The following information is just for education. I am not an Attorney or CPA. For advice seek Professional Advice.
If you do not believe in the power of owning apartments, you need to first read my free Special Report I have on my website www.SmallApartmentInvestors.com It is called, “Have Your Family Living Expenses Covered by Small Apartments You Own”.
My name is Cordell Davenport and I have gone 1 inch wide and 1 mile deep to understand the needs of small apartment owners. I have my real estate license in California. I am also credential by the National Apartment Association as an Independent Rental Owner (IRO).
In the past I worked for a commercial mortgage company, my niche was in small apartments. I also worked as a real estate sales agent; my niche was in apartments. I have taken real estate development workshops. Attend apartment investing conferences. I have taken a couple of courses for Certified Commercial Investment Member (CCIM). I continually read books related to real estate and business. I also have a BS of Business Administration with an Option in Marketing Management.
Now that you are on board, let’s talk about what obstacles people face when it comes to owning apartments:
- They don’t have the money for a down payment and closing costs.
- They don’t have the knowledge on how to understand the value of an apartment building.
- They don’t know how to manage an apartment building.
- They don’t have the contacts and experience to buy and manage.
If you want to join us as we acquire small apartments, read on and please contact me if you have questions!
What is a syndication?
A real estate syndicate is a group of investors who pool their capital to buy or build property. Combined, individuals and companies have more buying power than what they could easily manage on their own. Investors must be passive having no active role.
The sponsors of the Syndication are called General Partners. They are the ones in the cockpit. Limited Partners are passengers on the plane. They make no decisions. When you invest as a passive investor with syndications, you don’t really get the kind of inside knowledge of real estate investing that comes from doing deals where you have an active role.
If you invested as a passive investor in a syndication, you are entrusting your dollars to someone else who will be 100% in charge of your money. Because you are passive, you are not doing any work.
There are three types of syndications:
This is where people use the internet to raise money through limited investments from a large crowd of people. If your net worth is less than $100k, then during any 12 month period, you can invest up to $2k or up to 5% of the lesser of your annual income or net worth. You can invest in what is greater. If your income and net worth is greater to 100k, you can invest up to 10% of your annual income or net worth whichever is less. Your investment can’t be more than 100k.
They are experienced and have the ability to judge the risks. These people must have a preexisting relationship of the sponsor (the person with the syndication deal). The sponsor can not advertise to get these people.
Net worth is at least 1 million (excluding the value of their primary residence) or their income has been at least $200k each year for the last 2 years, or they can make $300k combined if married. (Sponsors have to verify that they are actually accredited, investors.) With these people, the syndicator can advertise.
Not everyone wants to do this, however. The reason is because as an investor, you are 100% passive. You make no decisions. Through this process, you are not really learning how to buy and manage apartments on your own. Typically, the minimum to invest is $50,000. The syndicator group will buy a minimum of 100 units. They will hold the property for 3-5 years and then sell and everyone involved will get cashed out. Then the Syndicator starts over, trying to find a new property, and then after they have the property under contract, contact their investors and give a presentation on the possibility and then ask who wants to join and invest.
That is fine for some, but for others, they want to learn by doing. They don’t want to just get in and out, rather they want to buy and hold the property and create generational wealth for their family. Another consideration is that there is a limited amount of investors per syndication (could be up to 30 people in one deal). Once the Syndicator has their financial backing they will close the offering. So you could have the money, but if you are late, you can’t get in. If you want to find investment from a Syndicator, it is a challenge to find these people. I actually have a list of Syndicators, so if you wanted to go this route, email me and I will give you my list of Syndicators. Cordell@SmallApartmentInvestors.com
Now for those that don’t want to go that route…I have something for you. You can join me and my Property Management Partner as we find and manage small apartments. I am only looking for a max of 4 partners in any deal (one is me, the other is the property management partner, and then that leaves 2 other partners).
With syndication, investors are given an expected profit and the profit comes solely from the efforts of the sponsor. The only role a limited partner will have in syndication is to read the documents provided and sign the agreement and then send money to the sponsor.
