Author: Christine Hsu

Real estate investments and estate planning are two concepts that may seem unrelated, but they can actually work together to help individuals and families achieve their financial and personal goals. 

Some may say that they are two essential components of building a lasting legacy.

Real estate investments can be an important part of an overall investment portfolio, providing a steady stream of income and long-term growth potential. Estate planning, on the other hand, involves making decisions about how one’s assets will be managed and distributed after death or incapacitation. By understanding how real estate investments and estate planning work together, individuals can ensure that their investments are protected and that their assets are distributed according to their wishes.

In this article we’ll cover what is estate planning, how real estate investments fit into an estate plan, tax implications and other issues that arise during the process.

Before we begin, it is essential to consult with an estate planning-focused legal advisor to develop your estate plan documents. Your legal team will not only be able to create the documents, but also advise you on the best path to holding your real estate portfolio so that it can be included in your estate planning documents.

Pro Tip: Be sure that any estate planning documents are not only created, but funded. This means that any assets you hold are included in the document, or transferred into ownership of the document. For instance, with a living revocable trust, properties should be owned by the trust itself for the easiest ownership transfer.

What Is Estate Planning?

Estate planning is the process of creating a plan for the management and distribution of your assets after you pass away. It typically involves creating legal documents such as wills, trusts, and powers of attorney. Estate planning is important for everyone, regardless of the size of their estate, as it can help ensure that your wishes are carried out and that your assets are distributed according to your wishes.

One important aspect of estate planning is protecting your real estate investments. Real estate is often a significant part of a person’s estate and can be subject to various legal and tax issues. By incorporating real estate investments into your overall estate plan, you can help protect your assets and ensure that they are distributed according to your wishes.

How Real Estate Investments and Estate Planning Work Together

Real estate investments and estate planning work together in several ways. For example, incorporating real estate investments into your estate plan can help minimize taxes, avoid probate, and provide for the transfer of property to heirs. In addition, estate planning can help ensure that your real estate investments are properly managed and maintained, both during your lifetime and after your passing.

For example, you may choose to create a trust to hold your real estate investments. By doing so, you can transfer ownership of the property to the trust, which can help avoid probate and minimize taxes. The trust can also provide for the management and maintenance of the property, ensuring that it is properly cared for and generating income for your beneficiaries.

Why Avoid Probate?

Real estate investments that go through the probate process can be costly and time-consuming, which can be a burden on your heirs. Probate is the legal process by which a court oversees the distribution of your assets after you pass away. During probate, your assets are typically frozen until the court determines how they should be distributed. This process can take months or even years, depending on the complexity of your estate.

For real estate investments, the probate process can be particularly burdensome. Real estate is often subject to complex legal and tax issues, and the probate process can exacerbate these issues. In addition, the costs associated with probate can be significant, including court fees, attorney fees, and other expenses.

By avoiding probate for your real estate investments with certain types of estate documents, such as a trust, you can help ensure that your heirs receive their inheritance in a timely and efficient manner. This can help minimize the financial burden on your loved ones and ensure that your assets are distributed according to your wishes. One way to avoid probate for your real estate investments is to create a trust, which can help transfer ownership of the property outside of the probate process.

Common Real Estate and Estate Planning Issues

There are several common issues that real estate investors face when it comes to estate planning. One common issue is transferring property to heirs. Without proper planning, real estate investments may be subject to probate, which can be time-consuming and costly. Additionally, the transfer of property to heirs may be subject to gift or estate taxes.

Another common issue is dealing with tenants after death. If you own rental property, it’s important to have a plan in place for the management of the property after your passing. This may involve naming a property manager or executor in your will, or creating a trust to hold the property and provide for its management.

As a Limited Partner in a real estate syndication, passing down your real estate can be easier since you aren’t acting in any management capacity. Ownership typically passes through to heirs as either part of an LLC, Trust, or directly to beneficiaries as the new owners. 

Of course, as with any legal matter, working with an experienced estate planning attorney is essential to be sure your assets will transfer easily. You can create a plan that meets your unique needs and helps ensure the long-term success of your real estate investments.

Tax Implications In Estate Planning With Real Estate

Real estate investments can have significant tax implications, both during your lifetime and after your passing. Estate planning can help minimize these taxes by utilizing strategies such as trusts, gifting, and charitable donations. 

For example, a properly structured trust can help avoid or minimize estate taxes by removing the property from your taxable estate. Additionally, gifting property to heirs during your lifetime can help reduce your taxable estate, and charitable donations of property can provide significant tax benefits. However, it’s important to work with an experienced estate planning attorney and tax professional to ensure that you’re taking advantage of all available tax benefits and minimizing your tax liability.

Conclusion

Real estate investments can be a valuable part of your overall investment portfolio, but they also require careful planning and management. Incorporating real estate investments into your estate plan is an important step to ensuring that your assets are properly protected and distributed according to your wishes.

Estate planning can help minimize taxes, avoid probate, and provide for the transfer of property to heirs. It can also help ensure that your real estate investments are properly managed and maintained, both during your lifetime and after your passing. By working with an experienced estate planning attorney, you can create a plan that meets your unique needs and helps ensure the long-term success of your real estate investments.

If you haven’t already, now is the time to start thinking about your estate plan and how your real estate investments fit into it. Whether you’re a seasoned real estate investor or just starting out, proper planning can help ensure that your investments are protected and your wishes are carried out. Remember, seeking professional advice for both real estate investments and estate planning is important, and can help you make informed decisions for your future.

To learn more about how you can invest passively in real estate, check out our website at https://noblivest.com and apply for our Noblivest Investor Club by completing the form in the top right button “Invest With Us”. Our Noblivest Investor Club members receive educational content about real estate syndications and access the opportunities in our pipeline.

