As a 19-year-old sophomore, Jacob attended a seminar about fix and flip after seeing an infomercial on TV. Being a student of Entrepreneurship and Finance, he could have easily taken up the conventional financial ladder, like opting for CPA which would allow him to have a salary in the range of $50k to $70k, instead, he took the less-walked-path which led him towards Real Estate investments. As of today, he has placed over $50M into income-producing real estate, building a portfolio of 600+ units (as the lead sponsor) and a network of 3K registered investors.
Why Switch From Fix and Flips to SFH/MFH Rentals?
There are a bunch of reasons as to why one should switch from fix and flip to SFH/MFH Rentals, here are a few:
Drawbacks of Fix and Flip
- Although a single flip can help you earn $80K easily, the biggest drawback of flipping is that its very transactional; has 0 tax benefits, which result in paying huge amounts of money every year.
- Apart from this, the monthly income stream defines your portfolio which is quite unpredictable.
- Determining the costs and fees involved in the fix-and-flip process is difficult since unseen expenses keep lurking around the corner.
- When you are flipping houses, you are not just investing money but your time and energy as well and if you aren’t proactively participating in the entire process you’ll end up paying far more than you anticipated, decreasing your overall profit.
Pros of SFH Rentals
- The inconsistent income associated with flipping houses cannot be overseen but SFH rentals or any type of rentals for that matter is a long-term investment.
- Since its a passive income, unless you decide otherwise, rentals help you build more lasting income and become financially independent.
- Gives you an opportunity to create fruitful partnerships with investors.
- Rentals income is taxed at 15% - 20% while the flipping income is taxed at 25-43%.
Transition to Multifamily
In late 2016, Jacob had almost 150 SFH but since the properties were mostly scattered around the city, managing them was a real head-scratcher. Fortunately, he stumbled upon a podcast that inspired Jacob to jump into Multifamily homes. The best things about investing in MFH are:
- All rentals in the same place with staff onsite.
- Banks/lenders prefer multifamily, so you get great financing options.
- Got to learn a lot about Asset Management.
Eventually landed my first multifamily deal - a 46-unit with fire damage at 50% occupancy, which Jacob managed to get back in shape by leveraging his fix and flip skills.
- Leveraged investor network to raise the capital.
- With everything in one place, Multifamily was like a breath of fresh air.
- Invested in building website for branding the MFH
Pros of Multifamily
MFH comes with a bunch of pros over both SFH as well as fix and flips. Here are a few:
- It takes a lot less work and time to acquire a 46-unit apartment building than 46 SFH.
- Renovations of individual units or community space can actually enhance the demand and value of the assets, resulting in a higher ROI.
- Multifamily properties are in high demand in the US and if the property has a strategic location, you can expect a high occupancy rate.
- The government provides tax incentives to multifamily property investors, thus making MFH investments more attractive than SFH.
- Investments in MFH can boost your portfolio quickly.
Tools We Use
- SyndicationPro - Investor Management Portal.
- Close.io - Inside sales CRM of choice for startups and Small Businesses.
- Zapier - Connects apps and automates workflows.
- Propertyware - Property Management Software for single-family properties.
Tips to New Investors
- Start with searching for rental properties within your vicinity.
- Know your market. Research as much as you can. Don’t believe paid advisor blindly, do your homework.
- Take one step at a time, don’t jump into MFH right away, start with SFH rentals.
- Join a local Real Estate Investment group to stay updated and informed.
- Although raising capital to buy an apartment building will be quite challenging, considering the minimum amount, obviously, you can always leverage your connections to raise money.
- You can also build a website featuring your rental properties to invite investors.
- Be creative, proactive, and don’t be afraid to take a job.
From a rocky start in real estate to becoming a wildly successful multifamily syndicator, here’s the journey of Jacob Blackett, CEO of SyndicatioPro (a real estate investment software company that helps syndicators raise capital as well as manage investors online) and HoldFolio (a platform that connects investors with high-yield investments in the real estate industry). Listen to the podcast here...