Should I consider investing in multifamily properties?

 

Investments in multifamily syndications or private equity funds are very common and can be very lucrative. They can also be seen as risky by more conservative investors.

 

This isn’t covered in the slide deck, but the video discusses one risk of these types of investments. Let’s say a group of investors purchases an asset for $10M using $2M of investor capital and $8M of debt. If the value drops to $8M after two years, the lender can recuperate the majority of its capital, but the equity investors stand to lose their $2M.

 

In spite of the risk, many multifamily properties have generated exceptional returns for their investors over the last few years. This is largely due to a phenomenon known as “cap rate compression” whereby multifamily buyers have been paying increasingly large amounts for the same amount of cash flow. This has allowed investors who are selling to reap large profits.

 

Seasoned investors tend to have the same concerns about multifamily properties: 1) This “cap rate compression” phenomenon is generally seen as being largely unable to continue and thus hurts projected IRRs. 2) These properties appear to be highly overvalued after seeing a huge runup over the last few years, 3) There’s an extremely large amount of “dumb money” chasing very few real deals, 4) and multifamily operators have the money, staff and fee structure in place and are therefore incentivized to keep doing deals, even if they are weak or risky.

 

Boding well for these types of investments, however, are rising rents and underlying land values that are largely being driven by inflation. It’s up to each investor to decide whether the positive or negative forces will ultimately prevail and whether investing in this asset class is a wise move at this point in the market cycle.

 

Should I consider investing in the stock market?

 

The S&P 500 tends to generate a return of about 9-11% per year, but that varies wildly.

 

We do not claim to be stock market experts but encourage you to look at the indicators found on this popular website. You can click into each one for more details. The Buffett Indicator is of particular interest.

 

Both the slide deck and video reference a study by Dalbar, Inc., which shows that people often start their investment journey when they are excited about the market’s upward trend and sell after the market stalls and reverses course. If they hold, it can sometimes take decades for their portfolio to recover.

 

Can I see Doug’s background report and credit check?

 

These are not bank loans, but Doug still thinks it’s important that investors know about his character and credit worthiness. With that in mind, here are those reports:

 

Background Check: Ehlert Law, PC investigated Doug’s background and compiled this report. It shows no criminal activity.

 

Credit Check: This credit check from Identity Guard shows no late payments and a credit score of 810.

 

What does the paperwork look like for each transaction?

 

The following paperwork is common and required each time we buy land or sell a ranchette. Many of these documents protect the fund’s position as a lender:

 

RMLO Package for a Ranchette Sale: This contains all information related to qualifying and approving a borrower. It is assembled by Texas Pride Lending in Dallas.

 

Title Package for a Ranchette Sale: This is the documentation that is presented and signed by all parties during the sale of a ranchette at a title company.

 

Sample Deed of Trust for a Loan Against Land: This document secures the fund’s loan with a first lien against the land. It is filed at the courthouse where the property is located.

 

Sample Promissory Note for a Loan Against Land: This document details the terms of the fund’s land loan.

 

Sample Collateral Transfer of Note and Lien: This document secures the fund’s loan with a first lien against a note. It is filed at the courthouse where the property is located.

 

Sample Promissory Note against a Land Note: This document details the terms of the fund’s loan against a note.

 


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