The current interest rate environment is causing investors to scrutinize each deal more than they have in the past. This change in scrutinization is due to the fact that interest rates are higher than we’ve seen in the recent past, and investors are not sure how long this will last. As a result, deal flow has slowed down across the entire real estate market.

Today, real estate investors and operators can’t simply go out and buy a property and hope that it’s going to appreciate as it has in recent years. Operators need to purchase properties based on current interest rates and have realistic expectations about all other expenses while underwriting deals. This fact is especially true if refinancing the property is a part of the business plan.

Higher interest rates also mean that operators need to have additional scrutiny when underwriting all aspects of the deal. There simply isn’t as much room for error as there has been in the last several years that had such great market velocity (or incredible appreciation).

Commercial real estate owners need to execute on all levels of their operations, including:

• Asset management
• Property management
• Tracking the financial statements
• Leasing rates

Commercial property owners who are not able to operate their properties efficiently and are impacted by rising interest rates will be at a greater risk.

This change in the current market is why it’s so important for investors to do their homework when selecting an operator to invest alongside in this environment. By taking the time to understand the debt market and the deal they’re looking to invest in, they can make a well-informed decision that’s more likely to result in a positive return on investment (ROI).

Fixed Rates vs. Assumable Loans

When you’re investing in a commercial real estate deal, one of the most impactful factors is how a property is financed. Currently, commercial real estate investors look for two primary financing options: a fixed-rate mortgage or a loan assumption. Both have their pros and cons, so it can be difficult to decide which financing option is best for a specific property. Let’s take a look at the differences between fixed rates and loan assumptions below so that you can understand how financing can impact your investment as a passive investor.

Fixed-Rate Mortgages

Fixed rates are exactly what they sound like. Your interest rate will be locked in for the life of the loan, so you’ll never have to worry about that rate increasing. This type of mortgage can be a great option if you’re worried about interest rates going up in the future. It also gives you peace of mind knowing that your monthly payments will stay the same for the life of the loan.

Fixed rates aren’t always the right option, though. They often come with longer terms (7 to 10-year loans, for example). If the property is sold earlier than the full term or refinanced for a lower rate, it may incur a heft prepayment penalty fee. If these fees are not integrated into underwriting from the beginning, they could be a significant blow to investors’ cash flow.

Assumable Loans

Loan assumptions, on the other hand, are loans that pass from the seller to the buyer. A buyer “assumes” the loan terms from their seller in this case. The buyer becomes fully responsible for the seller’s loan from that point on, and the original borrower (seller) is no longer liable.

It’s crucial to note that a loan assumption is not the same as a refinance when it comes to the debt market—the new borrower is not getting a new loan. They’re simply assuming the payments on an existing loan.

Assumable loans can be hard to find. They also can come with big fees. Operators must incorporate associated fees, a longer close time, and other criteria into the underwriting for these types of loans.

Which Choice Is Right for You?

So, how does this impact you as a passive investor? It depends on your investing preferences. If you’re worried about interest rates going up in the future, then investing in a deal with a fixed-rate mortgage may be a better option. Be sure to ask the operators if there are any additional fees or criteria for a fixed-rate mortgage. You will want to see that they are integrating those numbers into the underwriting of the deal.

If you want to invest in a deal with a lower interest rate, then a loan assumption may be a better choice. For example, with current rates being in the 5 to 6 percent range, you could potentially assume a loan that was negotiated with a 4 percent interest rate. Again, look for any additional fees or penalties for this type of debt when you review the investment offering.

For many commercial property investors, assuming loans has become a popular strategy with a lot of new deals. Operators may find that paying the extra fees and waiting the additional closing time to assume a loan from the seller is worth it. They are looking for projects where they can assume debt that’s potentially at a better rate. What this means for a passive investor is that there may be better cash flow in a syndication with an assumed loan than one that has a higher interest rate. That isn’t always the case, however, and an investor should always ask about the consequences of any different loan structure.

How To Hedge Your Risk

Commercial real estate hedging strategies are important for a few reasons. First, the debt market for commercial real estate is often cyclical, meaning rates and rent tend to go up and down. Additionally, the cost of commercial real estate can be high, so investors want to make sure they protect their investments.

There are a few different ways to hedge your risk when investing in commercial real estate that we’ll cover below.

Invest in Fixed-Rate Mortgages

Many investors consider a fixed-rate mortgage to be the key to a successful real estate investment during periods of higher interest rates. A fixed-rate mortgage offers stability and predictability. You know exactly what your monthly payments will be for the duration of the loan, which makes budgeting and planning much easier.

Even if interest rates rise in the future, you’ll be protected against increases with a fixed-rate mortgage. This protection can be especially important if you’re planning to hold your property for a long-term investment.

When it comes to hedging your risk, if you can get a fixed rate, that’s the ultimate hedge.

Buy a Cap on Floating-Rate Mortgages

The other option for hedging your risk is investing in a deal that incorporates debt with floating rates where you buy what’s called a cap. A cap means that the rate can only go up to a certain amount.

However, buying the cap requires that investment groups pay a fee upfront, which is generally a percentage of the total investment. The cap, then, acts as a form of insurance against interest rate hikes within the debt market.

The reason this can be a smart move is that when you’re investing in a property, you’re not just betting on the current interest rate environment; you’re also betting on where interest rates will be in the future. And if you think interest rates are going to go up in the future, it might make sense to buy a cap.

Of course, there’s no guarantee that interest rates will go up or down. But if you think there’s a good chance they’ll go up, buying a cap can be a way to protect yourself against that risk. Talk to your operator to learn more about caps and how they may impact any deal you’re evaluating.

Investing in Commercial Real Estate

As you can see, interest rates have a significant impact on the current syndication deals operators can offer. The current deal flow is slowing down, and many operators are looking into fixed-rate mortgages and loan assumptions for the best rates. Furthermore, seeking a fixed rate or buying a cap on floating-rate mortgages are some of the ways these operators are looking to hedge this risk. So, consider the current market conditions we’ve covered, and always ask your operator to explain any assumptions with current debt structures.

