Who owns apartment complexes?

Introduction

Have you ever driven past an apartment complex and thought, “I wonder who owns that place”??

I had wondered that many times, especially when I started my career in real estate. At the time, I was managing small apartment complexes for investors who were solo owners after years of scaling slowly and self-funding... So I had assumed that's how everyone did it.

I thought that only the ultra wealthy could ever be the owners of large apartment buildings!

Getting the thought process going

Now I’m sure we’ve all known of a person who owns an 8-unit apartment building or something like that, which is impressive… But I’m talking about bigger complexes: 50, 100, or even 100’s of units.

Is owning one of these big apartment buildings reserved to a circle of ultra high-net worth individuals? I’m talking, your dude or gal with multi-millions to throw around, so they decided they may as well own some apartments while they’re at it.?

Or could these apartments, or “multifamily properties”, be owned by regular people like you and me?

The answer is... Both!

While many ultra high net worth individuals invest in multifamily real estate (for many good reasons— potential high returns and tax incentives to name a few), there’s a lot of “ordinary” people who have and now invest in this kind of real estate as well.

But how can this be? How can a “normal person” be an owner of such expensive assets??

The answer is through syndication.

This is where a group of investors comes together by pooling resources to purchase an investment.

So in a syndicated multifamily property, there isn’t one true “owner” of the property; there’s multiple people who have a share of the ownership. These owners are often referred to as General Partners (GP’s) and Limited Partners (LP’s).

General Partners (GP’s)

General Partners are the “operators” of a syndication. You may hear them called "sponsors" as well.

These investors find the property to buy, conduct extensive financial analysis, structure the deal/business plan, secure money via a mortgage & investor capital, close the property, and ensure its management after acquisition.

Limited Partners (LP’s)

Limited Partners are the "passive investors" of a syndication.

These investors provide the money necessary to purchase an apartment building (like the down payment and closing costs).

However, all the money does not have to just come from a handful of people. Utilizing approved legal structures, a syndication may accept many passive investors to cover the down payment. This means someone could be an LP by investing amounts such as $50,000 or $100,000.

What about being both?

Someone can be both a GP and an LP if they are involved with the operations of a deal and contributing some of their own money into it (most GP’s do).

However, investors can choose to just be an LP, or essentially invest a chunk of change and let others take care of it for you.?(Think of it sort of like buying stocks… Just often with more stable returns and a big piece of equity returned when the property is sold or refinanced– usually after 3-7 years.)

Putting it together

With a basic understanding of how a syndication works with GP’s and LP’s, it’s no wonder that more people than I had initially thought can be an owner of a large apartment complex.

Also, if you’re curious about ownership breakdown, it will depend on each deal, but a common ownership breakdown is LP’s owning 70-80 percent of a deal and GP’s owning 20-30 percent.?

Despite their larger ownership share, LP’s don’t have any management responsibilities and thus have completely passive ownership in a real estate asset. GP's put together a business plan and present it along with return projections to LP's to help them decide if they want to invest in a property.

While no returns are ever guaranteed, common target returns for LP's are around 5-10% average cash flow, called Cash on Cash (CoC), and 15-20% annualized returns, called Average Annualized Return (AAR).***

Here’s an example of how that could break down:

• If an LP invested $100,000 into a property that achieved a 5% CoC and 15% AAR that was sold after 5 years, they would have made $5,0000 in cash flow each year, with an additional $50,000 when the property sold... Meaning on top of getting their initial $100,000 back, they'd get an additional $75,000 when all is said and done (or $15,000 annualized). ***

Not a bad deal for money invested passively, right? And that’s not even mentioning the potential tax benefits that may come along with this type of investment.

What to do with this information

Now, if this all sounds crazy and you’re wondering why you’ve never heard of it before… You’re not alone! I felt that way when I first learned of it, but I soon realized it’s an investment strategy that has been hidden in plain sight for a long time.

The ultra wealthy have used investment strategies like this as a tool to become even more wealthy for quite some time.?However, with legislation changes a decade ago and information on investments more accessible, this is now available to a much wider audience.

To learn more, visit blackcedarinvestments.com or send me a DM.

_____

Brady

P.S.

I consider myself a pretty normal guy who’s been blessed to learn about apartment investing early on in my career. I am currently a General Partner on 360 apartment units so far. I love being able to help people learn about the opportunities available to them in the world of real estate syndications— especially for busy professionals who want to be Limited Partners.

No offer of securities is represented here. No part of this constitutes legal or financial advice. Each investor should conduct their own due diligence on any potential investment and/or consult a financial advisor or accountant to discuss their specific situation.

***This is a broad generalization and not a representation of what returns can or should be expected for any of these investment strategies. Each investment opportunity carries risks inherent with this type of investment and will have return projections unique to that project.? No return amounts are guaranteed.

***In addition to Cash on Cash (CoC) and Average Annualized Return (AAR), you may see other return metrics shown like the Internal Rate of Return (IRR) and Equity Multiple (EM or EMX).

• CoC - Yearly cash flow that goes to investors.
• AAR - Average annualized returns (all cash flow + equity / # of years a property is owned)
• IRR - The AAR, but accounting for the time value of money (typically lower than AAR due to assuming future dollars will be worth less than today)
• EM - The overall return— Do you hope to 1.5x your money, 2x your money, etc.