As I write this, our world is in the middle of one of the biggest crises of our generation. The COVID-19 pandemic is tearing through communities, wreaking havoc on the economy, and creating uncertainty in everything from childcare to job security to the very foundation of our economy.
Perhaps you’re scared, and rightfully so. Many people are. But as Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”
Some of the best opportunities arise in times of difficulty. Whereas everyone else might turn away in times like these, you have the opportunity to step in and step up and take advantage of the opportunities that most people will likely miss.
“Finding opportunity is a matter of believing it’s there” – Barbara Corcoran
As for me personally, I’m not halting my investments of pulling back. In fact, I just invested $50,000 this week in a multifamily real estate syndication, and in this article, I’ll share with you exactly why I did so and how I’m continuing to grow my wealth during the coronavirus pandemic.
Please note the information presented here are my personal perspectives and should not be construed as investment or financial advice.
The One Thing Experts Agree On Regarding The COVID-19 Pandemic
Experts and media outlets each have their own perspectives and predictions on what will happen as this coronavirus pandemic plays out, but there’s one thing that everyone agrees on, and that’s that the COVID-19 pandemic will not last forever.
The timeframe may change based on our individual and collaborative efforts, but someday, even if it seems unlikely from where you’re sitting right now…someday, this pandemic will be behind us.
We may never return to the “normal” that we previously knew, but we will return to some semblance of normal, and life and business will continue.
The question is, what do we do in the meantime?
Do we hold on to all of our assets with a death grip, just in case the worst is yet to come? Do we take advantage of the opportunities now, in the hopes that things will improve? Or do we just halt everything and wait it out?
The truth of the matter is, I don’t have a crystal ball either, so I can’t tell you what’s going to happen, how things will play out, or what you should invest in.
However, what I can do is share what what I look for in opportunities I invest in, what I’m doing as a passive investor during the COVID-19 pandemic, and why I remain as confident as ever in value-add multifamily real estate syndication investment opportunities.
5 Reasons I Just Invested $50,000 In A Multifamily Real Estate Syndication
Just yesterday, April 11th, 2020, in the days leading up to the anticipated peak of the COVID-19 pandemic here in California, I sent in $50,000 of my own money as a passive investor in a value-add multifamily real estate syndication.
Now, some of you reading this might be thinking that I’m crazy. That with everything going on right now, I should be holding on to every last cent, hoarding cash, and waiting to see how this thing plays out before making any decisions involving major purchases or investments, nevermind a $50,000 investment over the next several years.
There’s a lot of fear out there, and I’d be lying if I said that I was 100% certain. But the thing is, no great opportunity comes with 100% certainty. There’s always an element of risk, and it’s only through facing and mitigating that risk that we can realize the true upside.
Here are the 5 top reasons I decided to invest $50,000 of my own money into a multifamily real estate syndication, despite the current uncertainty.
Reason #1 – Opportunity Cost, Personal Investing Goals
No one knows when things will get back to “normal,” or if they will ever return to the normal we once knew. But the one thing I know is that the money sitting in my bank account is losing value every day, earning interest that’s well below the rate of inflation.
If I were to keep that $50,000 in a bank account earning 1.5% interest over the next year, I’d be here next year at this time with $50,747. Not bad, you’re thinking. An extra $747 in 12 months for doing nothing? Seems pretty good, right?
Well, let’s compare that to the real estate syndication I just invested in, where I am projected to earn a 7% preferred return on my $50,000 investment over the next year.
That means that, over the next 12 months, my $50,000 investment will create $3,500 in passive income, which comes out to about $292 per month.
I know that doesn’t sound like a lot, but leaving my money in a savings account means I will lose out on $2,753 over the next 12 months.
$3,500 from the syndication – $747 interest from a savings account = $2,753 difference
In addition, my personal investing goal is to invest at least $50,000 a year into real estate syndications, to build long-term wealth.
And, if I don’t invest the $50,000 this year, I also miss out on the tax benefits of accelerated depreciation and cost segregation that I will get for my 2020 taxes, further setting me back from my long-term wealth goals.
Reason #2 – Strong Team
Now, I know what you’re thinking. Even given the opportunity cost described above, I could still wait just a few months until things are a little more certain, and perhaps there will be more and better opportunities then.
And perhaps you’re right. But that doesn’t preclude this present opportunity from being a strong deal that could be great for building wealth for my family.
One of the top reasons I believe so strongly in this opportunity is because of the operating team leading the charge. As you know, a great team can turn even the worst deal in the worst circumstances into a home run. And vice versa, a terrible team could take a perfectly good deal and run it into the ground.
The deal that I just invested in is with a strong team that Goodegg Investments has partnered with multiple times before. This team consistently delivers on and exceeds expectations and has shown agility and savvy decision-making when unexpected situations arise.