We, at Noblivest, are continuing to seek out sound investment opportunities across various asset classes in commercial real estate. Our #1 goal is to identify opportunities that will help you preserve your capital through recession-resistant investments, create cash flow to increase wealth and utilize the tax laws that encourage investments to help mitigate tax burdens.

Click the link below to book a call with us to discuss your specific investing goals.

“Ladies and gentlemen, buckle your seatbelts. There will be turbulence ahead.”

When I think about our current economy, I think of it like an airplane flying through a rough patch. The Fed adjusts their flight controls based on economic data similar to how a pilot adjusts their speed (size of rate hikes) and glide slope (terminal interest rate) depending on what the visual glide slope indicator shows – the lights beside the front of the runway that tell a pilot if they’re coming in too high (high inflation) or too low (overtighten and break the economy). 

Over the last year, the Federal Reserve increased interest rates several times causing markets like the S&P 500 to drop about 12%, and the DOW down about 20%. These past couple weeks were a bit of a mixed bag coming off the heels of good CPI news that triggered a rally a little earlier in the month. It’s been volatile, nonetheless. We feel it in real estate too, with the cost of debt increasing substantially cutting into the net income of properties.

However, turbulence does have an end. The good news in Jerome Powell’s speech today is while there will still be rate hikes in December and early into 2023, the hikes will be smaller at around 50 basis points in December. While the future is uncertain, there is hope for a soft landing. Only time will tell.

“Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

Jerome Powell (Nov 30, 2022)

So with this, is now still a good time to invest in real estate? Well, this certainly isn’t just a yes or no question. Here are some of our considerations:

• Shift expectations – Changing expectations should be adopted across the board among sellers, buyers and investors. Deals are to be underwritten and approached differently from even just earlier this year. Many deals now are retrading with price negotiations, as sellers must change their expectations on their pricing. Double digit cash-on-cash returns are no longer realistic in today’s climate for investor returns.
• Diversify and educate​ – Now is the time to educate ourselves on the changing tides, because the playing field is different from where we were in the past couple years. Multifamily has been tried and true, and undoubtedly stable over time; however maybe it’s time to look at other higher yield opportunities with data supporting its growth.
• All eyes on debt – Debt and leverage are more important now than ever! As the interest rates are rising, this subsequently is causing the debt service to eat up cash flows which affects the debt-service-coverage-ratio (DSCR). The DSCR is what the lenders use to determine whether the asset is spinning off enough cash flow to make the monthly debt service payments. Lenders prefer a minimum of 1.25 DSCR, and when it drops below this point they lower the loan-to-value percentage (LTV%).​

​There are always opportunities to buy assets in any market condition. In my opinion you should always be looking to invest, as money sitting in a bank account does nothing for you except lose value due to inflationary pressures.

One of the best things you can do is find a general partnership team that has skin in the game and that is using conservative measures to find assets that meet the criteria for solid returns. Also, an operator that sets up their assets with ample operating reserves that should allow us to weather most economic storms that may be on the horizon. This mitigates the potential for capital calls in the future.

I truly believe this is a great time to invest your hard-earned money to see some great quality returns during these times. We, at Noblivest, are continuously monitoring the market conditions and tracking the data that support our investment opportunities. We are tightening our due diligence on not just our deals, but also the asset classes, market conditionals and partners & sponsors we work with. 

If you still have questions, I encourage you to schedule a call with us so we can provide answers to your questions or simply talk through a situation that you may have right now.

Imagine you had a million dollars to invest.

What would you do with it?

There are many options from which to choose from investing in crypto currency to investing in gold and precious metals but most people would invest in the stock market while others would invest in real estate.  

Every investment is subject to risk so let’s take a close look at investing in stocks versus real estate and the four basic risks of investing.

Risk #1 – Market Correction

Stock Market

Sudden market corrections can result in wild swing in stock prices and during a downturn, investors may exit quickly which only solidifies their losses.  Others try to ride it out but a bear market during a recession can last for months, or even years.  

Multifamily Real Estate Investments

Recessions can actually be good for commercial multifamily real estate investments, especially for workforce housing. During a recession, many people forego buying a home and choose to rent instead.  This increases the demand for apartments, thereby decreasing the risk.

Risk #2 – Competition

Stock Market

Consumers don’t have insight into technology development or companies’ operations. At any point, a new competitor can disrupt the market with a new approach or new technology and have a significant impact on investment returns.

Multifamily Real Estate Investments

Multifamily competitors don’t just spring up out of nowhere, because space, zoning, and permits are limited. In addition, the demand for multi-family housing continues to outpace supply so apartment vacancies are at record lows.

Risk #3 – Consumer Behavior 

Many stocks are consumable products that may be affected when consumers cut down on their spending.  In addition, changes in technology and consumer behavior can drastic impact stock prices 

Multifamily Real Estate Investments

Real estate is a basic human need that will never go away. Everyone needs a place to live and that need has only strengthened over time, especially with rising population trends.

Risk #4 – Lack of Control and Transparency

Stock Market

Investing in stocks is like buying a train ticket. There are hills and valleys but the conductor (CEO) is unreachable so you’d better buckle up and hang on!

Multifamily Real Estate Investments

In a real estate syndication, you know exactly who the deal sponsor is, and you can reach out directly to ask questions.  In addition, there are multiple buffers in place to protect investor capital, such as reserves and insurance, and experienced professionals to handle the unexpected.

Conclusion

Whatever investment you choose, understand the risks going in, and just do it. Because that money you see sitting in your savings account? It’s losing value (because of inflation) with every passing second.

There’s certainly no one “right” way to invest. The key is to invest. Period.

