the clients' average score by 40 points with visible results in 3-10 days. Rental Kharma also provides a 90-day refund policy, in case a client feels that the company's services were not a good fit, the company promises 100% money back.
When it comes to real estate investments we all know that location is important. You simply need to study the neighborhood before you invest but worry not, there's a platform for that too! NeighborhoodScout is a website and online database of neighborhood analytics that uses a patented methodology to assist investors in creating neighborhood profiles and identifying the greatest investment opportunities.The website can significantly reduce the amount of time and effort spent searching for real estate by focusing on the places that meet the precise criteria of individual rental property investors.
ActiveRainConsider Active Rain to be the Facebook of the real estate investing world. The site is the world's largest repository of real estate knowledge, with over 300,000 active members and over four million blog articles. Those figures are crucial because in real estate investing, who you know is just as essential as what you know. Agents and brokers, appraisers and inspectors, lenders, and investors are among the members of Active Rain's community, which is the largest and most active professional social network in the real estate business.So with the help of ActiveRain investors can connect with like-minded individuals and expand their network.
NNN Deal Finder
A triple net lease (also known as a NNN lease) is a lease agreement in which the tenant or lessee agrees to cover all of the property's expenses, such as real estate taxes, building insurance, and upkeep. Because they provide low-risk, consistent income, triple net leased properties have become attractive investment vehicles.NNN Deal Finder is the leading buyer's broker, assisting informed investors in locating reliable, long-term NNN Lease investments from recognized businesses with lower risk and more reward. Hundreds of NNN properties for sale are analyzed every day by their staff and presented to investors on a first-come, first-served basis.Investors interested in other types of NNN properties, such as CVS drug stores for sale, Walgreens properties for sale, and 7-Eleven properties for sale, can collaborate with the company to uncover more precise characteristics. If you want NNN deals, they've got them all.
Many investors consider obtaining a real estate license solely to have access to the MLS. Instead, by using Zillow, they can save hundreds of dollars per year in fees that could be better spent on an investment property. Many local MLS services, in fact, have data syndication agreements with Zillow. One of the reasons why the Zillow applications and websites had more than seven billion visits last year is because of this. On Zillow, real estate investors may access free investment tools and market data, search for attractive buys, and even advertise their own rentals.
HousingWire is the most prominent source of news and information for the mortgage and housing markets in the United States, with an audience that includes lending, servicing, investments, and real estate market players, as well as financial industry professionals. The company acts as a network for mortgage and real estate professionals to engage and connect, with over 10 million unique visits every year. Rental property investors can stay on top of the housing market by reading news, magazine issues, blogs, and watching films, listening to podcasts and webinars about trending real estate news, existing home sales and the economy, mortgage rates and credit trends, and how fintech can assist increase ROIs.
RentometerInvestors can compare their goal rent to comparable rentals in the neighborhood on this site by entering only three pieces of information: the property address, the number of bedrooms, and the rent predictions.To establish real world, fair market rental values, Rentometer uses a combination of syndicated rental data, proprietary databases, and an aggregate of user-generated information. It's an important real estate investing tool to utilize because underestimating the rent can result in a high vacancy rate and negative cash flow. Rentometer provides real estate brokers and landlords with rental comparisons, as well as portfolio batch analysis for aggregate reporting on numerous flats and properties. The company can also assist investors in attracting potential tenants: using the free rental listings, units that are currently available for rent will appear on the Rentometer widget and map with a distinct marking.
This Old House
This Old House is a must-visit site for any do-it-yourself real estate investor. The majority of first-time property investors lack the financial resources to engage professionals to renovate the homes they are flipping. Instead, they must rely on their own knowledge, which they can obtain through This Old House.Every room of the house is covered with articles, instructions, and videos grouped by the site. It also includes woodworking, installing solar panels or alternative energy sources, HVAC, and more. Anyone interested in learning more can look up local television listings or subscribe to the podcast or magazine.
REtipster is the place to go for investor hacks and game-changing technologies that are transforming the business of investing in real estate for real estate investors that use a passive investment strategy. REtipster is a website dedicated to real estate investors, with proven tools such as articles, podcasts, videos, and more. Recent articles have covered topics such as real estate syndication, how to invest with $5,000, and where to discover the finest rental property deals.
Veterans United Home Loans
Veterans United Home Loans is a platform that allows veterans, service members, and certain military spouses to get a loan with the U.S. Department of Veterans Affairs (VA) with no money down. Private lenders, such as mortgage firms or banks, make VA loans.Although VA loans are specialized loans, they aren't any more complicated or time-consuming than other types of house loans. This VA loan guide is designed to give you the information you need to complete your VA home purchase or refinance and make the most of your hard-earned benefit.
Real Estate Masters Summit
We all know that one person whose life has been completely transformed as a result of real estate investing. Maybe they were living paycheck to paycheck before but then they were able to grow their wealth enormously. If you wanna be one of those people you will find the Real Estate Masters Summit highly beneficial. The Real Estate Masters Summit is an online seminar platform that aims to educate realtors with a huge array of knowledge and experience. It provides realtors with direct access to leaders in real estate to take the guesswork out of becoming successful in the real estate industry. You can learn from the mistakes of seasoned real estate professionals while listening to their seminars online and become a real estate expert yourself!
FortuneBuilders is one of the world's leading real estate investing education websites. It provides a platform to connect with their community, learn about fresh real estate articles and news, watch FBTV episodes, and view successful student-submitted real estate deals and successes. FortuneBuilders have made it their mission to share their passion for investment and business with their guests, as real estate is one of the most rewarding endeavors.
Houzz is an online community and website dedicated to architecture, interior design and decoration, landscape design, and home renovation in the United States. Home professionals who are designing properties, flipping houses, and doing renovations can use the Houzz platform to locate and hire qualified design and construction experts. The platform allows people to connect with like-minded professionals by joining a global community of millions of homeowners, renovation specialists and interior designers. If you're a home professional, Houzz Pro can be another way to help you stand out, get clients, and manage your projects effectively and financially.
