#133: 7 Streams of Income from Multi-family Apartments

Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast. 

So, hey, guys, welcome back. Welcome back to Accelerated Investor, whether you’re catching this inside of our private Facebook group or live on our podcast, what’s going on, guys? It’s Josh. And in this training, I want to make sure that we kind of teach you guys a little bit more about the benefits of multifamily investing and apartment investing. And the seven benefits that go into this when you’re investing in multifamily. Those seven benefits are really big. And so let me jump into those right now.

If you’re a passive investor in multifamily or even an active investor of multifamily apartments, there’s really seven key benefits to owning those and owning them long term. We’ll talk about funding equals freedom. And I believe in owning assets. Assets create cash flow. And in owning assets, it gives you these opportunities to have these six different income streams and benefits. So the first one is, if you’re a passive investor, is a fixed preferred return. So let’s say you put in one hundred thousand dollars to invest in a deal and the operator, the active investor, is going to pay the passive investor, let’s say, at eight or 10 or 12 percent fixed preferred return.

The second benefit is equity ownership. So in a lot of my multifamily apartment deals, I’m actually paying my private lender, I’m giving them a piece of equity in the deal. Especially if we’re buying a large apartment. Each apartment is owned by its own separate LLC. And so they own a small percentage of that LLC forever. We call it infinite income. Number three, that percentage of income that they own. Let’s say they own one percent of the deal or two percent of the deal or half a percent of the deal. Once we stabilize that building and refinance it into permanent financing, that passive investor is going to own, let’s say, again, one percent, two percent, a half percent of the deal, which means they’re going a one or two or a half percent of the cash flow in perpetuity.

So even when we stabilize it, the building is now stabilized. Let’s see, it’s a year from now. We refinance it and pay back all of their equity, all their principal that they put down. The passive investor is now also getting infinite return, even though we returned all their capital. Let’s see, a year from now. The fourth income stream is that again, since they were given half a percent, one percent, two percent, or it could be 10 percent, whatever that number is of equity, they now own a piece of the equity in the deal. Equity is obviously the difference between the property’s value and the loan amount.

So if you’re all into a building for 10 million and you only owe seven million, there’s three million of equity. If they were one percent of that, that’s thirty thousand dollars. If you own a multifamily deal and it’s worth a million and you only owe seven hundred thousand, three hundred thousand dollars of equity and they own percent of that, they own thirty thousand dollars of equity. Even on a small deal. One hundred thousand dollar after repair value. You only owe seventy thousand on it. There’s thirty thousand of equity. Let’s say they own 10 percent of it. It’s three thousand dollars of equity that they can add to their balance sheet. That’s the fourth benefit.

The fifth benefit is appreciation over time, naturally, because of inflation, because of multiple factors. The property is going to appreciate in value. Number six, principal paid out. Over the life of that investment. Let’s say you’re gonna own that investment for five years, 10 years, three years. You’re going to have some principal paid out, not much, but some principal paid out. And then number seven is depreciation. OK. So beautiful thing about real estate is depreciation. I own over twenty-six hundred units of apartments and rental properties and single-family homes. And it’s amazing at the end of the year to actually get your K1, which is, you know, the equivalent of like a ten ninety-nine.

If you’re not familiar, it’s a partnership K1. And to see that you made money, positive cash flow and you had positive cash to spend, but you actually get to write off the depreciation. So you actually show a loss on your tax return. It’s really, really amazing. And so these seven benefits of owning multi-family. Now there’s lots of benefits to owning multi-family, to owning apartments. If you’re a new investor and your goal should be to be a transaction entrepreneur, to be resourceful and to find investors that have cash, that have credit, that have money, that are cash buyers, that you have the balance sheet to buy apartments with balance sheets to buy multifamily, and you become that transaction entrepreneur that gets really good at one thing, which is sourcing deals. Sourcing deals that are off market, direct mail, digital marketing, Facebook ads, door knocking, direct mail, whatever.

I think I already said direct mail. Bandit signs. Instant text messaging, direct to voicemail messages. All these things we can do within our software called Accelerated Investor Office, and you can be a transaction entrepreneur to find deals and then get them under contract and hold sell them to people with balance sheets, with cash, with credit, with equity, with experienced guys like me. That’s the opportunity for both people. And of course, if you’re a wholesaler, make a wholesale fee, quick transaction, entrepreneur fee. And if you are an active investor now, now you’ve got these seven major benefits. If you’re a passive investor in these big multifamily apartment deals, you’ve got these seven major benefits.

So before I wrap up this training, write these down. Again, write them down. Grab a pen and paper right now, number one. Most investors, passive investors, are going to have a fixed preferred return during the stabilization phase. Number two, equity ownership in perpetuity, which means now you get access to everything that happens from that equity, the cash out re-fi proceeds is number two. Number three is the cash flow in perpetuity. Number four is now your equity in perpetuity. Like we discussed. Where you might own a building that’s worth a million and only owe seven hundred thousand because of equity there.