Real estate investors, along with the rest of the world, are experiencing an inflationary environment. Even investors with a diversified portfolio are looking for more ways to create an inflation hedge.

You’re feeling this same decline in purchasing power at home as you pay more daily at the pump, face rising energy costs for the summer, and see the cost of food and clothing shoot upward for your entire family.

You want to make sure your family is well-provided for even in challenging times.

One of the best ways to hedge against inflation is real estate investing in “sticky assets.”

Let’s take a quick look at our economic environment, the definition of “sticky” real estate, and then how specific types of real estate can hedge against inflation.

Rising Consumer Price Index and Interest Rates

The combination of the Covid pandemic, the war between Russia and Ukraine, and supply chain shortages across the globe have the world reeling under rising inflation.

In response to inflation, the Federal Reserve has raised interest rates with the hope of curbing high inflation without stunting economic growth.

As consumers see their monthly payment go up in almost every area, investors are looking for an investment strategy that will work as an inflation hedge, provide real estate income, and create long-term cash flow if inflation hits even harder.

This is where the “sticky” asset classes of real estate come into play. Real estate prices continue to rise, but not all commercial real estate provides the same long-term value and rental income that you want from real estate investing.

Because you entered real estate to avoid the fluctuations of the stock market, maintain your level of purchasing power, and gain inflation protection, let’s define the term “sticky” and how such investments can work for you.

Defining “Sticky” Assets in Real Estate

“Sticky” real estate is the idea that the revenue stream of the property is consistent over the long term. Commercial real estate is valued by tenants and whether or not it is a piece of income-producing real estate.

Property values in private real estate like houses are often evaluated based on the location of the house. The improvements the neighbors do (or don’t) affect your home value too!

However, commercial properties are valued based on their revenue streams and the consistency of those revenue streams.

For example, an office space might have a 95% tenancy rate, but that rate alone doesn’t make it a sticky asset class. You also need to look at how likely the tenants are to stay in that building long-term.

Many office buildings do not fall under the umbrella of “sticky” real estate because of various factors such as remote work and ease of movement from one building to another. These office buildings find it difficult to raise rents because the demand is low. This keeps investors from having a higher rental income.

However, doctors’ offices and other medical buildings are often considered sticky because of the amount of money that goes into building the infrastructure for the building. The medical corporation, rather than the landlord, is usually investing millions in a specialized infrastructure that will keep them in the building for the long term.

These tenants will usually remain even if property prices go up because they would need even more money to invest in a new building. Such office buildings are considered “sticky.”

An investment strategy that focuses on “sticky” real estate investments has the potential to stay strong in the face of high interest rates, a steep inflation rate, and a fluctuating stock market.

So how does a real estate investment hedge against inflation?

Real estate investing in sticky asset classes can hedge against inflation and bolster your portfolio against a future that may see interest rates rise again.

Multifamily units are often in great demand during a period of high inflation and high interest rates. If families have to downsize their lifestyle as inflation rises, they often move into an apartment or condominium. This property sector often sees consistent income even during an economic downturn.

Storage units can be a good hedge against inflation. People who can’t find housing due to high demand or those who are moving into multifamily units due to housing prices often turn to storage units. They’ll put the majority of their belongings in storage while they live with the bare minimum belongings in a minimally sized apartment or with another family. These storage units often provide positive cash flow and passive income for a real estate investor.

Because real estate rental properties that fall under the “sticky” asset class are often in high demand no matter the economic situation, they are usually a strong source of passive income and a great hedge against inflation.

Real Estate Investment Trusts or Real Estate Syndications?

Real estate investment trusts work more like the stock market and may see fluctuations similar to stock prices. Real estate syndications, on the other hand, usually require more up-front investments but often provide a more stable source of passive income. Alternative investments like real estate syndications can offer you access to “sticky” assets that can hedge against inflation, even if you don’t have millions of dollars to buy commercial real estate on your own.

Face the Future with Confidence through Strong Investments

You can’t control the Federal Reserve or overall consumer prices. What you can do is pursue an investment portfolio that contains commercial property with solid infrastructure, long-term tenants, and the potential for raising rents.

Even as inflation rises, your confidence can rise too knowing you are seeking sound investment advice by understanding how “sticky” assets can help you reach your financial potential during shaky economic times.

Your peace of mind will allow you to focus on your family and not on your worries about inflation, recessions, or any number of problems on the horizon. Allow investments in “sticky” assets to provide for your family and create a sense of security in an insecure world.

Suppose you haven’t yet invested in your first real estate syndication with us. In that case, it’s likely you’re still learning the process, building your various savings accounts so that you can feel confident as an investor, or maybe you’re unclear about which type of asset would be best as your first foray into commercial real estate. 

Alternatively, suppose you have invested in Multifamily. In that case, it’s likely your concerns revolve around how to build diversification into your real estate portfolio and what types of assets should be accumulated in which order. 

Well, I’ve got good news!

In this article, I’ll walk you through the steps to building a diversified, complimentary commercial real estate portfolio. So, when you’re done reading this article, you’ll know exactly what to look for next, no matter where you are in your investing journey.

Our Three Favorite Asset Classes For Diversification

The key is to select uncorrelated yet complementary asset classes. We’ve found three unique asset classes that are a step above the rest based on cash flow, renters’ needs, and operator strategy. 

We started by investing in multifamily and, in time, added self-storage and short-term rentals. Each diverse asset type provides a unique solution to a different demographic, varies in monthly or yearly turnover, and requires a different business plan to best serve all involved.

When you have a single asset in your investment portfolio, your risk is concentrated on that one property. However, if you spread your investing power over three or more assets, each one carries less power to make or break your investment strategy. And, to take it a step further, when you spread your risk over multiple properties in various markets across these three asset types, you’ve created a truly diversified real estate portfolio.