REIPro is a real estate program for small and medium-sized businesses and large corporations. Real estate investors can use REIPro to look for a variety of properties, including unoccupied and bank-owned lots. You can also get the selling prices of such listings from this software. You can find assets from numerous locations by using the quick search option. It allows you to search for both close and faraway properties. REIPro also functions as a marketing platform, allowing you to send messages to prospective clients and investors.
Self Storage Investing
When it comes to investing in a niche market, self-storage is one of the old-timers. Self-storage has long been regarded as one of the most rewarding investment niches.Self Storage Investing allows people to become financially independent without the hassles of tenants, toilets, or trash! After years of investing in self-storage and amassing a portfolio of over 2 million square feet of storage space, Self Storage Investing has become a well-known name.The website offers passive investment alternatives along with educational bits on self-storage investments. The company has also developed many products, events, and one-on-one coaching programs to show investors how to profit from self-storage. Anyone can easily choose from their products online and get started in Self Storage Investing!
Short Term ShopThe Short Term Shop (EXP Realty) is a full-service short-term and vacation rental sales and acquisition organization that serves the Smoky Mountains, Emerald Coast, Forgotten Coast, Orlando, Gulf Coast, and Blue Ridge, GA areas. The company focuses on educating and helping investors to make long-term wealth by investing in short-term real estate investments.The company is specialized in finding short term rental investments for their clients to get involved with and help them every step of the way. They provide a cash flow calculator service for those who are interested in short term rentals but are unsure of their potential cash flow. They even have an STS University that teaches individuals all the necessary skills to make money with short term rentals.
Carrot is a lead generator hub that helps real estate investors and realtors get more leads through their websites. Carrot’s team of professionals provide their clients with the leads they need to grow their businesses by utilizing SEO ranking, software, and training. If you want to have a real estate investor or agent website that gets search engine rankings and generates free seller and buyer leads and to be able to take full control of your site from start to finish so your brand is unique to your target market and does not feel like another template website, you can use Carrot’s services to generate leads the right way.
Crime and Place
Crime and Place is a platform for crime rates and mapping. Yes, it shows the crime rates, the types of crimes, and when they were committed in the area. It can be very beneficial in terms of knowing the area before you invest. The app has three main features:The Crime Compass is a unique color-coded perspective that allows you to rapidly see your surroundings as you travel. It refreshes dynamically utilizing the device's GPS and internal compass technology.
The Map Overlay visualizes crime statistics as a fully interactive heat map, complete with GPS tracking to show your current position.
The map overlay and a handy graph display 1 to 5-year crime estimates, as well as any other specified location, such as a dropped pin or a specific search.ClimateCheck
Millions of properties in the United States are currently at risk, and many more will be in the near future as a result of altered weather patterns and worldwide environmental circumstances. Knowing the facts can assist you in making better decisions about how to manage, sell, and purchase your house. The ClimateCheck property report function can help you analyze the individual and collective effects of climate change in general. Understanding each risk—heat, fire, storm, drought, and flood—has become an important component of homeownership.Through its proprietary risk assessment and report, ClimateCheck empowers property purchasers, owners, and brokers by exposing and quantifying the dangers associated with the climate.
LandWatch is one of the leading online resources for rural properties and lands for sale, including hunting land, forests, farms, ranches, development sites, and homesites for vacation, enjoyment, or investment. The sellers advertise a piece of land for purchasers to find – and you can also find foreign land for sale here. The best part is that searching for land on their website is free; all you have to do is register to access its features.If you're looking for a new property as a land developer or agency, LandWatch provides a dedicated search tool just for you. You can narrow down your search by property type. Multi-family zones and commercial properties, as well as land size. You may also filter your results based on price, size, and availability.
Think eBay but for properties.This property auction platform has an unrivalled collection of over 16,000 properties currently for sale. Each is kept inside a searchable database where users can search by city, foreclosure status and ownership status, just to name a few parameters.Auction.com not only allows registered users to bid on a property of their choosing, but they also offer detailed analysis of the property’s tax history, the surrounding neighborhood, and ental estimates—almost anything a prospective buyer would need to know before making an informed buying decision.The platform boasts $52 billion in sales to date. There are currently over 16,000 properties available for sale and 6.3 million registered buyers on Auction.com.
Call Porter is the world's only live answering service and lead management system designed specifically for real estate investors who want to buy and sell more properties without having to work harder or spend more time on the phone.The company offers to set you up with a custom phone number which you can use in your marketing material. Every time someone calls that number, the company’s team of professionals who are expertly trained in real estate will answer the calls for you and build relationships with your potential customers. Call Porter utilizes its services so you won’t miss any phone calls or any deals.
Holdfolio Stands Above All
In summary, real estate investments require a long process of studying and researching but you don’t have to be the one to do it! You can join us at Holdfolio and let our team of professionals take care of everything while you get to handpick the property you want to invest in then sit back and enjoy your passive income!
Buying multifamily properties offers investors the opportunity to recoup their investment much faster by generating more rental income from having multiple tenants in a building. You can even decide to stay in one unit and rent out the other five or more units to enjoy a steady cash flow and monthly income. If you’re interested in learning more about multifamily investing you’re in the right place! We've composed this investor's guide on how to buy a multifamily property for new and experienced investors. Let's dive in!
A Quick Word on Multifamily Crowdfunding
Suppose you don't have money to buy a multifamily property directly. One investment strategy that can enable you to enjoy the benefits that come with buying a multifamily home, like earning a steady income, is crowdfunding from Holdfolio.The World Bank has estimated that global crowdfunding for real estate will reach a whopping $93 billion by 2025. Crowdfunding with Holdfolio enables small investors to pool their money as a group and invest in a large real estate investment vehicle that would have been beyond their reach as an individual investor due to capital constraints. Holdfolio will source the investment opportunity, place the money, and manage the investment. This real estate investing option is perfect for investors that are seeking alternative investments to diversify their portfolio. Crowdfunding with Holdfolio presents an opportunity to mezzanine debt, or first-lien debt, as well as provide joint venture equity, and preferred equity for a regular or newbie investor with $20,000. Holdfolio provides all the benefits of crowdfunding real estate properties like making bids on multi-family homes, no tenant management, and high returns without the negatives of buying multifamily properties alone or starting your own fund (options which we will explore more in detail throughout this article).Learn more about crowdfunding with Holdfolio here
Searching for Viable Real Estate
The first step in privately acquiring your first piece of multifamily real estate is finding viable properties which will recoup your investment whilst also appreciating in value over time.The following are ways to find viable real estate investment properties.
