Passive Investments in Multifamily
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Real Estate Investing shouldn't take away your focus from Closing Deals
You got to the top through mastering your craft and delegating anything that did not drive growth. Investing should be done the same way. Your focus is best spent getting deals to closing, and not worrying about leaky toilets or studying rental market dynamics.
Delegate your investing to the experts, and focus on growing your business.
Massive IRS Write Offs
Typical Investors can save between 30-60% of their investment as a write off that same year. If you were to invest $100,000 on an offering, you may be eligible to write off up to $60,000 off of your passive income this year in the form of accelerated depreciation through a cost segregation study done on the property. That passive loss can be carried forward year after year, avoiding taxes on income from this investment and others well into the future. This allows you to keep more of your money to put back into your business, investments, or early retirement.
Why Invest with TPIC
Economies of scale spread the risk of investing across multiple income sources, while keeping expenses to a bare minimum.
This works as a great hedge against inflationary and recessionary pressures, thus less risk.
The average annual return of 16%+ on capital leads the way on passive investments.
This is double the average return of the S&P 500, and 4X as much as current government bonds.
TPIC only makes money on profitable investments in order to keep objectives aligned with you.
We invest our own money with you, so we also have skin in the game. We stand behind each investment.
*Past performance is not indicative of future results. Returns are not guaranteed. Please do your own due diligence before making any investing decisions.
Every step of the investment journey has been nailed down to a science for effective results.
Our Investors Love Us
Our Past Deals
We came across this property through our broker relationship. The previous owner had been trying to manage this property from New York, with a management company based out of Austin, and no local San Antonio presence. That had 30% vacancy, had not been able to raise rents in line with the market for 4 years, never had any staff to occupy the leasing office, and most units had some level of maintenance issues that the owner had no budget to fix. The previous owner had even started missing mortgage payments. Because of the seller’s financial distress and mismanagement, we were able to purchase this property about 30% cheaper than typical comparable properties were trading for in San Antonio. After a few months of completing the maintenance backlog, updating the marketing, and putting in place sharp performing managers locally, were were able to increase rents from $830/mo up to $1,250/mo, which across 75 units will increase the value of the property by around $5.1M on a 6.0% cap rate valuation.
This is a proud Austin asset in desirable Hyde Park. We came across this property through our broker relationship. The previous owner had held the property for 10 years, and was ready to settle into retirement. He was happy that the property was 100% occupied and easy to lease up because of its good condition, and because the rents were $300/month cheaper than neighboring comparable properties. We were able to purchase this property and immediately increase rents from $1,200/month up to $1,525/month with minimal spend on upgrades. While keeping costs low through efficient management, across 40 units, we are in the processing of raising the value of this property by $3.9M on a 4.5% cap rate valuation.
This was our first flagship purchase. We acquired this property by purchasing it from a wholesaler. The previous owner had owned this property for 10 years, but lived an hour away in Austin, and had not visited the property for years. The previous owner had delegated everything to their property manager, who had unfortunately stolen $70,000 before being discovered since they were not keeping an eye on it. Frustrated, they sold the property to us for approximately 35% lower than similar comparable properties in the area. Our team was able to go in, place and train new management, spend about $11,000 / unit on interior upgrades, install new signage, new shade structure, grills, patio furniture, and fix the potholes in the parking lot to turn the complex around. We were able to increase rents from $650/month up to $975/month while keeping costs low. Across 32 units, we raised the value by $1.3M on a 6.5% cap rate valuation, and the property is producing $14,000/month of cashflow after all expenses and mortgage payments.
Starlight Horizon is the Crown Jewel in the portfolio. We came across this property through our broker relationship. The previous owner had held this property for 10 years as an underutilized mobile home park. We saw the potential for the property to be turned into a modern cabin short term rental destination. Including purchase price, closing costs, and the $1.1M renovation budget, we spent all in about 30% less than comparable short term rentals in the area, and include more amenities than the competition can offer. We are in the process of installing a pool, clubhouse, upgraded lighting, signage, and premium interior renovations for each cabin to turn it into the most instagramable destination in Canyon Lake. With these upgrades, each cabin should generate around $3,500/month in revenue. Across 14 units, that will raise the value of the property up by $2.8M on a 9.5% cap rate valuation, producing $18,000/month in cashflow after all expenses and mortgage payments.