Number five is appreciation. Number six, principle paid out And number seven, depreciation. So if you’re an active investor and you are recruiting private capital private investors for your deal. Now you’ve got to find a way to structure all your deals so that you have that. And if you’re watching this as a video on Zoom or on YouTube or in our membership site, you can see on my screen these seven benefits. Okay, if you’re catching this as a podcast or just the audio need to write those things down so that you have and say, OK, how can I create a situation where I’m buying the asset? Doing the rehab or what we call value add improvements. If you’re in multi-family apartments.

And then get to the point where you can refinance the deal, pay investors back most or all of their equity. So I have an 80 unit apartment building under contract. My partner and acquisitions manager, Tyler, who’s done an amazing job of finding this deal. I’m not going to tell you about. I’ll give you the address because we’re still in the process of closing it. But general idea is we’re buying it for three point eight million. We’re gonna be all into it for about four point one million.

So we’re gonna get a I’m sorry, four point three million. Four point three million. We’re going to get a first mortgage. Not a recourse loan from Fannie Mae, Freddie Mac for three million dollars. So we’re gonna need to raise one point three million dollars of investor equity. I want to go into that raise in the next couple of weeks. And I’ve already got that one point three million will be no problem for me to raise. So I’m not looking for investor equity right now, but that one point three million we’re going to raise. And what we’ll do is something like that. We’ll give preferred return plus equity. They’ll get cash out re-fi proceeds. Cash flow in perpetuity. Equity in perpetuity. Appreciation, depreciation. Principal pay down.

And we’ll be all into that building for about four point three million. And that based on the stabilized numbers with improving the units, swapping out carpet for LVP, adding backsplash, adding better kitchens, better appliances, better management, more amenities, we’ll be able to raise the rents by about 150 bucks. They’re undervalued right now by 150 bucks. That’ll put the value of the building at about six point one million. We’ll refinance it in about 24 months from now.

And based on the cap rate at that time and interest rates. We expect that cap rates will still be low. We’ll expect that interest rates will still be low. We’ll expect there’s a lot of money looking for places to go, so cap rates and interest rates will remain low. We’ll refinance at a value of six point one million and us and our investors will achieve all these seven benefits. So look forward to pulling that deal off. And also creating about a million and a half of equity for our balance sheets between me and my partners, Tyler and Glenn.

It’s going to be a really exciting deal. So I hope you enjoyed this training on the seven benefits, on seven different types of compensation and tax benefits for multifamily and apartments. If you enjoyed it leave me a five-star rating.

If you catch this in iTunes, if you’re inside of one of our membership sites. Leave us comments. Send us questions inside of our private Facebook group. Our Facebook Accelerated Investor official Facebook group, which is for coaching students only. All right. Thank you so much for being here. And we’ll see you on the next episode of Accelerated Investor.

Hey, Josh here. And do you want to win a free Accelerated Investor T-shirt? All you have to do is give Accelerated Investor our podcasta rating and a review on iTunes. OK. Do that now then send us a screenshot on Facebook, Instagram or Twitter. What we’re going to do then is every week we’re gonna pick our favorite rating in review and we’re going to send that person a free T-shirt and maybe again, some other cool fun stuff as well from Accelerated Investor. So, again, don’t forget to take a screenshot, leave a rating review, take a screenshot, send it to us so we know exactly who you are. And then once a week, every week on the podcast, we will announce a new winner. Don’t forget to take a screenshot and send it to us so we know exactly who you are. We’ll announce a new winner every week.

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five-star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

Rental income is only a small part of investing in real estate. There are at least 7 different types of compensation and tax benefits that go along with investing, whether you choose to go with an active or passive investor role.

Investing in a deal will open your finances up to not only lowering your taxes through depreciation, but also help you lock in cash flow in perpetuity. That’s more money in your bank account, and less money paid out to Uncle Sam.

So grab a pen and paper and listen up to this training on how you can diversify and strengthen your income streams.

As an added bonus, I’m going to share a little about my newest multi-family deal, and where we’re at in the purchase agreement.

If you loved this episode, share us with your friends, and leave us a review! We are offering Accelerated Investor t-shirts for anyone who leaves us a rating or review on iTunes. Send us a screenshot of your review, and enter a chance to win a t-shirt.

What’s Inside:

  • How appreciation and depreciation work together in real estate.
  • Why owning real estate is more than about the rental income.
  • How you can benefit from real estate as a passive or active investor.
  • I share about my latest 80 unit multi-family apartment.

Mentioned in this episode​

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