How to Stay Healthy During The Holidays

Thanksgiving Day officially kicks off the holiday season.  For many of us, the next few weeks will be filled with various holiday celebrations with family, friends and work colleagues.   In the midst of all this reverie, it’s important to take care of your mental and physical health so you can start the new year with clarity and energy.

So how do we navigate this season of celebration?

The best strategy is one word – moderation.

It’s great to celebrate this time with family and friends and if you are mindful of your health, you can stay fit during the holidays while still having a good time.

Here are five tips on how to stay healthy during the holidays while still participating in the fun and merriment.

Eat Wisely– The holidays are filled with rich, delicious foods and sweet treats but too much indulgence can wreak havoc on your blood sugar, not to mention your waistline!  Try eating a small meal prior to a holiday party so you don’t arrive on an empty stomach.  When at the party itself, it’s okay to enjoy a few rich treats but try to fill your plate with healthier foods like fruits and vegetables and eat slowly!  It can take your brain up to 20 minutes to realize that you are full. 

Don’t Skimp on Sleep –  Going out more and staying out later can cut into sleep time.  Research has shown that a good night’s sleep is linked to a myriad of health benefits including increased productivity, stress reduction, and clearer thinking. Getting the proper amount of sleep also lowers your risk for health issues like diabetes, heart disease and depression so aim for a minimum of 7 hours or more each night.

Stay hydrated – Drink plenty of water, especially alongside alcohol.  Alternating a glass of water with an alcoholic drink is a good way to prevent overindulgence.  Staying hydrated is essential to good health.  Water delivers important nutrients to our cells, especially muscle cells, postponing muscle fatigue.  It also helps with weight loss, aids in digestion, hydrates our skin and flushes out toxins. 

Stay Active – Finding time to exercise can be challenging during the holidays so squeeze in fitness wherever you can.  Small choices like taking the stairs, walking around the block, or parking farther away from your destination can all help.  If you can’t make it to the gym, a short workout is better than no workout. Try a 10 minute burst of high intensive exercise like jumping jacks or aerobic exercise to get your heart pumping and your body moving.  Finding time for fitness will also decrease anxiety and improve your mood.

Quiet your mind – Holidays can be stressful and it’s easy to get caught up in all the hustle and bustle of shopping, parties, family gatherings, gift giving, house cleaning, etc. Make sure to set aside a small amount of time each day to quiet your mind – this can be done via meditation, prayer or even just listening to soothing music with your eyes closed.  Taking the time to slow down and just relax will help you calm your mind, manage your stress and improve your mood.

Most of all, remember what the season is about—celebrating and connecting with the people you care about.  Taking care of yourself and your health will allow you to be your best self for your family and friends and will enable you to truly enjoy this special time of year.

The Benefits of Investing in Short Term Rentals

Let’s face it.  It’s been a rough year for the economy.

Interest rates continue to rise and inflation is rampant.  

Investors are growing weary of the stock market’s volatility and turning to commercial real estate.  Multifamily and self storage have performed well over the last few years but as cap rates compress, many investors are looking at alternative asset classes such as short term rentals.

Now, when most people think of Short Term Rentals, they think of Airbnb or VRBO (Vacation Rentals by Owner). The majority of these properties are single assets with mom and pop operators.  But the demand for these properties is growing and the stability and passive income from STRs present an excellent opportunity for investors.

But before we dig into why we like this asset class, let’s talk a bit about why Airbnbs are so popular.

Back when my kids were younger, travel was a challenge.  We’d all share a single hotel room and when it was bedtime for the kids, it was bedtime for everyone!  Often, that meant lights out by 8pm.  No one had their own space and while it was fun to get out and see the world, I often needed a vacation from my vacation!

Short term rentals solve many of those problems by providing plenty of space plus the types of furnishings and features that travelers are used to enjoying at home. And many STRs are offering much more than just accommodations; they are redefining travel with many properties incorporating design and amenities to create a unique “experience” for guests.