Legends on Storey Lane is our team’s passion project. We came across this property directly in communications with the seller through our outbound networking efforts. Their main comment about the property is that they are non-profit owners, and really not in the real estate game. They thought it would be beneficial to own the property long term, but after problem after problem with property managers not communicating, general contractors walking out on them, and struggling to find good tenants, they threw their hands up and were thankful we were able to take it off their hands “As Is”. We were able to purchase it 40% below what comparable properties in the area were trading for. By installing new fencing, lighting, signage, painting custom murals, and spend about $17,000/unit in upgrades to be able to increase the rents from $900/month up to $1,495/month across 12 units, raising the value of the property by $900k on a 6.0% cap rate valuation.
How To Get Access to investment opportunities
What investors should know before investing
4. Do market conditions rather than company efficiency correlate to their track record?
31. What is the Debt Service Coverage Ratio for Year 1?
74. How is the vacancy rate compared to the market and what are the past trends?
94. Are excess profits after preferred return accounted for with capital gain?
97. What are the operational agreements to each investors and their responsibilities?
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Frequently Asked Questions
- Request an invitation to join HERE to set up a consultation to evaluate your qualifications as an investor.
- Once admitted, review our education material and video content to be prepared on what to expect on a typical investment.
- Wait until we have an opportunity available. The next opportunity will be sent your way once we find a deal that meets our rigorous standards for investment. We expect to have 3-4 opportunities per year available that meet this criteria.
- Once an opportunity is available, You will be invited by email to join a webinar to go over the details of the opportunity. Webinars usually fall on a Wednesday at 7pm and are typically announced 1 week beforehand. Highly qualified investors that have invested with us before will get early access to the webinar and be able to pre-invest.
- During the webinar, you will be given the opportunity to ask questions about the opportunity directly to the operating team.
- Once the webinar concludes, investment slots will be available on a first come first serve basis until 100% of needed funds are raised. We do allow 2 backup investor spots to be filled with each raise.
- To claim one of these investment spots, you will be directed to our cashflow portal site for the specific investment. There, you will fill out an investor questionnaire, review the legal Private Placement Memorandum and offering documents, and state how much you would like to invest in the opportunity
- Once these documents are signed, you will be given wiring instructions to submit your funds into the operating account. You will have 7 calendar days to submit your funds, or your spot will be opened up to the next backup investor on the list to invest.
For each property that we purchase, a new LLC is created created before closing and used to purchase the property. That entity is the owner of the property. The Private Placement Memorandum you sign with your investment establishes that you are an investor in that LLC, a part owner of the LLC, and thus an owner of the actual property itself. In this way, you have direct ownership of the property, and your original investment, any profits, proceeds, and distributions are required by law to be distributed to you as owner of the LLC that owns the property.
Distributions are sent out quarterly. Some stabilized investments may see their first distribution after the first completed quarter of ownership. However, since most of the opportunities that we typically invest in are value add deals, the available cash the first 12 months is being used to renovate and stabilize the property. Once the TPIC deems that the property is stabilized and profitable, we will begin distributing profits quarterly to investors. The first distribution typically happens 1 year after ownership, but may be sooner or later depending on the nature of that specific opportunity. Once the property is fully renovated and stabilized, any superfluous reserves in the operating account will be distributed to investors as well, which typically happens towards the middle to end of the 2nd year of ownership.
Cashflow/Cash on Cash Return is the distributable profits that an investment generates from the revenue during ownership, such as rent, less any expenses such as management fees and mortgage payments. Cashflow/Cash on Cash Return does NOT Factor in the final sales price of the asset as profit. Cashflow/Cash on Cash Return is typically expressed as a %, based on how much an investor invested. If the year 1 Cash on Cash return is 5%, and an investor put in a $100,000 investment, they should expect to receive $5,000 in distributions that year. If they only put in a $50,000 investment, they should expect to receive $2,500 in distributions that year. Because Cash on Cash return does not take into account the final sales price of the asset as profit, it only shows part of the story of the investment, and is not as strong of a tool to evaluate an opportunity as a whole, compared with Average Annual Return, or Internal Rate of Return.
Average Annual Return takes into account the final sales price of the asset. Average Annual Return takes the total profit of the entire lifecycle of the deal, and averages it out over the years it took to generate that profit. For instance, a 100% profit on a deal that took 5 years to generate would be a 20% Average Annual Return. If an investor realized a 100% investment in 4 years, that would be a 25% Average Annual Return. The Average Annual Return does not show preference to when profits are distributed. It doesn’t matter if the deal made $0 in cashflow every single year, and then sold for 100% profit in year 5, it would still have a 20% Average Annual Return. A deal that made $100,000 profit in year 1, then $0 profit in years 2-5 before it sold would also have a 20% Average Annual return, but tell a much different story. This is why we think Average Annual Returns only tell part of the whole investment story, and IRR is a better metric.