In syndication, you just provide your money and that is it. They will send you statements about the property, but if there is a meeting, you most likely will not be allowed to listen in…and in the case you are allowed to listen in, you definitely can’t raise your hand and ask questions.
Syndications are meant to tackle large scale 100 plus apartments. There may be up to 35 passive investors who invest a minimum of $50k to be in the deal (each share of the LLC is in increments of $50K). To get in the deal it is first come first serve.
What are Joint Ventures? (JV)
In a joint venture, because all business partners are involved, they are not relying on a third party for the venture to be successful. In a syndication, passive investors rely on the sponsor or management team to realize a return on investment.
A joint venture primarily governed by contract law and involves a few business partners who, regardless of whether they invest in the deal or not, are all actively involved and each contributes unique skills to the overall success of the project.
With a syndication, someone else handles all the investment processes for you. In a JV you are on a team and all have a role. A typical JV will not have more than 5 members. All members are considered managers. Roles must be defined, and records must be kept in order to satisfy any legal challenge of the legitimacy of the joint venture.
Any decisions need to be done by majority rule and a single person cannot override the other two. Some of the roles require more activity than others. Regardless you will always be in the loop of decisions and will have input on those decisions.
With a JV, there is no expected profit that is promoted and everyone plays a role. A JV would have no more than 5 people max. As a partner you will have a role, it may not be as extensive as others, but that is why it is a team with different roles. Just like sports we all have a role and we play that. The Elephant Landlord is a part of a team in which everyone plays an active role in buying and managing small apartments.
Why the correlations with “Elephants?”
Read on for the 15 ways
|There are two species of elephant: African and Asian. The ears of African elephants are much larger than their cousins and are described as being shaped like the African continent, whereas the ears of Asian elephants are shaped like the Indian subcontinent.||Elephant Landlord is an Active Investor. There are two types of investors: Passive and Active. Passive has no say so to what happens. They make no decisions. They are in the back of the “airplane.” Whereas, an Active investor, is in the cockpit. They have a role, they have tasks to perform with the other team members of flight attendants and copilots.|
|ELEPHANTS ARE CONSTANTLY EATING… They eat so much that they can spend up to three-quarters of their day eating.||Elephant Landlord is constantly learning from the team and from “performing activities.”|
THEY COMMUNICATE THROUGH VIBRATIONS
Elephants communicate in a variety of ways – including sounds like trumpet calls (some sounds are too low for people to hear), body language, touch and scent. They can also communicate through seismic signals – sounds that create vibrations in the ground – which they may detect through their bones.
|Elephant Landlord communicates with the team, and advisors through Video Conference, Email, Phone, Slack, and Sharing Meals (1x a quarter, because we all live in California).|
CALVES CAN STAND WITHIN 20 MINUTES OF BIRTH
Amazingly, elephant calves are able to stand within 20 minutes of being born and can walk within 1 hour. After two days, they can keep up with the herd
|Elephant Landlord, is a quick learner. The reason is because they are on a team with relationships, systems and checklists to follow.|
|Newborn elephants have little control over their trunks and must learn how to use them. They practice by exploring their environment – touching fellow herd members, their surroundings, and themselves. They must then master the use of their trunks for feeding||Elephant Landlords will have to learn how to use their “ownership trunk.” Trunks have a variety of uses, likewise as an owner, one must understand and apply the 4 pillars to apartment ownership. The herd members are the advisors that supply tactics regarding, Property Management, Law, Tax, and Financing.|
|THEY’VE GOT THICK SKIN||Elephant Landlords are not sensitive to what negative people have to say. They believe being positive is a choice.|
|Elephants can recognize themselves in the mirror. They join humans, apes, and dolphins as the only animals with self-awareness.||Elephant Landlords go further in just seeing their reflection to see who and what they are, they know you can’t see the picture when you are in the frame. They regularly perform a self-audit on where they are, where they want to go, and who they want to be.|