Here are five reasons why you should consider investing in Short Term Rentals:

  1. Growth — Short Term Rentals is a growing asset class.  The number of customers using STRs has increased 12x over the last seven years and there has been a 300% STR growth in the last five years
  2. High Yield — STRs are money makers!  One STR can earn up to 4x the cash flow of a traditional long term rental (LTR). 
  3. Recession resistant  – STRs are evaluated based on revenue so their resale value is higher than traditional LTRs and rising interest rates have less of an impact on cash flow than other asset classes
  4. Demand Driven Pricing – In the STR space, the ability to price nights is directly tied to demand,  so prices can easily be adjusted up or down as needed to ensure no potential revenue is left on the table
  5. Increase in Remote Work – The percentage of people working out of the office is continuing to rise, providing complete flexibility regarding the location of remote work.  With the prevalence of strong WiFi, people can opt to spend a month working at the beach or in the mountains and in those cases, they are more likely to stay in a short term rental as opposed to being confined in a single hotel room.
  6. Less Competition – Once an asset class becomes flooded with institutional money, values tend to rise and cap rates compress.  But since STRs are still in growth mode and there are less portfolios of properties, the institutional investors are sticking with traditional multifamily and haven’t jumped in yet.  This leaves the field wide open for smaller investors.
  7. Operational efficiency – Using the same property management company for an entire portfolio of STRs saves on operational expenses.  In addition, the use of automation in both booking and customer access to the properties (via keypads) keeps costs down as well.  
  8. Additional depreciation –  Unlike traditional multifamily, depreciation may be applied to the property as well as it’s contents – including furniture, textiles, dishes, etc 
  9. Multiple Exit Strategies – Having multiple assets in a single portfolio provides a great deal of flexibility for divestiture as well.  Properties may be held indefinitely for cash flow; individual properties may be sold off as turnkey STRs to one-off investors; or the entire portfolio may be sold to an institutional investor looking to get into the STR space.

Of course, there are factors to consider with regards to the location of the properties as well such as seasonality, driving distance to major metropolitan areas, close proximity to tourist attractions and purchasing property in municipalities that are friendly to STRs.  

In Conclusion

Short Term Rentals are an asset class that continues to grow so don’t sleep through this opportunity to get in early and grow your portfolio!

5 Key Reasons to invest passively in real estate syndications

The Benefits of Investing in Real Estate

If you’ve ever experienced owning single-family or multifamily homes, you know that these investments require time and energy. 

Investing in residential real estate can be challenging because, typically, you as the investor wear many hats throughout the seemingly never-ending process. Responsibilities include finding the property, negotiating and funding the deal, renovating the property, interviewing tenants, and even performing maintenance.

The trouble is, it doesn’t stop there. You have to repeat most of the process over again when your tenant’s lease is up.

Actively Investing in Small Multifamily Rentals Can Be a Lot of Work

Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each. 

But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still your responsibility. You’re basically running a small business, which can be challenging if you’re working a full-time job.

The Case for Passive Real Estate Investments

On the flip side, there are fully passive investments in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any of the three T’s  – Tenants, Toilets, and Termites.

Once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here are 5 key reasons why investing passively in real estate could work for you:

1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the property.

You won’t be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.

2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets. 

By investing with experienced deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.

3. Tax Benefits

Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period.

You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property.  Always check with your own CPA on your personal situation.

4. Limited Liability

When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $50,000, your biggest risk would be losing that $50,000. You wouldn’t be on the hook for the entire value of the property, or the loan to buy the property, and none of your other assets would be at risk.

5. Positive Impact

With small multifamily homes, you make a difference in two to four families’ lives. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.

Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively. And that’s something you won’t get from stocks and mutual funds.

Conclusion

If you’re on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. But personally owning rental properties is not a prerequisite to commercial real estate syndications.

Either way, investing in real estate is a great way to diversify your portfolio and mitigate risk. It gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.

What Is Real Estate Professional Status (REPS) And How You Can Benefit From It?