Internal Rate of Return does take into account the final sales price of the asset, as well as the timing of when distributions are made. Similar to compounding interest, profit earned sooner is more valuable than profit earned later on, because early profits can be reinvested to compound and earn more money. This is why Internal Rate of Return is the best metric to use when evaluating an opportunity. The formula for generating the internal rate of return can be complicated, so to learn more, and see a calculator to figure out an investment’s IRR, check out this website here: https://www.calculatestuff.com/financial/irr-calculator
We will not present an opportunity to investors unless we believe we expect that limited partners will earn a minimum of 14% Internal rate of return, and 16% Average Annual Rate of Return over a 5 year hold. Typically, opportunities will earn limited partners between a 15-17% Internal Rate of Return, 18-20% Average Annual Return, and 2-5% average Cash on Cash return. We typically aim to double an investor’s capital investment within the 5 year time period. If you invest $1,000,000 in an opportunity, after 5 years your investment should be worth $2,000,000 total including all distributions throughout the life of the deal.
GP (General Partner) / LP (Limited Partner) Split refers to the profit split between GPs and LPs. If a GP/LP Split is 30/70, then a General Partner will make 30% of the profits generated, and the limited partner’s will make 70% of the profits generated.
General Partners earn their share of the split from the sweat equity built into the deal by finding the opportunity through direct sellers, brokers, networking, assembling the management team, overseeing the asset for the life of the deal, working with the attorneys, lenders, insurance agents, and all other aspects that make these deals possible. This is how the General Partners get paid to bring these opportunities to you.
All capital contributed to a deal is contributed on the limited partner split side of the deal. General Partners do typically invest their own money along side other limited partners to have skin in the game. Any funds a General Partner puts into a deal is still considered a Limited Partner investment, and their profits get paid out the same as any other limited partner. The General Partner Split is paid out based on sweat equity, not their amount of capital contributed.
A Capital Stack dictates who gets paid profits from a deal in what order. For instance, when you buy a rental property, you typically pay the mortgage lender (1st Lien) for their capital in the deal (the mortgage loan) before you get to keep any of the profits yourself.
A Preferred return dictates that after mortgage payments, limited partners get paid out all profits on a deal until they hit a certain threshold. For instance, a 5% preferred return on a deal means that if an investor invested $100,000, the first $5,000 of profits are required to go to the limited partner before it starts getting split with the general partner. This guarantees that limited partners are paid first, before general partners make any profit on their end.
A waterfall structure may incorporate additional levels of preferred returns, and adjust the GP/LP Split on certain thresholds. For instance, a waterfall structure my indicate an 20/80 GP/LP Split up until the LP hits a 15% LP IRR Hurdle, after which the GP/LP Split adjusts to 50/50. This would mean that if an investor invested $100,000, and the total profit from the deal that 1st year was $20,000, the payout would look like this. First, we calculate how much an investor needs to profit before the hurdle is achieved. In this case, since there is a 15% LP IRR Hurdle, they are owed $15,000 of profits before the GP/LP Split adjusts. Since $15,000 of profits represents the LP 80% share, the GP share would be 20%, which is $3,750. The formal is $15,000 / 0.8 = $18,750 (total Profits Paid out so far). GP calculation is $18,750 x 0.2 = $3,750. That means that $18,750 is the total profit to be paid out before the next GP/LP Split Begins of 50/50. Since the deal paid out a total of $20,000, there is still an additional $1,250 to be paid out as profit at the post hurdle rate of 50/50. That would mean the remaining $1,250 is paid out 50% to the GP, and 50% to the LP, so $625 to the GP, and $625 to the LP. We would add those amounts to the previous payouts for the GP and LP.
LP Payout = $15,000 (Pre-hurdle Split) + 625 (Post Hurdle Split) = $15,625
GP Payout = $3,750 (Pre-hurdle Split) + $625 (Post Hurdle Split) = $4,375
Total Payout = $20,000
Each deal may vary, but TPIC typically only charges a 2% acquisition fee, a 2% asset management fee, and no additional fees other than the GP/LP Split / waterfall structure.
First, no one has a crystal ball to predict the future, so we have to be prepared for a number of possible outcomes. The economy typically is cyclical rising and falling about every 5-10 years going through cycles. Because most of these investment deals are over 5 year holds, we have to account for market fluctuations and recessions, as well as bull markets in our pro forma calculations.