|Elephants have amazing long-term memories. Scientists studying three herds in Tanzania found that, during a lengthy drought, the two herds led by older matriarchs left the drought area in search of water, and more of their group survived as a result. The scientists concluded that these older females had remembered a drought that had occurred more than 30 years earlier and knew what to do.||Elephant Landlord has a great memory because of their actions. They are totally involved. “I hear and I forget. I see and I remember. I do and I understand.” They “do” by adding value besides just money. Also memory is forged by having the team be totally transparent that shows and tells what is happening.|
|Elephants appear to understand what other elephants are feeling. Experiments show that when one elephant is unhappy, others share their feelings, something known as ‘emotional contagion’. In these situations, they will go over to their ‘friend’ and comfort them, often by putting their trunk into the other’s mouth, something that elephants find reassuring. Elephants will also assist other injured elephants, and even appear to mourn their dead.||Elephant Landlords are not just concerned about making money. They have a love for helping people. Being kind to strangers. Taking care of tenants and never ever being a slum landlord. They believe that you can get anything you want if you just help enough people get what they want.|
|Female elephants (cows) help each look after each other’s calves. Babysitting other female’s calves is important for elephant development; young females learn how to look after the young, and the calves are shown how it’s done. The survival rate of a calf greatly increases when more females are present and willing to take care of it.||The Elephant Landlord is not alone. They can rely on the team to guide, protect and feed.|
|They walk in a single file||The Elephant Landlord knows where they are going. They have a specific destination. They let the one with the most experience lead the way on the team.|
|Adult male elephants live a predominantly nomadic and solitary life. When a male elephant (bull) reaches puberty, around 12 to 15 years of age, he will gradually become more independent of his family until he breaks away completely, to either roam alone or find a loosely-knit group of male elephants to join.||Elephant Landlord, the intention is not to stay with the team forever. Their goal is to grow to maturity and then after 2-3 years of being on the team, break off (through refinance and dissolution of the company) and own the small apartment building 100%. By then they should have the skills and knowledge to be self-sufficient.|
|Elephants are pregnant for 22 months — it’s the longest gestation period of any mammal.||Elephant Landlords develop over time. The time with the team, they are grooming themselves for successful independence.|
|Elephants are born blind.||Elephant Landlords initially may not see how to analyze a deal, how to raise the NOI, how to qualify for a loan, how to reduce taxes etc. In time the light will get brighter and they will see, they will believe, they will achieve.|
|All elephants are herd animals with a very definite social structure.|
Elephant Landlord, is a part of a team.
If you want to go fast go alone. If you want to go further, go together.
Where are you looking to buy small apartments?
Alameda County in the Bay Area!
Real estate follows jobs. The Bay Area, in particular has plentiful jobs. Alameda County has a great central location. The population is around 1.7 million.
To help educate you on the area, I have taken excerpts from the Milken Institute annual report.
The Milken Institute’s Best-Performing Cities series has tracked the economic performance of US metros for two decades using job, wage and salary, and high-tech gross domestic product (GDP) indicators. Metros are ranked on their performance, while indicators help identify the drivers behind their success or failure.
“California secured four (San Francisco Redwood City-South San Francisco, CA; San Jose Sunnyvale-Santa Clara, CA; Oakland-Hayward Berkeley, CA; and Riverside-San Bernardino Ontario, CA) of the Top 25 spots among large metros. The Bay Area in Northern California consistently shows economic excellence powered by high value-added industries.”
“America’s metropolitan areas are the nation’s economic growth engines. They drive US economic growth by upgrading industries and creating jobs through policy choices and industrial, workforce, and innovation assets. However, not all metro areas grow equally. Some parts of the country are thriving while others are failing to keep up. The Milken Institute’s Best-Performing Cities Index provides an objective benchmark to examine the factors underlying growth in these metros while identifying their unique economic characteristics.”