Multifamily Real Estate As Part Of Your Diversified Portfolio 

First and foremost, multifamily real estate syndications have been our default and reliable asset class because of their unique position in the housing market – tenants find them more affordable than single-family homes. With the increased migration patterns and shortage in housing supply in the past couple years, we are still seeing very high demand for multifamily and apartments.

Multifamily investments can be found in every city, job market, style, and demographic across the US, allowing diversification within the asset class. Apartments are generally rated as an A, B, C, or D-class property and can come with all the bells and whistles of a new build or reflect years of neglect and deferred maintenance. 

Multifamily real estate properties produce cash flow monthly from rent payments, and turnover is typically on an annual basis as tenant’s leases renew. 

Self-Storage Property As Part Of Your Diversified Portfolio

One great addition to your real estate portfolio could be self-storage. Self-storage properties have come a long way in recent years! Of course, you’ve seen Storage Wars, right? 

Nowadays, operators and owners have leveraged technology to allow guest entry, turn on and off lights, unlock and lock facility gates, allow renters to pay fees electronically, and much more. This has reduced the need for on-site staff to the point that one employee can serve hundreds of units at a time, which also drastically reduces overhead.

Storage units can turnover monthly as renters’ needs adjust, but re-leasing a unit only requires a little dusting of the cobwebs to be ready for a new renter within the same day. While per-unit rent is much lower than a multifamily unit, self-storage properties can easily pack hundreds of units onto a small piece of real estate, making storage facilities’ lot size to revenue ratio ultra-efficient.

Storage units come in various sizes, climate-controlled, non-climate-controlled, interior access, exterior access, with or without utilities, and, of course, in different metro and suburban locations, all of which provide the opportunity for diversification within the asset class. 

Short-Term Rentals As Part Of Your Diversified Portfolio

We’ve all seen how popular AirBnB and VRBO have become in the last decade. Especially with the lockdowns during the pandemic and the whole remote work culture, many people especially in smaller homes and apartments sought refuge in more remote destinations and stayed in short-term rentals that provided more space and breathing room.

Within the last 5 years, we’ve seen nearly 300% growth, and it continues to grow as it competes with the hospitality and hotel industries. These shorter-stay homes and properties provide a larger, more spacious and unique experience to make traveling to various destinations more comfortable for individuals, couples, families and larger groups.

Short-term rentals tend to see higher revenue based on a per-night charge basis, yielding higher profits and margins despite potentially higher expenses and turnover costs. Due to this, STRs provide significantly more upside on cash-on-cash than traditional long-term rentals and allow for a higher resale value based on the increased revenue.

How To Build A Diverse Portfolio With Three Asset Types

With just these three asset types – multifamily, self-storage, and short-term rentals – you can immensely diversify your portfolio. In addition, by investing in multiple properties of varying class, located inside and outside of metro areas, with differing job opportunities and population diversity, you can spread your risk relatively thin across all your syndication investments. 

While this isn’t likely something you can achieve tomorrow, it’s crucial to start with the end in mind. If your goal is to have 20+ syndications providing you cash flow and appreciation from nearly every state across the US, now you have a strategic way to approach that goal. 

For those just getting started, we suggest getting your feet wet with a multifamily syndication first and adding on various asset types and classes as your confidence in real estate investing grows. 

Private equity real estate funds are becoming more and more popular in the last few years, but they’re not exactly new. Real estate syndications have existed for decades, with some of the earliest examples dating back to 1926. Real estate funds come in two different flavors: REITs (Real Estate Investment Trust) and private investments. Private investment funds allow you to invest alongside a small group of other investors, while REITs offer publicly traded stocks that represent an ownership stake in a larger pool of properties around the world.

Commercial real estate has always been considered an “alternative investment,” but it is fast becoming more mainstream. With housing prices skyrocketing, the increasing cost of raw components and lumber, and labor shortages, the idea of owning a piece of income property is just not in the cards anymore for many individuals. So, most investors are turning toward small multifamily or other hands-off type commercial real estate properties.

Aside from buying an entire storage facility or small multifamily complex on your own, another more affordable entry point into commercial real estate can be found through real estate investment funds. These funds appeal to investors who want to own commercial property but would rather be passive in their investing approach, meaning they do not want to directly partake in property management activities. 

Investors pool money to purchase assets within the fund. The fund’s sponsor then directs all of the fund’s operations, including property management. If the fund purchases and renovates or buys and holds property for an extended duration of time, the sponsor team will need to make stronger efforts in property management. Real estate funds are a fantastic strategy for individuals who want to generate passive income by investing in real estate, but don’t want to be responsible for the property.

Below, you will find everything you need to know about real estate investment funds, their benefits, the structure, profits, returns, and more! 

What Is A Real Estate Fund?

Real estate funds are a mutual investment entity. Mutual investments allow investors to invest any amount of money they choose toward numerous properties at the same time, regardless of the property-to-capital ratio. This way, investors circumvent the need to have the entire capital amount that would be required to invest in whole properties as an individual. Investors can purchase a portion of several properties in the form of shares.

Real estate investment funds provide you the chance to invest in real properties with a variety of rules and regulations that are specific to each region. There are different kinds of funds, including dividend-paying real estate investment funds, which are similar to mutual funds. These funds combine money from investors and give them the opportunity to explore Investors may choose from a wide variety of funds, each with its own targets. For example, some real estate funds focus on large residential properties, while other funds might be focused on commercial properties that can be sold quickly. 

Rules for each real estate fund vary. But generally, the funds offer investors the chance to invest in real estate at a lower price point, maintain liquidity since shares can be cashed out early, and, of course, the opportunity to earn passive income when rent is paid on the properties and when the value of the real estate increases.

