#180: 8 Commandments for Investing in Apartments


Welcome to the Accelerated Investor podcast with Josh Cantwell. If you’re looking to retire early with forever passive income, you’re in the right place. This podcast is the go-to destination for real estate investors, both active and passive. And multifamily apartment investors, both new, intermediate and advanced. Now sit back, listen, learn and accelerate your business, your life and your investing with the Accelerated Investor podcast.

So hey there, welcome back to Accelerated Investor, thank you so much again for joining me. Whether you’re inside our Facebook group, on YouTube or iTunes, listening to this podcast, maybe catching this as a post somewhere in this particular training. I want to tell you my eight commandments for investing in apartments, the eight things that I look for that I have to have in order to do a successful apartment deal. OK, let’s go ahead and jump in. 

Number one, commandment number one is to get paid up front. Finding apartments is not always easy, sometimes just competition, sometimes there are other investors, so when you land an apartment deal, if you are the sponsor, the general partner, the owner operator, make sure you’re getting paid up front. Charge some sort of acquisition fee. Typically three percent is what we do. And that truly is about half of it is money that’s going to go towards paying staff. Our CFO, Roberto, our operations manager and offering manager, Jen, who helps us work with investors. So we set aside about one and a half points for them. The other one and a half points is really, truly a fee that comes to me and my business partners for the time and effort that we put into finding the deal, underwriting the deal, recruiting and raising all the capital, structuring the deal, sponsoring the loan, all those different types of things. So make sure you get paid upfront through an acquisition and asset management fee. That’s commitment number one. 

Commandment number two is to buy in landlord friendly states with no rent controls. So people ask me like, hey, will you invest in California? No. Will you invest in New York? New Jersey? No. Do you invest in Seattle? No. Do you invest in Chicago? No. So where do you invest? Well, again, primarily in the Midwest and the Southeast. We have buildings in Ohio, Cleveland, Akron, Canton, Albany, Macon, Georgia, Mobile, Alabama, Krosby, Oklahoma, and a number of other places. Today, we’re focused primarily on northeast Ohio because there’s older housing stock, there’s older apartment stock, and it’s a landlord friendly state with no rent controls. That’s commandment number two. 

Commandment number three is to create a win-win. GP’s and LDP’s General Partners Unlimited Partners. It is truly a partnership. So when I talk with our limited partners, the people that put up the cash and the capital for our deals, I don’t say, hey, thanks for being an investor. I say thanks for partnering with us because it’s truly a win-win. OK, they have other jobs. Maybe they’re a high-income earner, maybe they’re a doctor. Maybe they invest in real estate. Maybe they sold the business. Maybe they had a liquidation of that. Maybe they own a successful e-commerce business. I’ve got all these different people as limited partners in my business, and I’ve got to create a win-win for them. So they know that they’re being paid handsomely. They’re being paid appropriately for putting up the money. And typically in an apartment, the number that we’re going for is a about a 13 to 17 percent cash on cash return. And that cash on cash is through the pref return and the refi proceeds. That’s the cash on cash. And then the internal rate of return includes the equity. OK, so whatever equity they’re getting and I want that to be at least twenty percent, that’s typically a really good win-win for GP’s and LP’s. 

Commandment number four is as many times as I can is to get cash out, refinance proceeds because they’re tax free. I’m actually getting and realizing and taking a piece of the equity through the cash out reify proceeds and because its loan proceeds, it’s tax free. 

OK, number five is force the appreciation, commandment number five is force the appreciation and force the amount of equity that you can create in a deal through capital improvements. OK, branding capital improvements, but also the experience, the leasing experience, the management experience, how you manage the buildings, there’s really those two levers that you can pull that allow you to charge more rent and to add additional incomes. OK, so the key here is add capital improvements and a better leasing and resident experience. Notice I didn’t say tenant. We don’t refer to our tenants as tenants. We call them residents because they reside there. It’s their home. They might be renting an apartment, but it’s their home. So we force the appreciation and the equity through value, add capital improvements and a better resident experience. Very important. 

Commandment number six is a quick return of capital on every deal we do. We’d love to see deals where there’s enough either through a sale or through a refinance that we can return all of the limited partners’ capital in three years or less. Thirty-six months is our number. We don’t want to count on buying in the path of progress, hoping that the rent goes up, hoping that there’s other development that goes on around us, hoping that the value of the building goes up over the next five to seven years and then sell the building for a windfall. What I want to do is buy the building, force the appreciation and return a quick return of capital in three years or less. OK, that’s commandment number six. 

Commandment number seven is hold, hold, hold for forever passive income. OK, guys, why are we in real estate, why are we looking at real estate as an asset class to invest in, to buy in, to either be a deal sponsor to invest in or to be a limited partner and a passive investor? It’s to create long term wealth. Right. Again, I think it was T. Harv Eckar who said don’t wait to buy real estate, buy real estate and wait. OK, I can’t remember T. Harvey’s books. It was like the millionaire mindset or the millionaire or whatever. Anyway, great books to check out. Look them up. But don’t wait to buy real estate, buy real estate and wait, meaning buy real estate and just hold on to it as long as you can. OK, hold on. As long as you can. 

Then finally, commandment number eight is to maximize the tax savings. OK, maximize the tax savings through 1031 exchanges, maximize the tax savings through depreciation, maximize the tax savings through cost segregation, maximize the tax savings by holding onto buildings long term and paying capital gains taxes. It’s no surprise that people that own real estate pay little or no tax. It’s no surprise that Donald Trump, president, former President Donald Trump, didn’t pay much in taxes. Give me a break. The guy’s worth, whatever, five billion. Ten billion dollars. He owned real estate. The tax code was written for landowners. It was written for building owners. OK, got to have buildings in order to develop a healthy economy. 

The code was written for people to own real estate, so commandment number eight is to maximize your tax savings, 1031 cost segregation, depreciation and capital gains taxes. Those are my eight commandments. If I can find a deal that I can buy that abides by those eight commandments, I’m going to buy it. I’m going to own it. It’s going to be a successful deal every single time.

You were just listening to the Accelerated Investor podcast with Josh Cantwell. If you enjoyed this episode and learned something new, help us build the A.I. community by leaving a review and five-star rating on our iTunes podcast channel. Also, don’t forget to subscribe so you never miss another episode. To see passive investing opportunities, visit FreelandVentures.com/passive. To start your journey toward the lifestyle you’ve always dreamed of with multifamily apartments, apply for one-on-one coaching with Josh at www.JoshCantwellCoaching.com.

Finding apartments is not easy. Sometimes it’s the competition that makes it hard, and sometimes it’s putting together a deal where everyone walks away a winner. I’m going to share the 8 underlying principles for every one of my deals that form the core of my real estate philosophy.

Hear how each of these commandments works together to build a real estate portfolio that will build the lifestyle of your dreams.

#1 Get paid up front
#2 Buy in landlord friendly states
#3 Create a win-win
#4 Get cash out refinance proceeds
#5 Force the appreciation
#6 Quick return of capital
#7 Hold, hold, hold for forever passive income
#8 Maximize the tax savings

Our limited partnerships are truly our partners. When they win, we win. And we take that seriously. If you have a property to sell that meets our criteria, we have big plans to grow this year and we’d love to connect with you.

What’s Inside:

  • Why we want to return our limited partners’ money in 36 months.
  • What I look for when I choose a market to invest in.
  • This country is built for landlords like you and me, and how you can take advantage of that universal tax truth.

Mentioned in this episode​

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