“Our Best-Performing Cities Index uses an outcomes based set of metrics—including job creation, wage gains, and technological developments—to evaluate the relative growth of metropolitan areas. While national and international political and economic forces beyond a region’s control can affect near term performance, the top-performing metros have cohesive strategies allowing them to weather economic storms and leverage their assets more effectively. These metros offer important lessons that are helpful to peer regions.”
“The Best-Performing Cities Index’s goal is to help academics, businesses, development agencies, government officials, industry associations, investors, and public-policy groups monitor and evaluate how well their metro promotes economic vitality relative to the rest of the country. The index also provides benchmarking data that can inform approaches to improving a region’s performance over time. The index can serve as a tool for understanding real estate, consumer, and business opportunities by indicating where employment is stable and expanding, wages and salaries are increasing, and economies and businesses are thriving.”
San Francisco and San Mateo County #1.
“The San Francisco Bay Area is also an emerging financing and logistics center for global commerce. The region’s innovative capacity blends well with the heightened demand in blockchain, financial technology, and other data analytic technologies that are reshaping global commerce. The phenomenon is by no means unique in this period to San Francisco but illustrates the richness of the region and its ability to attract and retain talent, despite lackluster commercial space development and low housing affordability.”
“Residential development is consistently a weaker spot in the regional economy. Housing shortages and a lack of affordability continue to cast a shadow over long-term growth prospects of the region. The Bay Area’s median home price is $1,355,200, while median household income is only $110,000. Recent news stories illustrate the dilemma of high-tech growth and housing needs, as the average tech worker pays $2,000 for a room for boarding. Reasons for the severe housing shortage include strict zoning laws, cumbersome regulations, and high construction costs. Homeownership in the San Francisco Bay Area also continues to be a development challenge. It would take a concerted effort by the public and private sectors to address this challenge.”
Santa Clara County #5
“San Jose-Sunnyvale-Santa Clara, CA, while remaining one of the top performers in the Best-Performing Cities rankings, slips three spots this year to tie for fifth place. The Silicon Valley is home to many of the world’s most famous tech companies, including Adobe, Apple, Alphabet/Google, Cisco, eBay, Facebook, HP, Intel, LinkedIn, Oracle, and Tesla. With these firms in residence, not surprisingly, the region ranks high in all high-tech sector-related metrics, including high-tech GDP concentration and the number of high-tech industries LQ, topping all large MSAs.”
“Many of the aforementioned companies, like Apple and Google, are at the forefront of technological innovation in the high-tech and information services industries. Moreover, the metro is also strong in semiconductor product and equipment design and manufacturing, which are essential to next-generation technologies like artificial intelligence chips. As of 2018, four out of the world’s top-10 integrated circuit design firms (i.e., Broadcom, NVIDIA, AMD, and Xilinx) are based in the region.33 GlobalFoundries, a major pure-play foundry around the globe, has its headquarters in Santa Clara. In addition, the region is home to three of the world’s major semiconductor equipment manufacturers, totaling 42 percent of global market share.”
“The abundance of venture capital, an entrepreneurial milieu, and a deep talent pool have been widely recognized as major factors for the thriving high-tech ecosystem. Although other emerging tech hubs in the US have been recipients of venture capital, Silicon Valley received 18.1 percent of total VC dollars in 2018, second only to San Francisco.35 And with San Jose State University, Stanford University, and the University of California, Berkeley in residence, the region boasts a highly educated workforce. Over half of the population 25 years and older have a bachelor’s degree or higher.”
“Oakland-Hayward-Berkeley, CA, ranks 17th this year, a decline of three places from the last rankings. The one-year wage growth ranked 15th with a 2 percent increase; five-year wage growth ranked 22nd while seeing 8.7 percent growth. The metro also boasts the 15th highest ranked location quotient with 1.7. As an integral part of the Bay Area, the metro ranks second in the number of above-average high-tech industries concentrated in the metro with 15. Oakland-Hayward-Berkley ranked 17th in five-year high-tech GDP growth, clocking in 12.7 percent growth over that period.”