Types of Real Estate Funds

As you look deeper into real estate funds, you will notice two main types of real estate funds.  The first type is a private equity real estate fund. Private equity funds are not open to the public and have more restrictive membership criteria, such as high net worth or an institutional affiliation.

The second type is a Real Estate Investment Trust (REIT). Real estate investment trusts are publicly traded. Although there is a cost to the investor, REIT’s offer liquidity and can provide diversification within your portfolio.

Real Estate Funds vs REITs

A real estate fund is pretty much another form of a mutual fund, except it is focused on investing in the securities public real estate companies offer. These real estate mutual funds differ from real estate investment trusts or REITs. Real estate mutual funds are exempt from registration with the  Securities and Exchange Commission or the SEC, and they are exempt under what is known as Regulation D, Rule 506. 

REITs are corporations that invest directly in commercial real estate, and when you invest in a REIT, it is like buying stocks, where shares can be purchased and sold. REITs and other securities have to be registered with the SEC. They can seek exemption from the SEC, but this process is costly, complex, and time-consuming, therefore not typically done. 

How To Invest In Private Equity Real Estate Funds

Once you connect with a firm or sponsor who is offering an investment opportunity, you have a couple of choices as to how you can invest your capital.  You can either send in capital you’ve saved in a highly accessible account or you can invest using your retirement savings.

Wire Liquid Funds

If you’ve saved your investment capital in a highly-accessible, highly liquid savings or other bank account, you can simply wire the entire investment amount to the sponsor, according to the instructions provided in the investment documentation. The sponsor will then buy shares in the fund on your behalf and list them in an account that is maintained at the transfer agent.

Self-Directed IRA Funds

The self-directed IRA is one of the most popular ways to access real estate investment funds. This version of an IRA isn’t much different from a Roth IRA. Self-directed IRAs are more popular because they allow investors to invest in a wider range of assets, such as real estate investment funds.

Traditionally, brokerages do not allow investors to invest money in non-traditional investment possibilities from a Roth IRA, Traditional IRA, or 401K. As a result, investors interested in a real estate fund strategy may need to transfer funds from their existing, likely traditional brokerage account to an IRA custodian that offers self-directed investing choices.

The main benefit of investing in a real estate fund instead of buying and managing an investment property is it allows the investor to diversify their portfolio and still keep a hands-off approach. Investors should remember that self-directed IRAs are self-directed, which means it is 100% up to the individual to do their research and conduct thorough due diligence, find good sponsors, and explore potential opportunities and risks prior to investing in any fund or other alternative investment. 

Who Qualifies to Invest In A Real Estate Fund?

There are a few qualifications that investors need to be aware of before they decide if this investment choice is right for them.

Investor Qualifications

Depending on the qualifications that fund management outlines, real estate funds may require that you have a net worth of at least $250,000 and that you contribute an initial minimum investment, which can range from $5,000 to hundreds of thousands of dollars, depending on the size and type of fund you’re investing in. Many real estate funds will also have a maximum investment amount, and some will be open ended.

Real estate funds typically require a minimum investment period of one year or longer, although there are also “opportunity zone” real estate funds that allow for turnover in under two years. Real estate is typically considered an illiquid investment because it takes time to sell the property and receive your capital back out of the fund so investors will need to be prepared for this type of timeline. 

REITs typically have much lower minimums and will allow you to buy in with a much smaller investment. They’re more accessible, generally listed on public exchanges, and available for investment inside most standard retirement savings accounts.

Sponsor Qualifications

You gain from the fund sponsor’s qualifications, connections, and experience when you invest in real estate funds. The sponsor is often a sector expert or group with extensive expertise in managing real estate investment opportunities. They’ve already performed detailed due diligence on the properties included in the fund, the market, and analyzed the projections extensively.

Sponors will provide investors with thorough financial information to evaluate and evaluate prior to asking for financial commitment to the fund. They will also be accessible and delighted to answer any questions about the fund’s strategy or how it will be a success for investors. Keep your eyes and ears open for any calls, webinars, or presentations in regard to the fund, as this is an excellent opportunity to get to know the team and the strategy on a deeper level.

The fund manager is in charge of all aspects of the fund’s day-to-day operations, allowing investors to invest without being concerned with each transaction made through the fund.

Benefits of Investing in Real Estate Funds

Real estate funds often provide higher than average, consistent returns, that are independent from the stock market’s fluctuations, further proving that investing in real estate is a dependable way to generate revenue and profits over time. Real estate investing allows you to diversify your portfolio instead of having all of your eggs in one basket like with buying an investment property or stock market investments alone.

Investing in real estate funds also gives you access to the real estate market without the hassle of being a property owner or manager. You can pick and choose from different types of real estate investments without having to do all the research yourself – the fund’s sponsor will have already done that for you.

Diversification

You combine your money with other investors’ to buy a set of similarly rated assets in different locations using real estate funds. You may also diversify your holdings by purchasing shares in multiple funds. You can even diversify across asset types, markets, and appreciation profiles by buying shares in different funds. Diversification lowers risk while increasing the potential for greater returns for investors.

Profitability 

Most real estate investment funds are designed to pay investors back before the fund’s sponsor makes any money. As a result, the sponsor is under great pressure to ensure that the transaction meets its intended profit goal. The structure of investments is designed to maintain the interests of the sponsor and their investors in alignment.

Tax Efficiency

Most funds are structured to last longer than one year, meaning they will be taxed as long-term capital gains instead of short-term.  Real estate funds also allow you to invest in real estate without worrying about depreciation.

Investors may benefit from pass-through depreciation, and the tax benefits will rest on the investor’s shoulders and be driven by their circumstances.  Real estate funds offer investors a way to defer taxes on their share of income and capital gains until they actually sell their shares in the fund.

Preferred Returns

When it comes to preferred return, the investor is paid first. If it’s a cash flow fund, investors will receive their distributions throughout the life of the investment. This sort of return is necessary because you’ll be paid before the professional manager, which is crucial when dealing with higher-risk assets.