As the COVID-19 pandemic continues to change and evolve, the operating team has continued to advocate on behalf of the investors by going above and beyond, leaving no stone unturned, monitoring the situation closely and diligently, and continuing to communicate and negotiate with the seller.
They are transparent in their communications and have made it clear they’re willing to walk away if the deal no longer makes sense as things evolve. This level of attention and care shows me as a passive investor that this team will continue to take care of my investment both in good times and in bad.
Reason #3 – Long-Term Plan, Long-Term Debt, Minimal Capital Expenditures
Most experts are predicting that the COVID-19 pandemic will play out within the next few months and that things will return to “normal” by the end of 2020, if not earlier.
Due to this short-term volatility, I want to make sure that my money is in long-term investments that are not counting on the potential short-term turbulence of asset values.
The deal I just invested in has a hold-time of 7 years, meaning that we are buying and holding this property over a long period of time, giving the COVID-19 pandemic time to play out and giving the economy time to rebound.
The asset also comes with conservative long-term debt – a 10-year fixed rate loan at 70% LTV (loan-to-value) and 7 years of interest-only payments, which will help us keep our mortgage payments and expenses low over the duration of the 7 years.
Further, the business plan for this asset is conservative. Whereas many B and C class value-add multifamily assets depend on extensive unit updates throughout the property in order to realize the full upside, the business plan for this deal involves minimal capital expenditures, meaning that we won’t be exposed to the risks of renovations, and yet we’re still able to realize the upside.
Reason #4 – Newer Asset, Zero Deferred Maintenance, Strong Reserves
When you invest in an older asset that was built in, say, the 1960s, there are bound to be surprises that arise. Old pipes, aging structures, and more could cause you to sink money into unexpected repairs, thereby decreasing the overall returns to investors and putting the asset at risk.
This asset I just invested $50,000 in, on the other hand, was built just a few years ago, in 2014. Further, the current owner has taken great care of the property, meaning that there is no deferred maintenance. Even the inspector was pleasantly surprised by the great condition that the property is in.
This bodes well for us going into the deal, because we don’t NEED to address any major issues right away. We can hold this well-maintained property without needing to put in additional capital during the COVID-19 pandemic and as things settle down.
Despite the newer vintage of the asset and the zero deferred maintenance, we are still going into this deal with over $1 million in reserves. That means that, in case some of the residents are not able to pay their rent temporarily, we likely won’t need to dig into investor returns to cover expenses.
Reason #5 – Great Purchase Price, Strong Resident Base, Strong Breakeven Occupancy
When this 232-unit deal originally went under contract, it was at a purchase price of $51,223,000. As the coronavirus pandemic has evolved, the team has been monitoring the financials very closely, putting us in a strong position to negotiate as things unfold.
And that’s exactly what the team did. Whereas the deal was already strong at $51,223,000, we were able to negotiate a $1,268,000 discount, bringing the purchase price down to just $49,955,000, making it an even better deal than it already was.
Further, we dug into the data, doing a full lease audit to map out the potential impact of the COVID-19 pandemic on residents of the property, based on actual employer and salary data.
Whereas residents in many B and C class properties tend to live paycheck to paycheck, residents in an A class property like this one tend to have substantially more savings and higher net worth, meaning that it’s unlikely they’ll be unable to pay rent long term, even if they experience temporary job loss or income reduction.
We were able to see this in the April rent collections, which came at nearly 100%. Further, even though the current occupancy is at 96%, the sensitivity analysis (aka, stress test) shows that, even if the occupancy dipped down to 55%, we would still be able to break even and cover our mortgage and expenses.
A 55% breakeven occupancy is huge. It’s still no guarantee, but it does show that, even if almost half the residents moved out or weren’t able to pay, we would still be able to keep the asset afloat.
It is my hope that, through sharing what I’m personally doing with my money and the things I’m looking for in potential opportunities that impact my investment decisions, you can see that, even in these uncertain times, there are still great opportunities out there to create passive income and grow wealth for your family.
Will this be the single best investment I’ve ever made? Maybe not. But it’s certainly better than letting my money sit in a savings account collecting dust over the next several months in the hopes that something better might come along once my fear subsides.
The key is to keep your eyes, ears, and mind open to potential opportunities and to vet them with the same level of stringency you would have used prior to the coronavirus pandemic.
The goal is not to get rid of all uncertainty, but to put aside your fear, open your mind, and seek to fully understand each opportunity to determine if it’s right for you.
No one knows exactly what will happen in the coming months and years, but if past events are any indication, there will be many great opportunities that come along. And if you approach them with an open mind and a clear sense of what you’re looking for, you’ll be able to take action and prosper, despite any fear or uncertainty.
Want to Invest with Goodegg Investments?
If you’re interested in learning more about the real estate syndication investment opportunities we offer, we invite you to apply for the Goodegg Investor Club so you can invest in deals like this one, right alongside us.