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Passive Investments In Real Estate and Why I Love It (Apartments)

Passive Investments In Real Estate and Why I Love It (Apartments)

A little over two years go, I had a brand new tenant pay 3 months rent in cash at signing. Looking back I should have seen a red flag, but I was blinded by happiness that I wouldn't have to drive 30-min across town to show the unit. Problems started immediately with this new tenant; her very first morning in the unit I got a call at 7am from the downstairs neighbor talking about a leak in the kitchen, coming from the ceiling. So I drove across town and knocked on my new upstairs tenant's door to see what was leaking. She cursed and fought with me about entering her 'property' and would not let me or a handyman into the unit to fix the water heater that needed a minor fix. She told me I couldn't evict her and cussed me out so much I thought she may have been a sailor in a past life. Long story short, that night around 9:30 she wasn't getting enough hot water so she called me asking for help. Seeing as how it was night time, I told her I'd send a plumber in the morning to fix the issue. Well, she wasn't satisfied with waiting until morning and wanted a plumber to come right then at 10 o'clock at night. Obviously that was not going to happen; she got super upset, and decided to dump water down a hole into the unit below her... After that fiasco, the very next morning, I hired a property manager. 


How I Got Here

I started getting into real estate right in 2018, and I attribute a great deal of the wealth my family and I have been able to build over the last few years or so to real estate. But good grief. It sure has come with its fair share of headaches. Tenant evictions, mold, flooding, broken toilets/showers/dishwashers/you name it, the list goes on and on. We love our property managers, and we’re happy we are able to provide great quality housing for our tenants. However. And you knew there would be a “however”… With only a few properties I was able to operate as a typical landlord. Eventually I had to hire a property manager.

Now, I have two young boys in the house and 60+ rental properties.

Some days are centered around school events, birthday parties, and play dates. Sleeping in on the weekends? Ha! Yeah right. Because our priorities have shifted, so too has our investing strategy. Whereas before our focus was primarily on investing in small multifamily rentals that we could fix up and rent out ourselves, our focus now is on larger multifamily syndications. In other words, we’re moving from the world of small real estate into the world of larger real estate with a focus on passive investing. There are a number of ways to invest passively in real estate. My favorite? Investing in Apartment Syndications. Listen to a 22 minute podcast I was on about my start in syndications.

Sterling Chapman: Transitioning Into Multifamily Real Estate Syndication


What does 'Syndication' mean for Real Estate?

In the simplest sense, a syndication is a group investment. A group of investors pools their money to invest in something together. In the case of a real estate syndication, investors come together to invest in commercial real estate assets, like apartment complexes, self-storage buildings, and mobile home parks.

The beauty of a real estate syndication is that you can leverage other people’s time, energy, and expertise.

As a busy father, I need to use all the leverage I can get. In a syndication, the sponsors are the active investors, the ones who know the ins and outs of that particular market, who spend time getting to know the real estate brokers, who visit the properties and walk the units, who pore over the due diligence documents, who work with the property managers day-to-day. As a passive investor in a real estate syndication, you get to partner with a stellar team with a strong track record, invest your money in a great piece of real estate, and get great returns, all while doing next to no work. Let me say that again, because I think it bears repeating. You get to invest in real estate without having to do any work. Renovations running behind schedule? Not your problem. Noise complaints from the tenants in apartment 2B? Not your problem. Tenant stopped up the sinks and flooded two units? Not your problem. The sponsor takes care of all of that, and you get a neat little monthly report on the progress and updates. As a passive investor, you can spend more time with your family and less time dealing with the headaches of being a landlord. #winwin

Is there a catch?

Okay, you’re thinking, this all sounds pretty good. But what’s the catch? I hate to disappoint you, but there really is no catch. In a real estate syndication, everyone works together, and everyone wins. Think of a real estate syndication like an airplane ride. The sponsors are the pilots. They do the active work of flying the plane. If a warning light goes off, the pilots deal with it. The passive investors, on the other hand, are the passengers. Just enjoy the ride while reading, watching a movie, or dozing off. You don’t have any responsibilities in making sure the plane gets to the right place safely. For their work, the sponsors get a cut of the deal, just as a pilot gets paid for their work in flying the plane. The lion’s share of the returns, though, go to investors, even though they’re doing the mouse’s share of the work (okay, I’m not exactly sure what the opposite of lion’s share is, but you get my point). In a syndication, just as in an airplane ride, everyone works together and is going to the same place. Watch this video about why I like real estate over the stock market.

Interests are aligned, and everyone wins.

Returns and what they look like

Just like when you invest in a rental home, the returns in a real estate syndication can vary, based on the asset, market, and business plan. What I can tell you though, is that, on average, the deals that I invest in (which are the same deals that we offer to our investors) have a cash-on-cash return of 8 to 10 percent per year and are held for a projected 5 years. When factoring in the profits from the sale of the asset at the end of the 5 years, the average returns are around 20 percent per year. Not bad, right? In other words, if you were to invest $100,000 in one of these real estate syndications with us, you could expect around $8,000 per year in cashflow distributions. On top of that, when the asset is sold in year 5, you could expect another, say, $60,000. In 5 years, you would likely turn your initial $100,000 investment into $200,000. All without lifting a finger or dealing with a single broken toilet.

How to Invest Passively in a Real Estate Syndication

The process to invest in a real estate syndication is a bit different than buying a rental property. For one, you can’t just go up to a broker and ask about a syndication. It doesn’t quite work that way. Rather, to find real estate syndication opportunities, you need to find sponsors who have deals currently under contract. Often, because of SEC regulations, sponsors cannot publicly advertise their deals, so they can be hard to find unless you know someone who knows someone. Luckily, now you know someone who knows someone. (Hint: It’s me.) At Crestworth Capital, we specialize in connecting passive investors to experienced sponsors in growing markets. All the heavy lifting of finding and vetting sponsors and deals is done by me. We cherry-pick the best deals in the best markets, and we make them available to our investors. We’re investors first and foremost. So we’re always looking for deals that we want to invest in ourselves. When a deal meets our strict criteria, we invest our own money into the deal, and we open up the investment opportunity to our investors as well.

What does Crestworth Capital get out of it?

We’re in the business of helping people. We’ve seen firsthand the difference that great sponsors and syndications can make to a community. We’ve had tenants thank us profusely for the work we’re doing in turning their communities around. We’ve also been thanked profusely by investors whom we’re helping to build passive income streams, so they can stop worrying about money and start living the lives they’ve always wanted. As for how we keep our lights on, that part comes from our partnerships with the sponsors. We work hard to find great deals. When we find them, we partner up with the sponsors and join the general partnership. We get a cut of the sponsors’ fees and equity in the deal. That means that, as an investor, you invest your money directly into the deal; you don’t pay us any extra fees.

Interested in Learning More?

The best way for you to learn more about real estate syndications, as well as our current, previous, and upcoming deals, is to join the Crestworth Investor Club. Through the Crestworth Investor Club, you’ll get first looks at all the deals we offer. We’ll work with you to figure out your investing goals and to help you find the best deals to meet those goals. We’ll then walk with you every step of the way as you invest in those deals. So if you’re ready to be done with the headaches of being a landlord, sign up for the Crestworth Investor Club below, and get started on your path toward becoming a passive real estate investor.  

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