The reason we like cashflowing multifamily assets over single family assets is because if the housing market crashes, it is hard to extract value out of the single family homes that you are trying to flip. In an apartment complex, even if the value of the building goes down, residents still need a place to live, and it can still cashflow profitably even in a recession. Because of this, it gives our team of multifamily operators the ability to hold onto an asset longer term and ride out a recession until it makes sense to sell, rather than being forced to sell at a loss when the market happens to be down before it can recover. Even if the business plan estimated a sale in the 5th year, but the economy is in recession and it does not make sense to sell, the General Partnership can make the decision to hold onto the investment for additional years until the economy is recovered and it is a better time to sell.
So far we have never lost money on an investment that we have made.
In the rare event that something catastrophic happens, here is how the limited partners are protected as best as possible:
First, our investment thesis puts limited partner investors first before general partners. General Partners do not make money on splits until limited partners are earning profits. In the rare event that a property makes less than the anticipated business plan, the order in which funds from the sale of the property get paid out goes like this.
Who gets paid out in a sale:
1st Mortgage Lender
2nd Any outstanding balances and invoices due to vendors
3rd All Initial capital put into a deal from LP investors
4th Any profits paid out on a preferred return to LPs
5th Any Splits due to LPs/GPs
It is always best to consider your investment into this as completely locked into the deal. These are not liquid investments like stocks that can be easily traded between parties. However, in rare circumstances when it is absolutely necessary, you are allowed to offer your shares to the general partnership to buy you out for the cost of your initial equity investment. If the General Partnership declines to purchase your shares, they can elect to allow you to offer your shares to other limited partners in the group to purchase. If the other limited partners also decline, then with general partnership approval, you may offer your shares to other outside investors for a fair market value.
The role of the limited partner is to stay limited, and for this investment to be treated passively. Trust in the General Partnership is necessary to run the deal effectively. Top Producer Investment Capital is uniquely positioned to have the best information on the market, the asset, and effective management strategies to be used to maximize profit. For the sake of maximizing profits with your investment, you are allowing Top Producer Investment Capital to run the asset how they best see fit and in your best interest. Keep in mind, The operators also have capital at risk alongside you, “skin in the game”, so your incentives are aligned. They want to get paid as much as you do. The only time that a limited partner would be able to take control of the asset away from the general partnership is if there is evidence of clear fraud, negligence, or the business plan is not being executed as promised in a negative fashion. TPIC will work hard to execute over and above the business plan to the best of their abilities in each deal.
The role of the general partnership will continue to run the asset, and the other partners will step in to fill the spot of the general partner who is no longer able to handle their role. That could mean taking on their responsibilities with the existing general partnership, or adding in an additional general partner to take over the shares of the partner no longer involved.
You certainly can. Here is why we believe in TPIC as a more effective way to invest.
- Top Producer Investment Capital was made so that it would allow top producing Realtors and Loan officers to be great at their craft, and maximize commissions. By delegating your investing to TPIC, you can rest assured that your investments are gaining maximum profits while you focus on growing your own business faster than you could if you tried to close deals AND flip homes at the same time. A Jack of all trades is a master of none.
- TPIC is uniquely positioned with economies of scale, full time staff, expensive proprietary resources, and expert knowledge on the market and investing strategies to outperform the average investor by leaps and bounds.
- If you were trying to refer a client to an existing Realtor or Loan officer for their home purchase, would you recommend that they use someone who has closed 1-5 deals, or someone who has closed thousands?
- Wouldn’t you rather spend your free time with your family or loved ones if you made the same amount of money investing
- yourself or with TPIC
Yes, for each property that we purchase, we run a Cost Segregation Study to gain accelerated depreciation, and bonus depreciation on the asset. This typically allows investors to gain access to far more front loaded depreciation than they otherwise would be able to with other types of investments. Most investors see between 20-50% of their invested funds given back to them in the form of IRS write offs against their passive losses.
This means that if an investor invests $100,000 in a project in 2023, they will receive potentially up to a $50,000 write off against their passive loss income taxes to the IRS in 2023, while still keeping their invested capital in the deal.
In opportunities like Starlight Horizon, we offered investors the ability to personally stay in one of the cabins for 1 week/year and may offer similar perks on appropriate opportunities in the future.
Typically No, unless you are a Real Estate Professional. If you are a Real Estate Professional, then yes, the depreciation write off will go against your active W2 or self employed income. Consult your CPA to find out which one you qualify for.
When we see good opportunity, we strike. This may happen in rapid succession, or with long timeframes between them. We have typically found that for every 100-150 deals that we review and analyze, there is one that sticks out as a great opportunity. This usually comes out about once every 3-6 months.
We are currently operating 5 unique assets, and will continue to gain more at this pace until they have reached the end of their business plan, at which time we will sell them.
While there is no clear cut definition, there are some rules of thumb to help us classify properties.
