Wealth starts from understanding.
Less volatile vacancy: If you have a single family home, and a tenant moves out, your vacancy is 10% If you have a 100 unit multi family home and a tenant moves out, you have 99% vacancy. These commercial properties often have a lower vacancy rate than the 1-4 unit residential properties.
Economies of Scale: It is easier to purchase a 100-unit building than to purchase one-hundred single family homes. Also, on-site property management not only makes more sense when you have 100 units but it is actually more cost effective. Property management fees can drop from 10% to as low as 2% depending on the size of the property.
Valuation: Residential properties are usually valued based on what similar properties in the area. Multifamily properties are based on the rental income they generate. It is an advantage to have the valuation of our property based on the hard work and creativity we can bring into the deal and not external forces.
The growth potential of the underlying property in a REIT can be constrained since a REIT is required to pay at least 90% of their taxable income as dividends. Also, when investors receive those dividends, they are taxed as ordinary income. Publicly-traded REIT price movements can also be subject to the whims of public markets, which don’t always reflect the fundamentals of the underlying assets.
In a direct multifamily investment, we don’t have the same requirements and the large majority of our profits have more favorable taxation.
For an investor who is looking for a short-term investment and the flexibility to cash out when they would like to (liquidity), REITs may be an attractive alternative. A direct multifamily investment may be more suitable for an investor with a longer investment horizon, more risk tolerance, and no need for immediate liquidity.
Our team finds the property, handles the lenders, brokers, lawyers, CPAs, and property managers. After the purchase, we manage distributions of profits to the investors, file the neccessary tax documents, and continue to manage the assets. Also, we guarantee the loan on the property against our personal assets. The fees and equity structure used can vary depending on the investment so keep an eye out for the offering memorandum which will break everything down. We align the compensation structure with the best interests of any shareholders and to be radically trasnparent.
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