Sometimes, multi-family home sellers might not want to list the building for various reasons. The problem lies with discovering where to find those properties. That's why you need to network and connect with people who deal in multifamily properties. You can meet those people when you attend real estate workshops, conferences, meetups, and real estate masters’ summits. The National Association of Realtors (NAR) often organizes meetings about a range of real estate topics.
Work With a Real Estate Agent
It's often hard finding a great multifamily investment deal in Class B and C real estate categories in large metropolitan areas, especially as a new investor. The reason is that these multifamily property deals mostly pass through referrals and networking and don't often get listed publicly. Investors with great relationships with a real estate agent are often lucky enough to hear about these deals. Real estate brokers usually list multifamily properties that are overpriced and competitive in MLS sites so interested persons can see them. Suppose you contacted a broker to help you find a multifamily property, and they start sending you deals, ensure you follow them up promptly and respond to their calls and emails.
Contact Owners Directly
One way to contact a seller directly is by driving for dollars which entails going around in a neighborhood where you intend to buy a multifamily property to see if you can find an unlisted multifamily property you can buy directly from the owner.These kinds of deals are usually great and will help you save money.
Valuing The Property & Negotiating on PriceA property valuation is vital when buying a commercial real estate investment, whether single-family or multifamily properties. The valuation is essential for several reasons, including investment analysis, taxation, financing, property insurance, and sales listing. However, most people opt for a real estate valuation to determine the asking price when purchasing a multifamily property. The following are some of the approaches to property evaluations you can use before making a multifamily real estate investment.
This is the most popular commercial real estate investment valuation technique. Here, the appraiser employs regular investing calculations, like cap rate and NOI (Net Operating Income), to determine the property's potential income generation in the current market. The income approach formula is:NOI / cap rate = property value.However, while evaluating the property, the NOI on the pro forma should be accurate. An inaccurate NOI will lead to an incorrect valuation. Investors will also need to find comparable sales cap rates to enable them to come up with the valuation's cap rate.It is hard to determine an ideal cap rate if there are limited comparable sales available and this can throw off the valuation's accuracy.
Although not a popular approach, the cost method is best for new buildings. The cost method estimates a property's value by checking the cost to construct the building from scratch.This approach considers the land cost, labor, and materials to determine the amount it'll take to build the same property in the current market. That way, you won't pay more than it takes to construct a new dwelling.Appraisers often use the following formula to evaluate multifamily properties.New building cost + land cost - accumulated depreciation = property valueGross Rent Multiplier Approach
Another common real estate investment valuation method individual investors use is the gross rent multiplier. This method isn't the best for commercial valuations. It works by looking at comparables to enable the investor to find the property location's average gross rent multiplier.However, make sure you ensure the values are accurate to get the correct property valuation. You also need to check the building's pro forma to determine the property's average gross rental income. Then use this formula to evaluate the property:Annual income x gross rent multiplier = property valuationSales Comparison Approach
Investors that prefer buying single-family homes and other residential real estate prefer the sales comparison approach. This valuation method uses comparable properties' sale prices to determine the property's value.A single-family home appraiser has lots of comparables to select from compared to commercial appraisers. A commercial appraiser might need to look outside the location's current market to find a comparable property. However, the valuation might be less reliable.
Timing Offer SubmissionAs an investor seeking to learn how to buy a multifamily property, quickly submitting an offer might be the difference between losing the deal or securing it. Suppose you wish to inspect different homes, your broker might contact the listing real estate agents for properties on your purchase shortlist to get an idea of how many offers they have. The following is the process for submitting formal offers for your property of choice.
House Offer Letter
Consider writing a persuasive house offer letter - a personal, short letter that shows your appreciation of the home and willingness to buy it.Don't forget that a house offer letter isn't suggested for every seller so you'll need to decide if a personal appeal is suitable.
When evaluating a written offer, the seller will first look at the offered purchase price before anything else. Thus, you'll need to state your starting price accurately to prevent the seller from discarding your offer immediately. However, you'll need to consider some factors before setting a competitive starting price such as does the property require many repairs and renovations? Is the building adequately valued compared to similar ones in the local market? Then consider what you can easily afford to pay for it without jeopardizing your financial security. More so, it'd be best to check that the property is close to major schools, local entertainment hubs, companies, and shopping centers. We advise that you do your due diligence before buying a multifamily property and work with a realtor with excellent knowledge of the local market.
After submitting your offer, the property seller will either counter, decline, or accept your offer. If they decline, the seller might come with an alternative proposal, but if accepted, you'll be invited to sign the purchase agreement. This agreement explains the framework in the initial written offer, pushing both parties to the contingency period. As a legally binding document, the purchase agreement must include the agreed-upon price, earnest money deposit (escrow money), breakdown of closing costs, and the property's full legal address. During this contingency period, both parties will conduct home inspections and appraisals, set contingencies on the property sale, inform each other of any disclosures, and continue further negotiations. If the negotiation fails, the whole process will be repeated.Most investors don't want to go through all this stress of buying a multi-family property due to the time and money involved and prefer buying multi-family homes by crowdfunding with Holdfolio. Through crowdfunding, investors are able to combine their capital and get access to higher-value deals with greater returns that they wouldn’t otherwise be eligible for.Heard enough and ready to invest? Get started with Holdfolio now.
Multifamily Real Estate Financing Options (Mortgages & Loans)Besides asking how to buy a multifamily property, you need to also enquire about its financing. As a commercial real estate investor, you can access many financing options to start your investment journey.
This type of real estate financing is ideal for those who invest in single-family properties and residential buildings. Conventional mortgages are also perfect for house hackers and multifamily investors.Freddie Mac and Fannie Mae have rules to qualify for these loans. Once you meet stipulated conditions, you're on your way to getting the mortgage from Fannie Mae and Freddie Mac. The main requirements of conventional multifamily financing are a 25 percent down payment for fourplexes (four units) and buildings with more units. Fannie Mae and Freddie Mac set their minimum multifamily lending credit score at 620. At the same time, the debt to income ratio is 50 percent.