It’s no secret that you got into real estate investing because you saw it as a way to get ahead. Real estate syndications provide Wall Street-independent diversification opportunities, an income opportunity beyond trading your time for money, and, of course, passive income and appreciation in exchange for your well-invested capital. 

However, if you’re a high-income earning family, it’s possible that real estate is more than just another investment, but that it’s a way to reduce your tax liability significantly. Sure, you can max out your retirement accounts, donate thousands to charity, and be creative about write-offs. Still, as your income increases, tax deductions phase-out, leaving you with an ever-increasing tax bill and a lot of frustration. 

Whether you or your spouse is a physician, attorney, engineer, tech professional, or other high-income earning professional, you may have noticed that as promotions and bonuses are achieved, your taxes keep increasing too!

One reason could be that large companies directly employ these high-profile positions instead of them being independent, self-employed individuals with their own practices. Hospital management firms employ physicians; Google, Facebook, and Apple employ engineers and tech professionals, and nearly every large company has in-house attorneys. The difference in being a W-2 employee vs being self-employed with your own practice means reducing deductions available to you. 

Enter REPS – real estate professional status. 

In this article, you’ll discover what REPS is, how it may help you drastically reduce your tax liability, and why, in this case, it’s beneficial to have one spouse manage the family’s real estate investments full-time while the other leans into their high-income earning career. So if you or your spouse is a high-income earner, and you’ve been looking for a way to impact your tax liabilities even though deductions are phasing out, you’re in the right place!

About Real Estate Professional Status

Anyone can claim real estate professional status (REPS) as long as:

More than half the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated. 

You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. 

This is, of course, lined out in detail in IRS Publication 925, but basically, real estate has to be your primary job. You wouldn’t have much time in a year beyond the 750 hours required for anything besides maybe a part-time job. You don’t need any degree, certification, or license to designate yourself as REPS, and, for a married couple, only one spouse needs to qualify. 

REPS allows couples to divide and conquer – one high-income earning spouse gets to lean into their profession while the other claims the REPS designation and assumes responsibility for managing all real estate investments’ day-to-day activities, qualifying the couple for significant tax benefits. 

Tax Advantages Of REPS, Plus An Example

Cost segregation studies, accelerated depreciation, and other fancy real estate occurrences often produce on-paper losses for investors, which result in reduced tax liability. Cool, right?

Well, suppose you’re a married couple filing jointly, and you make over $150,000. In that case, you can’t use passive real estate losses to reduce your taxable income because there are no “special allowances” according to the IRS for these high-income families. Those suspended passive losses carry forward until you have a year of passive gains from your real estate investments since passive losses can never offset active income like that from a W2. 

That is unless one of the spouses in this theoretical $150K + earning family designates themselves as a real estate professional and meets the qualifications above. 

As an example, let’s look at Samantha and her family. Her husband is an executive of a well-known entertainment company, and she manages the household, raises their two-year-old, and oversees the couple’s investment strategy. Her husband, Barrett, makes $250,000/year plus bonuses while Samantha manages the day-to-day activities of their real estate investments, which has quickly turned into her full-time job. 

Even though her properties are cash flow positive, Samantha generated $150,000 in losses from her real estate business. Here’s where it gets interesting…

Suppose Samantha has designated herself as qualifying for real estate professional status as a couple. In that case, they can deduct all $150,000 in (passive) losses from Barrett’s $250,000 (active) income, leaving only $100,000 reflected as taxable income and dropping them into a lower tax bracket. 

However, if Samantha does not qualify or doesn’t designate as a REPS, the couple is taxed on all $250,000 of income, approximately doubling the value owed to their taxes. 

Without a REPS designation, Samantha’s $150,000 in passive losses must be carried forward until she has passive gains against which she can apply them. Meanwhile, the couple is taxed on Barrett’s total income, likely for several years. 

Why pay more than you have to? Especially considering that any tax savings can be flipped into your next investment opportunity, potentially moving you toward your financial and investing goals faster. 

