“Landlords grow rich in their sleep.”
John Stuart Mill
"Don't wait to buy real estate....buy real estate and wait."
Will Rogers
AN OVERVIEW OF THE BENEFITS OF INVESTING IN REAL ESTATE
WHAT IS A SYNDICATION?
Syndication is the pooling of investor money where the investor is typically a limited partner and the general partner puts the deal together and manages the business plan to provide a return for the benefit of all investors.
CASH FLOW
Everyone is looking for a little extra income, or a steady stream that continues to produce after you're done working. Usually that means trading your time for dollars. Work more hours, earn more money.
What if you didn’t have to work more hours, and your bank account grew while you slept? Investing in income producing real estate provides exactly that.
Four Oaks Capital buys properties that produce consistent cash flow, and we work to increase that cash flow over time.
PASSIVE INVESTMENT
Many people want to get started investing in real estate but don’t have the time or knowledge to do it alone. One route is building your own single family portfolio; but what quickly becomes apparent is the "passive" aspect is not present as you are responsible for everything. One negative experience of self managing a rental property can turn you off to the whole endeavor.
At Four Oaks Capital we provide passive investment opportunities for our investors. No urgent late night phone calls about toilets backing up, roofs leaking or heaters going out in the middle of winter. You continue with your daily life and collect your “mailbox money” every month, without having to worry yourself with the day to day hassles of real estate ownership.
APPRECIATION
Appreciation is the increase in a property’s value over time.
Appreciation generally comes in two forms:
1) organic appreciation is the slow and steady increase in property values over time as the economy grows
2) forced appreciation happens when you improve the property, making it more appealing for a tenant and increasing the amount a tenant is willing to pay. Small increases in income as well as trimming of expenses, equates to exponential increases on the valuation of a property.
Apartments and commercial properties are valued as a multiple of the cash they produce (similar to price/earnings ratio in stock investing).
Four Oaks Capital underwrites utilizing forced appreciation, any organic appreciation is a bonus.
FORCED APPRECIATION
HOW IT WORKS- CASE STUDY
- WINDWOOD GARDEN APARTMENTS
- 82 Units - Pickens, SC
- Purchased for $2.4M - June 2020
- Currently under contract for $4.4M
- Internal Rate of Return (IRR): 77%
- Equity Multiplier: 1.77X
$100,000 invested returned $170,000 in 14 Months + A massive tax write-off via Pass-Through Depreciation
HOW IT WORKS:
- Original rents: $548/Avg per Unit
- Current rents: $646/Avg per Unit
- $98 increase per unit = $94,080 in additional annual revenue
- At a 6% CAP RATE that additional revenue equals $1.57M in additional property value
DEPRECIATION
One of the most powerful, yet misunderstood benefits of real estate ownership.
Deprecation allows you to shelter income from your real estate investments. Your pay check is taxed before your expenses (e.g., rent, car payment, groceries). Income from your real estate investment is taxed after all expenses the property incurs. Depreciation is a phantom expense unique to real estate, meaning you get to deduct an expense on your tax return but not actually incur the expense.
For example, if you had $10,000 in deprecation in a given year, you would shelter up to $10,000 in actual income in that year. We use a technique called cost segregation to accelerate depreciation for our properties. This allows our investors to earn positive cash flow every year from their real estate investments without a tax liability in the year the income was earned. Depreciation is “recaptured” upon the sale of the property, so there may be a tax liability when the property is sold. Be sure to discuss specifics with your CPA, as everyone has a unique tax situation.
LEVERAGE
Leverage is the reason some people become rich and others do not become rich -Robert Kiyosaki
Leverage is one of the most compelling reasons to be a real estate investor, as it magnifies your returns. Let’s take a simple example:
You are buying a $100,000 rental property and you're deciding between paying cash vs taking out a mortgage against the property.
Paying All Cash
- You pay all cash for the property. You had exactly $100,000 in your savings account so you are tapped out! Fast forward three years...the property has has produced steady monthly cash flow and has appreciated in value to $120,000. You could sell today and make 20% on your initial investment of $100,000.
Using Leverage
- Same $100,000 rental property. Instead of paying all cash, you take out a loan for 80% of the purchase: you put $20,000 down and the bank finances the $80,000 remainder. You still have $80,000 in your savings account for other investments or a rainy day.
- Fast forward three years...the property has has produced steady monthly cash flow (albeit less than in the all cash scenario since you have a mortgage to pay), your tenant has paid down some principal on your original $80,000 loan, and the property has appreciated in value to $120,000. Your original equity was $20,000 and now it is $40,000 (not including principal paid down). You doubled your money in three years...a 100% return!
LIMITED LIABILITY
Each Four Oaks Capital property is held in a single purpose LLC. This insulates investors from any liabilities the property may incur. You as an investor would have a proportional % of the shares that comprise the individual LLC. LLCs also avoid double taxation, which can occur when using other corporate structures to invest in real estate.
STABILITY
EVEN IN ECONOMIC DOWNTURNS
Freddie Mac estimates that there are currently 29 states that have a housing deficit, and when we consider only these states, the housing shortage grows from 2.5 million units to 3.3 million units.
Real estate is often said to be counter-cyclical, meaning it can perform well even in an otherwise poor economic environment (for instance, when the stock market is tanking). Perhaps the greatest advantage of investing in apartment buildings lies in its extremely low risk profile. For decades, the multifamily market has proven much less volatile than residential real estate, the stock market and cryptocurrency.
When the housing bubble burst in 2008, the delinquency rates on Freddie Mac single-family loans soared, hitting 4% in 2010.
By contrast, delinquency on multifamily loans peaked at 0.4%.
BETTER RETURNS - LESS VOLATILITY
Real estate consistently beats stock market returns over time. Real estate is also illiquid (it’s not traded daily like stocks) which makes it slow moving and less volatile. The value of your real estate is not susceptible to daily market swings. Investors absolutely love the stability and low volatility real estate investments provide.
Want more detailed statistics...view our STOCK MARKET vs. REAL ESTATE e-Book (complimentary)
HOW WE CHOOSE MARKETS
POPULATION GROWTH
If the city is between a quarter million and 1 million in population, ideally, we want 20% population growth between the year 2000 and the year 2017. 15% growth for cities over a million 10% growth for cities over 2 million 30% growth for cities under a quarter million. For each year beyond 2017, add 1.25% growth (add 1% for cities over a million, and add 2% for cities under a quarter million).
MEDIAN HOUSEHOLD INCOME
We look for 30% median household income growth between the year 2000 and the year 2016. This applies to cities of all sizes. For each year beyond 2016, add 2% growth to the 30% number above.
MEDIAN HOUSE VALUE
We look for 40% growth in Median house or condo value between the year 2000 and the year 2016, using www.city-data.com for a city. This applies to cities of all sizes. For each year beyond 2016, add 2.5% growth to the 40% number above.
CHANGE IN CRIME LEVELS
We look for crime to go down and for the most recent crime number to be below 500 in the crime table on city-data.com. This applies to cities of all sizes.
12-MONTH JOB GROWTH
We look for numbers above 2% annualized job growth (1.5% for cities over a million).