Hard Money Loan
Also called short-term bridge mortgages and considered loans of last resort, hard money loans are issued mainly by companies or individuals, rather than banks, because of the loan's potentially risky nature.A hard money lender focuses on the collateral property's value rather than the borrower's creditworthiness. This mortgage is suitable for short-term financing, turnaround situations, and borrowers with substantial equity but poor credit. Keep in mind that the interest rates for hard money loans tend to be higher than other types. In 2020, the average hard money mortgage interest rate was 11.25 percent, with rates from 7.5 to 15 percent across the country.
HUD Multifamily Financing
This loan type is insured by the US government and always comes with favorable terms. However, they're exclusively designed for multifamily investors and developers. To qualify for a HUD mortgage when investing in multi-family properties, you'll need to go through an annual operating audit, show that you've got a strong financial standing, and demonstrate your experience in multifamily investing. Lastly, the minimum refinancing or purchasing loan amount is $1 million.
FHA Multifamily Loan
FHA-approved mortgage lenders issue federal housing administration FHA loans. This mortgage is primarily for low-income Americans. However, you can qualify for this loan for properties with two to four units. Nonetheless, these mortgages often require a small down payment and have lower closing costs. FHA multifamily mortgage loan requirements include 3.5 percent down, and you must live in one of the units for at least one year. Furthermore, before buying a multifamily property of two units, you must have a 580 credit score and at least 620 credit score for a multifamily house of four units. The interest rates are also low.
Investing Your 401K
Most people think it isn't easy to invest with their 401k, but that's not true. You can take out a loan against your 401k if you decide to invest in real estate with it. Most plans allow you to take a loan out of your 401k. However, make sure you ask your plan administrator before taking that step. You may be allowed to borrow half of your 401k, up to $50,000. Nevertheless, it'll have to be structured as a non-recourse loan, a loan type secured by collateral, which will be the rental property under purchase. Another option is to move the funds to your self-directed IRA from your 401k before buying multifamily real estate and earning more income. However, it’s best to check with your administrator to be sure you can transfer the funds into a self-directed IRA and what the necessary paperwork involved is, if possible.
How To Buy A Multifamily Property With No Money DownBesides more information on how to buy a multifamily property for sale, most new investors worry about finance. If you've been wondering how to buy a multifamily property with no money down, we have the answer, and it includes the following options:
We recommend finding an equity share investor once you find a great multifamily investment deal. An equity share investor is a real estate investor that'll agree to provide funds for the real estate property purchase in exchange for owning a percentage of the building's equity.For instance, if the equity share investor provides $150,000 for the property purchase, you may agree to give them 30 to 40 percent of the multifamily real estate investment equity. The equity share investor will be entitled to a specified monthly cash flow. Furthermore, the financier will also receive the same percentage of the profit when you sell the investment property.
Real Estate Syndication or Raise Private Money
Another way to invest in multifamily real estate is to join a real estate syndication or raise private money. Real estate syndication entails real estate investors coming together to pool funds for real estate investment financing to earn more income. You can enter into a partnership by teaming up with another investor with more financial resources than you to buy multifamily property. On the other hand, you can also crowdfund with Holdfolio. That way, you gain an ROI from the funds invested. Real estate partners can also share the rental property management responsibility depending on the agreement between them. In contrast, Holdfolio investors aren't tasked with this responsibility.
Hard Money Lenders
Although most real estate investors get financing from hard money lenders as a last resort, hard money lenders don't focus on your credit history, but rather the multifamily property's earning potential. More so, hard money lenders don't usually require a down payment. However, bear in mind that the interest rates are high, and it comes with a shorter amortization period. Therefore, while you might consider it a viable option for buying a multifamily home, keep in mind that the cons far outweigh the pros. Thus, we recommend joining a crowdfunding company like Holdfolio if you want to start your multifamily investing journey but don’t have sufficient funds.
Registering Your Property After The SaleIt's not enough to be worried only about how to buy a multifamily property, you also need to consider the entire process, from submitting an offer, getting finance from a lender to registering your property after the sale. Besides the deed and title, you'll have to pay the property registration fee at your property location. The United States doesn't have a unified property registration policy, so the cost for registering properties differs in individual states. For instance, if you're registering your property in Florida, you'll be charged ten percent of the property cost payable within five to ten days of the application. In California, it's three percent to be paid in three days after applying. While if you're registering your property in New York, it's 10 to 20 percent of the total property cost to be paid within five to 10 days of application. However, you can save yourself all this effort and money by investing through a real estate crowdfunding platform like Holdfolio.
Investing in a multifamily apartment complex of four units or five or more units for the first time is an incredibly exciting venture, however, it also involves lots of work and a foolproof investment strategy. Regardless of the preparation and research, you put into it when starting out, things are likely to go awry. However, one guaranteed way to start multifamily real estate investing with little or no money and enjoy a steady cash flow is through crowdfunding. Do you want to invest in crowdfunded commercial real estate? Consider signing up with the leading crowdfunding real estate investing platform Holdfolio. Holdfolio allows an investor with as little as $20,000 to own a multifamily property and earn monthly returns from the investment. Visit the website today to sign up, choose a property to invest in, and the investment amount and viola! You're on your way to earning a steady, monthly income.
The Benefits of a Property Management Company
A property management company could be a beneficial component to your rental's success. A property management company, otherwise known as a PMC, deals directly with prospects and tenants, saving you time and worry over marketing your rentals, collecting rent, handling maintenance and repair issues, responding to tenant complaints, and even pursuing evictions. This allows you to outsource some of the tasks you don't want to deal with for a small fee. Below are five reasons that will encourage you to look into hiring a property management company for your rentals. 1. Property management companies are full of industry experience.
Hiring a property management company provides many benefits to both new real estate and veteran investors. PMCs give you a support team full of individuals who have many years of experience in the industry and can assist you in making the best decisions for your rental. A majority of property managers are licensed real estate agents, meaning that they have a good understanding of the industry. This allows you to have a group of professionals that know how to price your rentals accordingly. Property managers also have in-depth knowledge of the fair housing laws and local laws that affect both landlords and tenants. These laws are very specific, and without a deep understanding of their complexities, one could easily break them.