How To Achieve REPS

Now that you can see the benefit of one spouse being the designated real estate professional in the family, you need a plan to put this into action. 

First, you’ll need to decide which spouse will become the real estate professional. For some families, this is easy because one spouse is already the primary breadwinner and the other is a homemaker. 

For other families where both spouses are working, the choice may be a little more challenging. Beyond each spouse’s current income, consider things like career trajectory, passion for career, passion for real estate, other assumed roles as the real estate professional (child care/homemaker?), and each spouse’s ability to handle organizational and management activities.

No matter which spouse chooses to become the real estate professional, they need to be serious about treating real estate investment management activities as a business. 

In addition, we suggest discussing this with your CPA so that you can coordinate timing, real estate purchases, designations, and more. From there, set aside funds to invest, start shopping for your first several investment properties, and track your real estate business activities closely. 

Use separate bank accounts, an accounting program, a separate email address, and other business-like systems with your real estate investments to further separate and clarify investment management activities from any personal activities. 

Making REPS Benefit Your Family

Successfully operating real estate investments and achieving REPS status may look different for every family, so let’s look at a couple of scenarios for clarity: 

Scenario 1: Two working spouses, one working full time and leaning into their high-income earning profession, and the other working part-time while materially participating (actively involved) in managing the couple’s real estate investments. 

Scenario 2: One working spouse and one homemaker who decides to make managing real estate investments their primary job. 

In both scenarios, the spouse managing real estate needs to commit to (and be able to prove) their material participation in the day-to-day decisions regarding their real estate properties, accumulating 750 hours or more of tracked time and activities over the taxable year. 

For most, it would be challenging to spend 750 hours on just a few properties. So if you accumulate several properties quickly, track your time and business activities managing them, and treat your investment properties as a business, you’re more likely to achieve all the qualifications for REPS. 

Treating investments like a business means having formalities and systems in place, deciding when to raise rents, renew leases, buy, sell, renovate, and more. If you’re constantly approaching your day intending to maximize profit while simultaneously improving your tenants’ experience, tracking your time and activities (a Google Calendar is an excellent tool for this!), and coordinating with contractors toward successful renovations, you’re on your way!

Usually, the 750-hour requirement is per real estate property, but you can combine all of your real estate management activities from several properties into one by including the following language in your tax returns: 

Under IRC Regulation 1.469-9(g)(3), the taxpayer hereby states that they are a qualifying real estate professional under Code Sec. 469(c)(7), and elect under Code Sec. 469(c)(7)(A) to treat all interests in rental real estate as a single rental real estate activity.

That phrase “taxpayer hereby states that they are a qualifying real estate professional” is critical. 

Each family will need to work out their own beliefs and opinions about which spouse should work and about the division of labor and responsibilities between the two spouses. Still, if one spouse can hit these requirements, coordinate with tax professionals, and find joy in managing real estate investment assets for the family, REPS can be a huge advantage!

Is Real Estate Professional Status For You Or Your Spouse? 

If you’re part of a married-filing-jointly relationship and have an income over $150,000, you may have been feeling increasingly frustrated by your high tax liability. You’ve likely looked into real estate searching for tax benefits, and maybe you are already invested in a few properties. 

However, if you want to apply your on-paper losses to your household’s active income, achieving real estate professional status may be the answer. Otherwise, you may be stuck carrying passive losses for years to come. 

As always, we’re not here to give you tax or life advice. Instead, take this article and the things you’ve learned here as inspiration for more research, an open discussion with your spouse, and food for thought as you further examine the most efficient way to move toward your lifestyle and investment goals.

How To Evaluate a Deal?

Investing in real estate can seem like a whole new world with new terms and new asset classes.

To help you through this process, most operators will put together investment summaries to explain to potential investors the key points of the opportunity – why they like the deal, what they plan to do with the asset, and how much the investors stand to gain from participating in the investment.

