The problem with investing is, it’s really easy to look back in time and see the best path, but it’s not so easy looking forward in time. Being able to assess your current financial situation, reflect on your investing goals, and commit to a plan of action are all easier said than done.
I can’t pretend that I have a crystal ball for you to show you the future and what’s best for you to invest in at the moment. But, what I can do, is show you the past performance of three multifamily real estate syndications (group investments) that we and our investors have invested in, how much they’ve returned to investors, and the impact that they’ve had on their respective communities.
Let’s take a look at three multifamily real estate syndication projects, all based on actual projects in our portfolio, and how their performance to date. Please note that all data and identifying information below is based on actual projects but has been changed to protect the privacy of the deals, our partners, and our investors.
Case Study #1 – 320-Unit Apartment Community
In May of 2016, our partners/advisors acquired a 320-unit apartment community for $26.6 million. This class B apartment community was built in 1983 and is in a rapidly growing submarket of Dallas-Fort Worth. The previous owner had inherited the property from their father, no longer wanted to manage it, and was looking to cash out.
The business plan for this real estate syndication was to improve on-site operations by bringing in professional property management and to renovate each unit to the standard of other apartments in the surrounding area.
Upon acquisition, the team immediately put into place a professional property management team, which was able to maximize operational efficiencies and oversee and execute on all phases of the value-add business plan.
The renovations were completed within 18 months. The market was quite favorable at the time, so the team decided to sell the property. After just 22 months, they were able to sell the property for $35.2 million and exit the real estate syndication with a profit of $8.6 million in less than 2 years.
What did this look like for investors? Let’s take a look.
If you had invested $100,000 in this real estate syndication, you would have ended up with $170,000 in 22 months. That means you would have made a profit of $70,000 in less than 2 years, while having to do zero work.
A Behind-the-Scenes Look At 3 Multifamily Real Estate SyndicationsA Behind-the-Scenes Look At 3 Multifamily Real Estate Syndications
Case Study #2 – 216-Unit Apartment Community
In October of 2016, our partners acquired another apartment community in the Dallas-Fort Worth area. This complex was a bit smaller, at 216 units, and was built around the same time, in 1981. Similar to the last example, this apartment community was a class B asset in a growing submarket.
One key difference, however, was that this property was acquired off-market (i.e., it wasn’t publicly listed). Because of the relationship our partners had established with the broker based on their previous transactions and track record, they were able to acquire this property without having to compete with other potential buyers, meaning that they were able to get it at an excellent price.
This property was purchased for $12.2 million. The team worked hard to rebrand and reposition this property, investing several thousand dollars per unit to renovate the property.
The hard work paid off.
In just 18 months, they were able to sell the property for $18.25 million and exit the real estate syndication with a profit of over $6 million in just a year and a half.
If you had invested $100,000 in this syndication, you would have ended up with $200,000 just 18 months later.
In other words, you would have doubled your money in a year and a half.
A Behind-the-Scenes Look At 3 Multifamily Real Estate SyndicationsA Behind-the-Scenes Look At 3 Multifamily Real Estate Syndications
Case Study #3 – 200-Unit Apartment Community
Let’s take a look at one more example. This one is a current project. It was acquired in December of 2016. Similar to our other examples, this 200-unit apartment community is a class B asset in a growing submarket of the Dallas-Fort Worth area. The property was originally built in 1981 and was purchased for $16 million through an off-market deal.
Because this one is a current real estate syndication project, let’s do a deeper dive into its progress in the months and years since it was originally acquired.
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May 2017 (6 months after purchase)
In the six months since acquisition, 38 units have already been renovated, and new rent premiums are $20 above what was originally projected. This means that the property is already doing better than expected, just six months in.
Sidebar: Okay, I know that $20 above original projections doesn’t sound super exciting, but you have to think about the scale of this thing. $20 across the 38 renovated units means an additional income of $760 per month, or $9,120 per year. At a conservative cap rate of 10%, this adds an additional $91,200 of equity to the overall value of the property. All from a measly twenty bucks.
Other projects that have been completed within the first six months include the installation of an outdoor kitchen, the addition of a new dog park, rebranding with new signage, and the construction of over forty carports.
Phew! That’s quite a bit of work in just six months.
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December 2017
Renovations have continued to go well during the second half of the year, and the new units continue to achieve rental premiums above the original projections. Because of this, investors in this real estate syndication will receive an additional 2% in returns this month.
Sidebar: The normal distribution to date has been 0.67% per month. In other words, for an investment of $100,000, you would have been getting $667 per month. With the extra 2%, your payout for December 2017 will be $2,667.
Always nice to get a little extra bonus to cover all that holiday shopping, don’t you think?
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February 2018
We are consistently and significantly outperforming our projections. In fact, within the first year, we’ve created a 26.4% surplus. Thus, we will be refinancing at the end of the month and will be returning 40% of investor capital while still projecting the same cash-on-cash returns based on the original equity invested.
Sidebar: Okay, let’s dissect that golden nugget right there. What that update is saying is that the property is performing so well that the team has decided to seek a refinance to pull out some of the original money invested in the project.
This means that, if you had originally put in $100,000, you would be receiving a check for $40,000, returning a portion of your original investment.
However, you will continue receiving monthly cash flow distributions as if the entire $100,000 were still invested.
Let me repeat that. You get $40,000 of your original money back, free and clear. But you’re still getting cash flow as if all $100,000 were still invested in the project.
This is HUGE. This means you can then take that $40,000 and invest it elsewhere, essentially “double dipping” your money.
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August 2018
A total of 135 of the 200 units have been renovated thus far. Renovated units are renting for $80 above original projections. (Quick math: Each unit renting for $80 per month above projections adds an additional $9,600 per month to the overall value of the property. Woot woot!)
In addition, we have installed eco-friendly toilets and shower heads in over two-thirds of the property. Each additional unit that gets eco-friendly fixtures helps bring down our overall utility costs.
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Future
The value-add progress continues on this property, and we aim to complete all the renovations within the coming months. At that point, depending on the state of the market, we may sell the property, or we may hold onto it until market conditions are most favorable.
Either way, this real estate syndication project has been a huge success thus far. Both investors and residents are very happy with all the progress made to date.
A Behind-the-Scenes Look At 3 Multifamily Real Estate SyndicationsA Behind-the-Scenes Look At 3 Multifamily Real Estate Syndications
Conclusion
In our experience, the number one thing that holds our potential investors back is lack of education. These real estate syndications sound great in theory, and you see people around you making great returns, but investing your own $50,000? C'mon!
That can be a huge step, and it often requires a lot of time and energy up front to really learn what real estate syndications are all about, how they work, and what to expect throughout the process so that you can invest your hard-earned money confidently.
The case studies in this post are all real projects that we or our partners have been a part of. None of the returns or the performance of the projects have been fabricated. Everything is 100% real and true.
These real estate syndications originated in 2016, just a few years ago. Think about yourself a few years from now.
What can you do today to set Future You up for success?
Investing time in your education is one of the best ways to jump start the process, so you can ensure that two, five, ten years from now, you will be quite satisfied with all the chances you took, the returns you’ll have made, and the impact your investments will have had on the world.
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Andrew Schutsky, Founder, Redline Equity
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