2. A PMC is an established point of contact for tenants.
One benefit to having a property management company at hand is the fact that it relieves you of having to constantly keep in contact with your tenants. A PMC can also prevent you from losing money because he or she will work diligently to place new tenants in your property so it doesn't sit idle. An experienced PMS can make life easier for your tenants with someone available at all times, especially if you happen to be busy or out of town. This is very convenient for addressing problems like noise complaints, parking issues, etc. It also is beneficial when tenants need to make maintenance requests for things such as replacing fire alarms or lights. Allowing someone else to handle many day-to-day responsibilities saves you valuable time.
3. Property management companies will handle tenant issues.
One of the biggest benefits of property management is that the property manager will handle tenant screening. Having experience with hundreds of applications, property managers tend to be able to spot the red flags that a potential tenant may possess. This could include not being able to pay rent, or having a history of causing damage to the property over time. Property managers can also save you the trouble of having to evict people who can't pay rent on time, and ensure that the process of paying rent is simple. Additionally, a PMC can handle any lawyer fees that may be associated with evictions, and damages made to the property.
4. A PMC can market your rental for you.
Another upside to hiring a property management company is that they can take over all of the marketing responsibilities. A PMC will typically develop a marketing strategy for each property that is dedicated to targeting your market segment to get the best results possible, from messaging to the platforms your audience is active on. These professionals have a deep understanding of needing to fill your property with great tenants so that you can turn over the property quickly. A valuable tenant could mean the difference between having to replace carpets or simply having them cleaned.
5. Working with a property management company saves you money on maintenance & repairs.
A property management team saves you time. You won’t have to go to the property to fix every problem that may come up such as clogged toilets, broken appliances, and dealing with locked out tenants. The team will handle problems as soon as possible, which will keep tenants happy. It is also a great way to save money because an experienced management team is better equipped to find a cost-effective solution to a common problem.Hiring a PMC is a simple way to save time managing your property. With a PMC, experienced professionals deal with time-consuming tasks, at a relatively low cost, allowing you to scale your rental properties and increase your cash flow.
One of the biggest questions real estate investors have (or at least should have), is how many finishing touches and add ons they should give a remodel. There are many factors which play into this. Some standard finishes will differ based on your particular market. Others should be different based on what the tradition and market history is locally, and the price point of your property and surrounding properties. All of these factors can be make or break when you are trying to turn a profit on your properties. The Danger of Over-Improving PropertyOne of the biggest dangers of investing in real estate is over-improving your investment properties. It is the number one pitfall for first time investors. First timers often sink way too much money to over improve a rental property, and often times, they never get any return on the investment. Unfortunately, many investors just don’t know what really adds tangible value to their properties. Being smart and sensible with your value adds can be major when it comes to turning a profit. When it comes to buy and hold rental properties, it should be attractive to your level of prospective renters. Keep in mind the type of perspective tenant you are looking to attract, and what kind of amenities they need and do not need. Listen to what the market is telling you. But many times landlords must remember that tenants are going to put some wear and tear on the property, and chances are a lot of updates are going to have to be done every time you turn tenants. It could be in 6 months, or 24 months. You just don’t know. So, instead of going all out, especially on items which are easily dirtied or worn, go for slightly more affordable options, and more durable finishes. For example; carpet which can be cleaned, instead of tile which may need to be completely replaced if it is cracked. Or stainless steel sinks, versus custom materials which can stain.This approach applies to flips as well. You’ve got to know what really adds value, and not do any more than that. You’ve also got to know your buyers. Will they be renting the place out? Then stick to the above principles. In most cases, end buyers are going to have different tastes to you. That means no matter how nice you make it, they are likely to redo a lot of your work. Why put in unique, over the top finishes, if they are going to be pulled out and thrown on the curb a week after closing? They also aren’t going to pay you more, just because you think the design is nicer. Many tenants have a set range for the rent they are wiling to pay, and special add ons do not always help move that needle. Just because you spent a few dollars more per square foot on counter tops and flooring, doesn’t mean you’ll get an extra dollar on the sales price.What’s Your MVP?What investors need to know is what their MVP is. That is the Minimum Viable Product. That doesn’t mean be cheap. Do it right, make it look nice, but don’t throw away money. Otherwise you may have to sell at a loss, may not be able to sell at all, or are going to be making a lot less than you thought. You need floors, a roof, countertops, cabinets, bathroom fixtures, and freshly painted walls, but you don’t have to try and win any design awards. Basic countertops will work in most rentals. If you are doing a luxury renovation, you might get away with poured concrete or granite, instead of quartz. You can let the next buyer or renter get their own fridge, or stage it with a basic model, versus spending thousands on a smart fridge which may not be the right model your buyer wants.Know what the minimum standard expected by local buyers and renters is. You can go a little bit above that if you want to move it faster, if you can get a good deal on the materials. But don’t overdo it.There is a lot of confusion around what standard rentals and house flips should be finished too. It is also an area which can make or break investors fast. Know your values, and consult an actual appraiser, not just a Realtor to find out. Then set your own standard minimums based on your area, while looking out for deals on slightly higher quality, but neutral materials.