Will Your Next Real Estate Investment Be In A Fund?

There are many reasons people decide to invest in real estate and an additional list of reasons they might decide to invest in a real estate fund. Real estate investment funds are a great way to diversify your portfolio without having to take on all the hassles of owning property directly. 

Not all funds are created equal, and you always want to do your research and due diligence before investing in a particular real estate fund. Be sure to vet the fund’s sponsor, management team, and explore the fund’s track record. Evaluate the fund’s targeted returns, then determine if you believe in or agree with their strategy and how long it will take to hit their target metrics.

As with any investment, research the opportunity thoroughly. No investment comes without risk, and no investment is foolproof. But the more you know about how the fund is structured, the team running it, and the assets that are inside the fund, the more likely you are to invest your hard-earned money in a profit-making machine!

How we got started and how we became Noblivest

Margaret spent 20 years working her way up the corporate ladder as an executive for media and market research firms before escaping the grind for real estate.  She realized over time that she was ready to give up the long hours and time away from her family working and traveling for another company. She jumped into real estate and obtained a residential real estate license with Keller Williams, which allowed her to control her time while working towards her passion. She has helped countless people and families purchase and sell their homes across CT and NY. She started her real estate investing career in multifamily, and founded MGH Investments in 2016 and has invested in properties in TX, NC, SC and IN. 

Christine knew fairly early on that corporate life wasn’t the best fit for her. After the first honeymoon year in any new job she had, the excitement quickly wore off with the long hours, highly competitive environment and unwelcome attitude towards thinking outside of the box. It wasn’t until 11 years and 2 children later in her career, did she finally take action to find another path. In late 2019, she started learning as much as she could about real estate. She purchased numerous books and listened to endless BiggerPockets podcasts to speed up the learning curve. By 2020, she was committed to jumping into this business. By that summer, she and her husband sold their primary home in NJ and purchased a duplex in NY to househack. This helped save on housing and living expenses, thus making leaving her job and pursuing real estate investing a slightly less risky endeavor. Along with that transition, she also purchased 4 rental properties in Philadelphia and invested in multifamily and mobile home park syndications across NC, SC, GA, FL and TX. 

How did Margaret and Christine meet?

It all started with LinkedIn. Christine didn’t know who to talk to or ask about investing in Real Estate when she first started, so she did a quick search in the search bar on LinkedIn– “Real Estate Investor”. Margaret was one of the first names that came up due to mutual connections and similar career backgrounds. Margaret very graciously responded and hopped on a call with Christine. After a couple calls, they decided to meet in early 2020 over coffee and chat about all things real estate. Margaret told Christine about the amazing things that come with Multifamily investing, and even brought her into her first deal as an LP. The friendship grew organically there, even keeping in touch during the pandemic and starting a 30-day meditation challenge together in a small group on text with Deepak Chopra. Even though they were both in different stages of life, there were still so many similarities not just in career transitions, but also in faith, values and family circumstances. Some time had passed as the pandemic led people to stay home and social distance. The hot real estate market in CT and NY kept Margaret busy, and acquiring and managing rental properties took much of Christine’s time. By early summer 2021, as everything started opening up more they reconnected over a delicious lunch and caught up on life, kids and real estate. It was then they discovered their long term goals were still focused very much on multifamily. Margaret was doing very well as a real estate agent, but it wasn’t the long term plan. She hoped to scale back and retire early with multifamily syndications. Christine was ready to move on from the rentals business and scale with multifamily properties. They decided, why not partner?!

After many months of planning and brainstorming, Noblivest was born. We wanted our company to stand for what we felt was most important to us, faith, family and integrity. While real estate is a common vehicle to wealth, we didn’t just want to build a nest egg for our own families, we wanted to bring impact to those around us too. We wanted to help open doors to our investors and their families to another stream of passive income and an investment strategy that outperforms what banks and traditional brokerages offer. We wanted to improve and create communities with apartments and homes that are clean, safe and comfortable to the families we cater to. We hope to use our profits to support families and women of children with disabilities and special needs, helping them navigate the complex world involved with that as it is a cause very close to us and our families. We would like to champion other women like ourselves to financial literacy, especially concepts that are not commonly taught in schools or spoken about. 

We have personally seen the benefits of investing in real estate syndications. It is our goal to discover the opportunities for us to invest alongside with you, while creating a platform to inform and educate on the concepts around real estate and syndications.

We look forward to partnering with you on this exciting journey as the Noblivest tribe! We are always here to support you, so please don’t hesitate to book time with us for a chat. We would love to hear about your investing goals and whether this amazing strategy fits into your long term goals!

 

The problem with investing is, it’s really easy to look back in time and see the best path, but it’s not so easy looking forward in time. Being able to assess your current financial situation, reflect on your investing goals, and commit to a plan of action are all easier said than done.

I can’t pretend that I have a crystal ball for you to show you the future and what’s best for you to invest in at the moment. But, what I can do, is show you the past performance of three multifamily real estate syndications (group investments) that we and our investors have invested in, how much they’ve returned to investors, and the impact that they’ve had on their respective communities.

Let’s take a look at three multifamily real estate syndication projects, all based on actual projects in our portfolio, and how their performance to date. Please note that all data and identifying information below is based on actual projects but has been changed to protect the privacy of the deals, our partners, and our investors.

Case Study #1 – 320-Unit Apartment Community

Here we are looking at a 320-unit apartment community acquired in May 2016 for $26.6 million. This class B apartment community was built in 1983 and is in a rapidly growing submarket of Dallas-Fort Worth. The previous owner had inherited the property from their father, no longer wanted to manage it, and was looking to cash out.

The business plan for this real estate syndication was to improve on-site operations by bringing in professional property management and to renovate each unit to the standard of other apartments in the surrounding area.

