In the world of real estate syndications, there are many types of deals that appeal to many types investors. Are you in it for the appreciation, cash flow, tax benefits? These are questions you need to ask yourself before committing to a long term deal for the next 5-10 years. Let's dive into each of these to help answer this question.
Appreciation investors are looking for the long term return on their money. The cashflow might be low to none as the building stabilization is in progress. As units are renovated, expenses lowered, and vacancies reduced, the value of the building is going to shoot up drastically. Are you ok with waiting for a return on your money until the building can be refinanced or sold? Or are you looking for day one cash flow?
Cash flow investors are looking for day one cash flow. Meaning if nothing else is done to the building to improve it, they are getting cash distributions each month. These types of buildings are usually going to be your B class and up assets. They are in good condition, but a few updates and better management could get it running smoother. Though, there are C class assets that do cash flow day one, but those are in the minority depending on the markets you are looking at.
Finally, perhaps you are already invested in some single family homes, but want to move up to apartment buildings. You can avoid paying capital gains tax on those by doing something called a 1031 exchange. This tool lets you defer capital gains as long as you are putting the money into a similar or larger asset. So, if you are wanting to scale up your current single family portfolio for a more stable asset like apartment buildings this tool will let you keep more of your money, and get into that apartment building you've been eyeing!
So, what type of investor are you? Hopefully, these topics have helped you answer that question. If not, feel free to reach out and we can discuss in more depth!
ravanteb@babbittinvestments.com
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