Turning around rental units for new tenants is a pivotal part of being a successful and profitable landlord. If you are too slow, and don’t maximize the opportunities, it can ruin your business and crush your returns. On the other hand, it can be a chance to write a great new lease, and increase your tenant quality and income.Creating that new look and feel can really make a big difference in the number of prospective tenants you get to choose from, how fast it will be occupied, and what renters are willing to pay. Below are some tips for making those units look new every time you turn them.LandscapingFor an immediate and powerful impression you need to ace this right at the curb appeal. Trim and clean up, put down new stones or fresh mulch, and plant plants and flowers that really look vibrant and alive. While this fix may be a bit of a labor intensive job, it is a relatively cheap improvement you can make to your rental property. New MailboxesRenters and home buyers can instantly spot the difference between an old neglected unit, and one which was just rehabbed by the mailbox. This won’t cost you much, and won’t take more than a few minutes to install, but it will make a big difference in sending the right message to prospective tenants. Front Door HardwareNew kick plates, door knockers, and locks make a great impression. Obviously, when tenant are searching for a new place to live, one of the first things they take into mind is safety. Replacing or improving front door hardware can make them feel safe and sense the pride in living there, and has some of the best ROI on anything you can do.PaintGet in and freshen up the paint. It is an easy solution that many landlords tend to get lazy about or easily overlook. Touch up walls, go over it with current trending color schemes, and you’ll be surprised at how much difference just a couple cans of paint can make. Tenants love to walk into a rental and smell fresh paint. It makes a great first impression and can go a long way when it comes to scoring the perfect tenant. Deep CleaningDo the hard work! Don’t skimp on the cleaning. Get the dust off of ceiling fans and vents, wash the windows, deep clean the carpet, and maybe even refinish other flooring. Make it smell great.Touch Up CabinetsTouch up or repaint kitchen and bathroom cabinets to make them look new. Make sure hinges and knobs are all working smoothly. Consider new hardware to update the look every few years. A kitchen is one of the most important parts to anyone's home, and your perspective tenants want to be proud to show off a clean kitchen with fresh looking cabinets. New Window CoveringsBlinds and curtains can get dingy, dusty, and damaged fast. Some tenant may take your window coverings down to add ones of their choice, and that is fine. While you may get away with nothing at all, you might also score extra points for new blinds too. Feel free to leave the tags on so they know they are new. Take the time to add this value to your rental. AppliancesNothing dates a rental like old appliances. Even if you won’t be including appliances in the lease, you can use new ones to stage the home or apartment for showings and photos. This could be new kitchen appliances, washer and dryer, big screen 3D TVs, and more.
Rent to own deals appear to be becoming more popular again. What are the real pros and cons for investment property owners?As home prices keep growing, and rent remain high, but mortgage lenders keep underwriting tight, renting to own, lease options, and seller held mortgages all appear to be getting more common again. They are highly desired by tenant-buyers, and can be highly profitable for real estate investors. What should you consider before making the leap?The Pros of Offering Rent to Own DealsThere are a variety of benefits of this strategy, including the following.Easy Exit in Tough MarketsOffering a rent to own option can provide landlords an easy exit, even in tough or declining housing markets. Just make sure it is priced in a way that is appealing and the right prospects can afford.Higher Sales PricesRent to own tenants are mostly concerned about move-in costs and monthly payments. They care little about the actual sales price. This can help you get far more for your property.Passive IncomeCreating a seller financed mortgage note can deliver passive income with a lot less headaches. You no longer need to worry about tenants, maintenance, and all the time and risk involved. You just get monthly payments. The note created is also a new asset which can be sold and cashed in on whenever you like.Providing a Valuable ServiceThere is a huge need for this service. Millennials and families are having a tough time in the rental market. They will find many benefits in homeownership. They may have good credit and incomes, but just fail to qualify for a conventional bank loan due to paperwork quirks. Give them a chance.The Cons of Offering Rent to Own DealsThere are some potential downsides to these arrangements to. Make sure you know them.DefaultsIt may be a little more expensive and time consuming to fix a default situation under these deals than with just a straight tenant.Locked InYou’ll be bound by your agreement for a while. This could be 6 to 24 months or more. You will have to stick it out, even if the market changes.Less Cash NowYou’ll be getting less cash now than in a traditional sale. However, you’ll probably get a lot more over time.LegalitySeller financing is still a bit of a cloudy space due to Dodd-Frank and other regulations. It is legal. Just consult an attorney so that you structure it right, with the right paperwork, and stay protected.There are both pros and cons to providing rent to own deals as a property owner. Do the math. Remember your big goals. Is it worth it to you?
THE PURCHASE OF LLC INTERESTS IS SPECULATIVE AND INVOLVES SIGNIFICANT RISK, INCLUDING THE RISK THAT YOU COULD LOSE YOUR ENTIRE INVESTMENT. THE PURCHASE OF LLC INTERESTS IS SUITABLE ONLY FOR INVESTORS WHO FULLY UNDERSTAND AND ARE CAPABLE OF BEARING THE RISKS. SOME OF THE RISKS ARE DESCRIBED BELOW. THE ORDER IN WHICH THESE RISKS ARE DISCUSSED IS NOT INTENDED TO SUGGEST THAT SOME RISKS ARE MORE IMPORTANT THAN OTHERS.
SPECULATIVE NATURE OF REAL ESTATE INVESTING:
Real estate can be risky and unpredictable. For example, many experienced, informed people lost money when the real estate market declined in 2007- 2008. Time has shown that the real estate market goes down without warning, sometimes resulting in significant losses. Some of the risks of investing in real estate include changing laws, including environmental laws; floods, fires, and other acts of God, some of which may not be insurable; changes in national or local economic conditions; changes in government policies, including changes in interest rates established by the Federal Reserve; and international crises. You should invest in real estate in general, and in the Company in particular, only if you can afford to lose your investment and are willing to live with the ups and downs of the real estate industry.
NO GUARANTY OF DISTRIBUTIONS:
When you buy a certificate of deposit from a bank, the Federal government (through the FDIC) guarantees you will get your money back. Buying an LLC Interest from the Company is not like that at all. The ability of the Company to make the distributions you expect, and ultimately to give you your money back, depends on a number of factors, including some beyond the control of the Company. Nobody guarantees that you will receive distributions.
INABILITY TO ATTRACT AND/OR RETAIN TENANTS:
Our success depends on our ability to attract and retain tenants in our Rental Properties. The risks we face include the following:
Competition from other landlords could keep us from raising rents.
Changes in economic conditions generally, or in the Indianapolis, IN and Dayton, OH areas in particular.
Existing tenants might not renew their leases.
Our Rental Properties could remain vacant for extended periods.
A tenant could default on its obligations, or go bankrupt.
Certain of our properties may be specifically suited to the needs of a certain type of tenant and we may have difficulty leasing such properties in the event of a vacancy.
Any of these circumstances would hurt the Company financially. If a vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash available to be distributed to shareholders. In addition, the resale value of a property with vacancies could be decreased because the value of a property may depend on the value of the leases of such property.