They are essentially an all-in-one business plan / underwriting explainer / photo gallery / why-you-should-invest-in-this-deal packet for every commercial real estate syndication deal.

They contain A LOT of information and no two are the same.

Some investment summaries consist of gorgeous graphics and iconography, professional photos and clear tables. Others are written like textbooks and include haphazard low resolution phone pictures someone probably threw in at the last minute. Sigh.

And while it may be hard to resist the urge to judge a book – or in this case, the investment summary – by its cover, you have to be able to swallow your initial impressions (good or bad) and look past the glossy photos and fancy charts.  The best strategy is to focus on the numbers and business plan for what they really are.

If you decide to invest because the investment summary looks pretty, you may be putting yourself at risk, if you haven’t done proper due diligence on the deal and the partnership team.

Likewise, if you write off a deal because the investment summary looks like your Aunt Ida’s tax returns from last year and causes your eyes to glaze over, you might be missing out on a great opportunity.

So what exactly should you look for? Good question.

Let’s take a look at a sample investment summary. I’ll walk through my thought process when I first look through an investment summary, so you’ll know what to look for the next time one lands in your inbox.

Please note: For simplicity’s sake, I’m using a one-page executive summary for this example, rather than a full-blown investment summary, which could be dozens of pages long.

Investment Summary At A Glance

Even though every investment summary is different, there are some basic elements that are pretty common across all multifamily real estate syndication investment summaries:

  • Project name (often the name of the apartment complex)
  • Photos of the property and area
  • Overview of the submarket
  • Overview of the deal
  • Details of the business plan
  • Projected returns and exit strategies
  • Detailed numbers and analyses
  • Team bios

In a one-page executive summary, you get bits and pieces of each of these elements, though you would need the full investment summary to get all the details.

If this executive summary landed in my inbox, here’s what I would do. I’d start by skimming through the whole thing.

In skimming this executive summary, here are the things that would jump out at me:

  • Off-market
  • Value-add
  • Track record
  • Strong submarket
  • Proven model
  • Equity multiple
  • Unit count

Off-Market

When an asset is acquired off-market, it means that the seller chose not to list the asset publicly. Maybe the seller didn’t want the tenants to know that the building was being sold (this is quite common). Maybe the seller needed to sell within a set timeline. Or maybe the seller already had a buyer in mind.

Regardless, off-market is almost always a good thing. This means the deal sponsor team did not have to compete with other potential buyers on price. Thus, there’s a good chance that the purchase price is low, or at least very reasonable.

Value-Add

A value-add investment is exactly what it sounds like – an asset that presents an opportunity to add value in some way. Maybe the rents are significantly below market rates because the previous owner hasn’t raised rents in 10 years. Maybe the kitchens are still from the ’90s and could use some updating. Maybe there’s an opportunity to add some brand new additional units.

Whatever the case may be, value-add means more control is in the hands of the deal sponsor team. Rather than relying solely on market appreciation, there are things they can do to create additional equity, even if the market stagnates.

One of the most common value-add scenarios is one in which the units need to be updated. Let’s say the apartments haven’t been updated in 10 years, and the rents are $1,000 per month. Even if the team were to stay the course, that $1,000 per unit would still be able to cover the mortgage and fetch a modest profit.

But, who here is looking for modest profits? Not me.

Because there’s a chance to add value and improve the living conditions, as well as the returns for the investors, this is a true value-add. The team will go in, complete the renovations, then rent out the updated units for, say, $1,200 per month.

When you add up the $200 per month increase across all 250 units, that creates a ton of additional equity in the building, not to mention a ton of value for the residents who live there. Once residents see the updated spaces, they’re often happy to pay the higher rents and start to take more pride in their community.

Track Record

The next thing that catches my eye is, “Similar to Beta Apartments (acquired just last year and currently undergoing renovations)…” This tells me that this is not this team’s first time at the rodeo. They’ve done this before and are currently in the trenches with another asset nearby.

