05/09/2023
How we structure multifamily deals?
3 facts you probably didn’t know about apartments.
First, most apartments aren't owned by a single individual. Instead, they are typically purchased by a group of investors known as a syndication. (Syndication means, 2 or more people get together to buy apartment deals. In other words, investors bring the downpayment and closing costs for the deal.
This group is made up of two types of members: active investors (or general partners) who do the work and earn equity, and passive investors (or limited partners) who invest their money and earn passive income. Thus, Passive Investor buys their ownership stake by investing their money -Active investors earn their ownership stake by doing all the work, bringing their experience, and for finding opportunities for passive investors.
So, together they come together and buy a property and they use their money from the passive investors and the work/ experience from the active investors to buy apartments as a group.
Second, investing in apartments is more like buying a business than buying a house. Apartments have employees, managers, profit and loss statements, and accounting firms handling taxes. They can be optimized like a business, with strategies such as increasing revenue, decreasing expenses, and negotiating terms to drive profit for investors.
Finally, when it comes to getting a loan to invest in an apartment complex, banks look primarily at the income and expenses of the property rather than your personal credit. They also consider your business plan and the financial stability of the primary partners in the syndication. Based on their risk assessment, they will loan a percentage of the purchase price. However, in newer Projects, banks will look at the proforma (value in the future after the property is built) to align with a construction loan for this project.
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