NEED TO RENOVATE PROPERTIES:
We might need to renovate our Rental Properties to make them competitive in the market. The more we have to spend to renovate our Rental Properties (assuming we can find the capital to do so), the lower the returns to our investors.
PROPERTY VALUES COULD DECREASE:
The value of the Rental Properties we own could decline, perhaps significantly. Factors that could cause the value of our Properties to decline include, but are not limited to:
Changes in interest rates
Competition from new construction
Changes in national or local economic conditions
Changes in zoning
Environmental contamination or liabilities
Changes in local market conditions
Fires, floods, and other casualties
Undisclosed defects in property
Incomplete or inaccurate due diligence
ILLIQUIDITY OF REAL ESTATE:
The Company might not be able to sell Rental Properties as quickly as or on the terms that it would like. For one thing, we cannot predict how long it will take to find a willing and able buyer. For another thing, we might be required to expend significant amounts of money to correct defects or make improvements before a property can be sold. The overall economic conditions that might cause the Company to want to sell Rental Properties are generally the same as those in which it would be most difficult to sell.
The costs of operating real estate – including taxes, insurance, utilities, and maintenance – tend to move up over time. We have limited control over some of our operating costs, and if our costs increase it may reduce the amount available for distribution to investors.
REGULATION AND ZONING:
Like all real estate, our Rental Properties are subject to extensive building and zoning ordinances and codes, which can change at any time. Changes in these laws and regulations could affect the Company adversely.
A fire, hurricane, mold infestation, or other casualty could materially and adversely affect the operation of the Company, even if the Company carries adequate insurance.
The Company will maintain insurance against certain kinds of losses, such as losses from fires. However, there are certain types of losses which either cannot be insured at all or cannot be insured for a reasonable cost.
LIMITED WARRANTIES FROM SELLERS:
In most cases, the Company will be required to purchase a property in “as is” condition, with few if any representations or warranties by Seller. If we learn that a property has defects after closing, we may not be able to look to the seller for reimbursement.
LIABILITY FOR PERSONAL INJURY:
As a landlord, we might be sued for injuries that occur in or outside our Properties, e.g., “slip and fall” injuries. Although we expect to carry insurance against potential liability in amounts we believe are adequate, it is possible that we could suffer a liability in excess of our insurance coverage.
We will conduct typical environmental testing on the properties we acquire to determine the existence of significant environmental hazards. However, it is impossible to be certain of all the ways that the properties have been used, raising the possibility that environmental hazards could exist despite our environmental investigations. Under Federal and State laws, moreover, a current or previous owner or operator of real estate may be required to remediate any hazardous conditions without regard to whether the owner knew about or caused the contamination. Similarly, the owner of real estate may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination. The cost of investigating and remediating environmental contamination can be substantial, even catastrophic.
The Americans with Disabilities Act of 1990 (the “ADA”) requires certain buildings to meet certain standards for accessibility by disabled persons, and we may be required to comply with its terms. If our Rental Properties are not compliant with all requirements of the ADA or if additional requirements are imposed in the future, whether pursuant to the ADA or otherwise, we would need to make modifications to those Properties, potentially at significant expense.
THE COMPANY IS A NEW BUSINESS WITH A LIMITED TRACK RECORD:
The Company is a new business with a limited track record, making it difficult for Investors to gauge our investment strategy. Like any new business, we face challenges on a number of fronts, including:
Developing a reputation and brand identity
Attracting, retaining, and motivating qualified executives and personnel
Implementing business systems, including technology systems
Responding effectively to the offerings of existing and future competitors
Managing growth and expansion
Implementing adequate accounting and financial systems and controls
There is no assurance that we will be successful on all (or any) of these fronts.
INCOMPLETE DUE DILIGENCE:
We intend to perform “due diligence” on each Rental Property we buy, meaning we will seek out and review information about the property. However, due diligence is as much an art as a science. As a practical matter, it is simply impossible to review all of the information about a given piece of real estate and there is no assurance that all of the information we will review will be accurate or complete in all respects. For example, sometimes important information is hidden or simply unavailable, or a third party might have an incentive to conceal information or provide inaccurate information, and we cannot verify all the information we receive independently. It is also possible that we will reach inaccurate conclusions about the information we review.
LACK OF DIVERSIFICATION:
We will own a limited number of Rental Properties in a select market and in a concentrated geographic location, or to put it another way, our portfolio of real estate will not be “diversified.” The diversification of a portfolio reduces both volatility and risk, which means that our portfolio is likely to be more volatile and more risky than if we had purchased a greater number of properties, purchased properties in geographic locations outside of Indianapolis, IN and Dayton, OH, or invested in properties outside of residential market (e.g.,commercial properties).
UNRELIABLE FINANCIAL PROJECTIONS:
We have prepared financial projections reflecting what we believe are reasonable assumptions concerning the conduct of our business. However, the nature of real estate development and investment is such that at least some of our assumptions are likely to be mistaken, either for better or for worse, so that the actual results of investing in the Rental Properties are likely to be different than the results reflected in the projections, possibly by a wide amount. Investors should be skeptical of financial projections in the real estate industry, not because developers intend to be misleading but because the industry is so volatile and difficult to predict.
PRICING OF ASSETS:
The success of the Company and its ability to make distributions to Investors depends on its ability to gauge the value of real estate assets. Although the Manager will rely on various objective criteria to select properties for investment, ultimately the value of these assets is as much an art as a science, and there is no guaranty that the Company and its advisors will be successful.
RISKS ASSOCIATED WITH DEVELOPMENT AND CONSTRUCTION:
We might renovate or repair our Rental Properties from time to time, as needed and if consistent with our overall investment strategy. Development and construction can be time-consuming and are fraught with risk, including the risk that projects will be delayed or cost more than budgeted.
RELIANCE ON MANAGEMENT
: You will not have a right to vote or otherwise participate in managing the Company, except on very limited matters. Instead, the Manager, along with its affiliate Sonder Homes (our property manager), will have full control over the business and management of the Company. As a result, the success of the Company – and its ability to make payments with respect to your LLC Interests – will depend almost exclusively on the skills of our Manager and its principals. Therefore, you should purchase an LLC Interest only if you are willing to rely on the ability and judgment of management and these third-party operators. If the principals of our Manager resign, die, or become ill, the Company and its Investors could suffer.