“Oakland continues to benefit from broader Bay Area growth and regional spillover effects. The area is still lower cost when compared with San Francisco and San Jose, which provides a continuing competitive advantage as businesses relocate to the Bay Area. Square recently leased office space in downtown Oakland, which continues the trend of large companies looking to the East Bay for lower costs.”
“Among the high-tech sector, the data processing, hosting, and related services subsector stand out, adding 1,160 jobs in the past year and demonstrating continued investment by firms in cloud-related technologies and services. The largest private sector professional, scientific, and technical services firm in the metro added 800 jobs in the past year.”
Did You Know This About California?
The economy of California is the largest in the United States, boasting a $3.2 trillion gross state product as of 2019. If California were a sovereign nation (2019), it would rank as the world’s fifth-largest economy, ahead of India and behind Germany.
Did you know that the population of Canada is 37.59 million (2019)
Did you know that the population of Australia is 24.99 million (2018)
Did you know that the population of California is 39.51 million (2019)
There are many considerations when it comes to forming a joint venture. It is all about communication and having “all stones turned so there are no surprises.”
Below is a sample of the top FAQs. There are a lot more that will be documented in the operating agreement.
There will be either 2 or 3 total partners. First partner- Cordell Davenport – creator of this Joint Venture = 20% of monthly cash flow and 20% of the refinance. Second/Third partners are considered “Elite.” The reason for the name of Elite is because they will provide the down payment, closing costs, net worth, cash reserves and sign on the loan. If it is two Elite partners they will both get 40%. If it is only one Elite partner, they will get 80%.
Own and operate the apartment building by efficiently lowering expenses, and implementing ways to increase income. In this time frame once we have transformed the property, we will refinance the property at 75% LTV. Based out of that number we will divide up the money to each partner perspective membership percentage. For example when we do the Refi at 75% Loan To Value, say it brings $400,000. Cordell will get $80k (20%). Elite partner 1/2 will divide up the remaining $320k based upon their percentage. There will be a legal Operating Agreement made by the Real Estate Attorney that outlines all the details.
All disagreements will be handled by a 3rd party arbitrator. Will be chosen from by a certified Californian Arbitrator: https://www.nadn.org/california-arbitrators
If they are legally allowed to get half, they will get the portion. Each partner could also sell their percentage at a 20% discount of value to the group. The group will divide up the percentages.
Each month there will be $300 per unit that will be held in reserves for unexpected repairs).
The remaining group can by their LLC shares at 20% discount of the value.
This will be after the refinance. The LLC will remain. But Cordell will sell his % of shares back to the remaining partner(s). The remaining partners can decide to stick together, or figure out a way where one can buy out the other partner.
In the Operating Agreement each partner will list 3 beneficiaries where their shares will go to. The remaining partners will approach the beneficiaries and seek to buy the shares from the beneficiaries.
This will be two LLCs. One LLC will be the management company (of the 2-3 partners). The other LLC will be in the name of the Apartment Building that we own.
If they are out of commission for 60 calendar days straight they will forfeit their partnership. They will have to sell their shares of the LLC to the remaining partners at 20% discount. The overall price will be based upon the appraised value of the apartment. The appraisal will happen from a licensed appraiser.
The partnership will consist of 3-4 people. We will all have assigned responsibilities in running the Joint Venture. The members will be Cordell Davenport, the Property Management company and 1-2 other “Elite Partner(s).” The Elite Partner(s) will provide the networth to qualify for the loan, liquid cash reserves for the purchase and they will provide 100% of the down payment, closing costs, and earnest money needed to purchase the apartment building. In return they will receive 70% of all monthly cashflows and 70% of the refinance proceeds. If two Elite Partners are involved one will get 40% and the other will get 30% depending on what role they take in the Joint Venture.
The daily management of the property will be a 3rd part Property Management Company. They will have a strong track record in the area where the apartment is located. Cordell has already identified several companies to interview. After we pick the company, we will manage the property management company.
Yes. Cordell will be entitled to .50% of the acquisition costs.
5 million dollars. Here is a sample of how much money will be need by the “Elite Partner(s)