Upon acquisition, the team immediately put into place a professional property management team, which was able to maximize operational efficiencies and oversee and execute on all phases of the value-add business plan.

The renovations were completed within 18 months. The market was quite favorable at the time, so the team decided to sell the property. After just 22 months, they were able to sell the property for $35.2 million and exit the real estate syndication with a profit of $8.6 million in less than 2 years.

What did this look like for investors? Let’s take a look.

If you had invested $100,000 in this real estate syndication, you would have ended up with $170,000 in 22 months. That means you would have made a profit of $70,000 in less than 2 years, while having to do zero work.

Case Study #2 – 216-Unit Apartment Community

In October of 2016, our partners acquired another apartment community in the Dallas-Fort Worth area. This complex was a bit smaller, at 216 units, and was built around the same time, in 1981. Similar to the last example, this apartment community was a class B asset in a growing submarket.

One key difference, however, was that this property was acquired off-market (i.e., it wasn’t publicly listed). Because of the relationship our partners had established with the broker based on their previous transactions and track record, they were able to acquire this property without having to compete with other potential buyers, meaning that they were able to get it at an excellent price.

This property was purchased for $12.2 million. The team worked hard to rebrand and reposition this property, investing several thousand dollars per unit to renovate the property.

Their hard work paid off.

In just 18 months, they were able to sell the property for $18.25 million and exit the real estate syndication with a profit of over $6 million in just a year and a half.

If you had invested $100,000 in this syndication, you would have ended up with $200,000 just 18 months later.
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In other words, you would have doubled your money in a year and a half.

A Behind-the-Scenes Look At 3 Multifamily Real Estate SyndicationsA Behind-the-Scenes Look At 3 Multifamily Real Estate Syndications

Case Study #3 – 200-Unit Apartment Community

Let’s take a look at one more example. This one is a current project. It was acquired in December of 2016. Similar to our other examples, this 200-unit apartment community is a class B asset in a growing submarket of the Dallas-Fort Worth area. The property was originally built in 1981 and was purchased for $16 million through an off-market deal.

—

May 2017 (6 months after purchase)

In the six months since acquisition, 38 units have already been renovated, and new rent premiums are $20 above what was originally projected. This means that the property is already doing better than expected, just six months in.

Sidebar: Okay, I know that $20 above original projections doesn’t sound super exciting, but you have to think about the scale of this thing. $20 across the 38 renovated units means an additional income of $760 per month, or $9,120 per year. At a conservative cap rate of 10%, this adds an additional $91,200 of equity to the overall value of the property. All from a measly twenty bucks.

Other projects that have been completed within the first six months include the installation of an outdoor kitchen, the addition of a new dog park, rebranding with new signage, and the construction of over forty carports.

Phew! That’s quite a bit of work in just six months.

—

December 2017

Renovations have continued to go well during the second half of the year, and the new units continue to achieve rental premiums above the original projections. Because of this, investors in this real estate syndication will receive an additional 2% in returns this month.

Sidebar: The normal distribution to date has been 0.67% per month. In other words, for an investment of $100,000, you would have been getting $667 per month. With the extra 2%, your payout for December 2017 will be $2,667.

Always nice to get a little extra bonus to cover all that holiday shopping, don’t you think?

—

February 2018

We are consistently and significantly outperforming our projections. In fact, within the first year, we’ve created a 26.4% surplus. Thus, we will be refinancing at the end of the month and will be returning 40% of investor capital while still projecting the same cash-on-cash returns based on the original equity invested.

Sidebar: Okay, let’s dissect that golden nugget right there. What that update is saying is that the property is performing so well that the team has decided to seek a refinance to pull out some of the original money invested in the project.

This means that, if you had originally put in $100,000, you would be receiving a check for $40,000, returning a portion of your original investment.

However, you will continue receiving monthly cash flow distributions as if the entire $100,000 were still invested.

Let me repeat that. You get $40,000 of your original money back, free and clear. But you’re still getting cash flow as if all $100,000 were still invested in the project.

This is HUGE. This means you can then take that $40,000 and invest it elsewhere, essentially “double dipping” your money.

—

August 2018

A total of 135 of the 200 units have been renovated thus far. Renovated units are renting for $80 above original projections. (Quick math: Each unit renting for $80 per month above projections adds an additional $9,600 per month to the overall value of the property. Woot woot!)

In addition, we have installed eco-friendly toilets and shower heads in over two-thirds of the property. Each additional unit that gets eco-friendly fixtures helps bring down our overall utility costs.

—

Future

The value-add progress continues on this property, and we aim to complete all the renovations within the coming months. At that point, depending on the state of the market, we may sell the property, or we may hold onto it until market conditions are most favorable.

Either way, this real estate syndication project has been a huge success thus far. Both investors and residents are very happy with all the progress made to date.

A Behind-the-Scenes Look At 3 Multifamily Real Estate SyndicationsA Behind-the-Scenes Look At 3 Multifamily Real Estate Syndications

Conclusion

In our experience, the number one thing that holds our potential investors back is lack of education. These real estate syndications sound great in theory, and you see people around you making great returns, but investing your own $50,000? Eek!

That can be a huge step, and it often requires a lot of time and energy up front to really learn what real estate syndications are all about, how they work, and what to expect throughout the process so that you can invest your hard-earned money confidently.

The case studies in this post are all real projects that we or our partners have been a part of. None of the returns or the performance of the projects have been fabricated. Everything is 100% real and true.

These real estate syndications originated in 2016, just two years ago. Think about yourself two years from now.

What can you do today to set Future You up for success?

Investing time in your education is one of the best ways to jump start the process, so you can ensure that two, five, ten years from now, you will be quite satisfied with all the chances you took, the returns you’ll have made, and the impact your investments will have had on the world.