I also see, in the Investment Highlights section, that they’ve started implementing their business plan at Beta Apartments and that they’re surpassing their original projections. This tells me that their business plan is working and that they would likely be able to continue to strengthen their track record through Omega Apartments.

Further, this tells me that they’ve likely built up a strong reputation in the area, amongst brokers, property managers, and other apartment owners. Otherwise, they wouldn’t have been awarded this off-market deal.

Strong Submarket

I don’t know about you, but if I’m going to invest in an apartment building, I want it to be in a growing and developing area.

The fact that this submarket is the “#1 fastest growing” within this fictional metropolistan area tells me that things are moving and shaking here. I would likely open a new browser tab and immediately google that metro area and that particular submarket, to learn more about them.

What am I looking for? Things like proximity to major employers in the area, shopping centers, decent schools, any news about developments in the area, what it looks like on Google street view, what nearby houses are selling for, and anything else I can find.

Much of this will be in the full investment summary, but I always like to do a little research on my own as well.

Proven Model

Did you catch it? “Ten units have already been updated and are achieving rent premiums of $150.” Jackpot.

Why is this so important? This takes all the guesswork and assumptions out of the value-add proposal. The previous owner already created the proof of concept. They updated a set amount of units, and they were able to fetch higher rents.

This is great news. This means that all we have to do is go in and continue those renovations to achieve those same rental increases. To me, this signals much lower risk in a value-add opportunity.

Equity Multiple

There are certainly lots of numbers in any investment summary, and they can be overwhelming. Percentages, splits, projected returns…what do they all mean?

One metric I’ve come to rely on is the equity multiple. In this case, the projected equity multiple is 2.1x. This means that during the life of this project, my money will be more than doubled.

That is, if you were to invest $100,000, you would come out of this project with $210,000 by the time the property goes full cycle.

This $210,000 would include your original $100,000 investment, as well as $110,000 of profits. This $110,000 would include the quarterly cash-on-cash returns you would be getting as long as the asset is held, as well as your portion of the profits from the sale of the asset.

Everyone has a different threshhold for an equity multiple.  Typically, I look for an EM of at least 1.8x or higherequity multiple around 2x, so this one passes my test.

Unit Count

I always like to know how many units I’m investing in. In this case, Omega Apartments consists of 250 units. This is a pretty decent size. This means that the team would be able to take advantage of economies of scale (i.e., increasing efficiencies by leveraging shared resources across the many units).

I will typically look at anything above 50 units. Ideally, to maximize economies of scale, I like to see over 100 units so this one passes the test, too.

Next Steps

Now that I’ve taken my initial look through the executive summary, my immediate next step would be to decide whether or not to request the full investment summary.

In this case, I would go ahead and request the full investment summary, as this opportunity ticks off most, if not all, of the things I look for in a multifamily investment opportunity – strong team, strong submarket, and opportunity to add value.

In the meantime, I would do some more research on both the submarket and the deal sponsor team. I would definitely google Alpha Investments and read about the core people on their team, learn about other assets in their portfolio, and see if I can find any negative reviews or stories out there about the individuals or the team.

Move Quickly

Once you find an investment summary that meets your investment criteria, it’s critical that you move quickly. Why? Because these opportunities fill up on a first-come, first-served basis.

Chances are, if this investment opportunity met your criteria, it likely met others’ criteria as well. Be ready to make a soft commitment to reserve your spot, then take time to review the investment summary in detail.

Pro tip: There’s no penalty for backing out of a soft reserve n investment down the road, so it’s to your benefit to reserve early, to ensure you get a spot in the deal. If you wait around to be 110% sure, others will have jumped in front of you in line, and you may be left on the backup list.

Request a Full Investment Summary Sample

If you’re interested in seeing a sample of a full investment summary, or to gain access to the deals in our pipeline, consider signing up for the Noblivest Investor Club.

We are here to support you in your investment journey and will never pressure you to invest. Our goal is to help you gain the knowledge you need to invest with confidence (whether in our deals or not), so that together, we can change the world, one investment at a time.