A Class – Typically built within the last 20 years. These are some of the nicest and newest properties out there, typically collecting the top 30% of rents in the area. These include garden style to mid and high rises, properties with tons of amenities such as luxury pools, spas, game rooms, gyms, social events, and all kinds of amenities that you can think of. Usually high income earners live here.
B Class – Properties built from 1970 – 2010 or so. These are slightly outdated, but may have renovations inside of them. Generally these properties are nicely kept, garden style or mid rise properties, with rents that can be afforded by the median income earner in an area. These may include amenities such as a pool, fitness center, dog park, kids playgrounds, etc. but is likely not considered luxury. These properties attract residents that are upper working class, starter families, and budget conscious individuals.
C Class – Properties built from 1940 – 1980 or so. These properties are old, outdated, and typically in need of renovations. They are typically in not as desirable parts of town, and may have problems such as being considered dirty, minor crime, recurring maintenance issues, etc. These typically attract working class families or those on a strict budget, and likely the lowest 30% of rents in town.
D Class – Properties that are in severe disrepair. These properties typically are ridden with higher crime, the lowest income earners, and heavy problems with maintenance, violations from the city, and other problems. Most investors are warned to stay away from these types of properties, as these are typically referred to as “Slum Lord” Properties.
We certainly never expect an investment opportunity to go anywhere close to foreclosure. In the extremely rare case that a property starts having financial hardships, the general partnership will elect to fix any issues by injecting their own capital, doing a capital call of limited partners, or sell the asset well before the property ever comes close to a foreclosure to recover any outstanding profits and investments.
If (And this will hopefully never happen) the team has done every conceivable remedy and foreclosure is decided as the last and only remaining option, the property will be given back to the bank. Any proceeds will go to the investors original capital contributed, but will NOT affect the limited partner’s credit. A recourse loan may affect the general partner’s credit score, but will NOT affect the limited partner’s score.
No. All investing is considered risky. Please consult a financial advisor or professional before investing in any deal.
However, it is in the general partnership’s best interest as well as all parties to the deal to maximize the returns on the property, so TPIC will work hard to meet or exceed expectations on a deal.
A 1031 is allowed by the IRS to defer tax capital gains on a property you sold if you purchase a like kind asset within the timeframes allowed by the IRS to defer your payment of taxes on these gains. Typically these syndications are investments into an LLC that owns the property, and NOT ownership in the property directly. Because of this, the IRS typically does not allow 1031 exchanges into these syndications to retain the tax deferred status.
If you already are invested in a syndication as an owner of the LLC, and would like to take your profits and re-invest them into another syndication deal as ownership of an LLC, that would be permissible to 1031 since an LLC going to an LLC is considered “like kind” property.
In rare occasions, a major investor may be invited to do a Tenant In Common Agreement wherein a 1031 is allowed from selling a property to upgrade into partial ownership of a multifamily property.
Please consult your tax advisor and CPA for any tax advice.
No. We also accept Sophisticated Investors on some occasions.
Each deal is presented to investors at the same time on a first come first serve basis. Previous investors may get early access to deals, but once the opportunities are opened up to all potential investors, we cannot hold spots on deals for future investors. If you are worried about not getting a spot, be sure to communicate early with your sponsor, attend the webinar, sign up with your soft commitment early, and wire your funds in soon, or you will be forced to wait until the next deal is available.
Yes, prior investors, and those considering investing over $500,000 into a single deal will be given early access opportunities into any upcoming deals.
We are open to partnerships with other experience operators. Please schedule a call through the normal request an invitation method, note your previous experience as a multifamily operator, and we will vet you as a potential partner to join the team if there is a good fit.
The total investment needed to be raised comes from a combination of the following:
Down payment (usually 20-50% of the purchase price, as determined by the lender)
Renovation budget (if it is a bridge loan, the raise would need to be 20-50% of the capital expenditure budget as determined by the lender. If financing does not roll in construction costs, we would budget to raise for 100% of capital expenditures up front).
Any closing costs needed (Including title, attorney fees, lender fees, acquisition fees, commissions, etc. needed to close on the purchase)
Reserve funds (typically 4-12 months of operating expenses and mortgage payments, depending on the expected vacancy of the property during the renovation period).
Most timeframes from contracts to close are 60-90 days. Loan assumptions may take longer. Usually around day 15-20 of being under contract is when we host the investment webinar for investors.
If for some reason the general partnership does not go through on closing on the purchase of the property, 100% of all limited partner funds will be returned to the contributing investors.
Please email Ryan@topproducerinvesetmentcapital.com and we will work to get your question answered.
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