RISKS ASSOCIATED WITH LEVERAGE:
The Company may borrow money from banks or other lenders to refinance Rental Properties, purchase assets, or to finance development costs or other expenses. Borrowing money to purchase assets is sometimes referred to as “leverage.” While using leverage can increase the total return on the borrower’s equity, it also increases risk because the amount borrowed has to be repaid in accordance with a schedule. To repay its loans, the Company might have to sell assets at a time when values are low, for example.
BREACHES OF SECURITY: It is possible that our systems would be “hacked,” leading to the theft or disclosure of confidential information you have provided to us. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our vendors may be unable to anticipate these techniques or to implement adequate preventive measures.
NO MARKET FOR THE LLC INTERESTS; LIMITS ON TRANSFERABILITY:
There are at least three obstacles to selling or otherwise transferring your LLC Interest:
There will be no public market for your LLC Interest, meaning you could have a hard time finding a buyer.
The Operating Agreement prohibits you from transferring your LLC Interest without the consent of the Manager.
By law, you may not sell your LLC Interest unless it is registered under applicable securities laws or the transfer is eligible for an exemption from registration.
Taking all that into account, you should plan to own your LLC Interest indefinitely.
NEED FOR ADDITIONAL CAPITAL:
The Company might need more capital, whether to renovate one or more Rental Properties, to acquire additional properties, to carry the Company through periods when our rental income is insufficient to cover our operating expenses, to pay for uninsured losses, or otherwise. We might seek to raise additional capital through debt (borrowing money) or through equity (selling interests in the Company) or both. However, there is no assurance that additional capital will be available at the time it is needed, and if the Company needs but cannot obtain additional capital it is possible that the Company could fail. Even if additional capital is available, it could be on terms that are adverse to the interests of the Investors. A loan, for example, could bear a high interest rate or other onerous terms, while raising additional capital in the form of equity could dilute the interests of the Investors.
SUBORDINATION TO RIGHTS OF LENDERS:
The right of Investors to receive distributions from the Company is subordinate to the rights of the Company’s lender(s). In the event the Company were to default in its obligations to the lender(s), the Company might be prohibited from making further distributions to the Investors until the default had been cured.
LACK OF CASH TO PAY TAX LIABILITY:
The Company will be treated as a partnership for tax purposes. Consequently, your share of the taxable income from the Company (if any) will be reported on your personal income tax return. We will try to distribute enough money for you to pay your personal tax liability on your share of the income, but we might not have enough money to do so. In that case, you could have a net cash deficit from owning an LLC Interest.
NO REGISTRATION UNDER SECURITIES LAWS:
The Company and the LLC Interests will not be registered with the Securities and Exchange Commission (“SEC”) or the securities regulator of any State. Hence, neither the Company nor your LLC Interest is subject to the same degree of regulation, scrutiny and disclosure as if this offering were registered.
INCOMPLETE OFFERING INFORMATION:
The LLC Interests are being offered pursuant to Rule 506(b) issued by the SEC. Rule 506 does not require us to provide you with all the information that would be required in some other kinds of securities offerings, such as a public offering of shares. Although we have tried to provide all the information we believe is necessary for you to make an informed decision and we are ready to answer any questions you might have, it is possible that you would make a different decision if you had more information.
LACK OF ONGOING INFORMATION:
The Company will provide you with periodic statements concerning the Company, but it will not provide audited financial statements or other detailed information that you might receive in a securities offering registered with the SEC.
CONFLICTS OF INTEREST:
Your interests as an Investor could conflict with our interests in a number of important ways, including these:
Your interests might be better served if our management devoted its full attention to the Company. Instead, the principals of our Manager will be managing a number of different projects concurrently with the Company.
The principals of our Manager are also the principals of Sonder Homes, our property manager, which will receive fees from the Company. Although we will always seek to establish terms that are fair to the Company, the terms of any compensation or other agreements with Sonder Homes were negotiated between related parties, and therefore may not be as favorable to us as if they had been negotiated at arm’s length.
The principals of our Manager may be involved from time to time in other real estate ventures outside of the Company, and may be involved in purchasing and managing residential real estate projects in the vicinity of the Company. Therefore, they may be competing directly with the Company.
The lawyers who prepared this Confidential Investor Disclosure Document, the Operating Agreement, the Purchase and Investment Agreement, and the other documents related to your investment in the Company represent JB Holding Company LLC – our Manager – not Investors or even the Company. You must hire your own lawyer (at your own cost) if you want your interests to be separately represented.
DETERMINATION OF FEES:
The Manager and its affiliates may receive significant fees and distributions from the Company. Although we believe that the fees are consistent with the types and amounts of fees for other real estate development funds, the fees were not determined through arm’s-length negotiations with the Investors, but were established by our Manager.
LIMITATION ON RIGHTS UNDER OPERATING AGREEMENT:
The Operating Agreement limits your rights in several important respects, including these:
With a few exceptions, the Operating Agreement may be amended without your consent.
The Operating Agreement significantly curtails the right of Investors to bring legal claims against the Manager and its principals. Among other things, the Operating Agreement eliminates (to the extent allowed by law) the fiduciary obligations that the Manager would otherwise have to the Members.
The Operating Agreement limits your right to obtain information about the Company and to inspect its books and records.
The Operating Agreement restricts your right to sell or otherwise transfer your LLC Interest.
LIMITATIONS ON RIGHTS ON INVESTMENT AGREEMENT:
To purchase an LLC Interest, you are required to sign our Investment Agreement. The Investment Agreement would limit your rights in several important ways if you believe you have claims against us arising from the purchase of your LLC Interest:
In general, any legal claims brought against the Company or its principals must be brought in State or Federal Court in Indiana, which might not be convenient for you.
You would not be entitled to a jury trial on your claims.
THE FOREGOING ARE NOT NECESSARILY THE ONLY RISKS OF INVESTING.
PLEASE CONSULT WITH YOUR PROFESSIONAL ADVISORS.
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