James Kandasamy of Austin Texas is a multifamily apartment real estate investor, developer, mentor, and best-selling author. In the following article, James Kandasamy provides a look into proven strategies for investing and building wealth, even while the market is volatile.
As higher home prices continue to push young people out of the home-buying market, the rental market remains incredibly strong, ensuring that multifamily investors are already set in a great money-making endeavor. However, investing without having proper strategies in place will do more harm than good, decreasing the likelihood of building the wealth that many first timers hope to achieve.
There are a myriad of factors that determine what makes a property a worthwhile investment, but well-established investors utilize a range of tried-and-tested strategies to reach continuous success.
James Kandasamy Explains that Building Wealth Takes Time
Perhaps one of the most integral lessons to learn before choosing an investment strategy is that building wealth through multifamily investments always takes time. While some types of investing are falsely considered a “get rich quick” mechanism, this is far from the reality. No overnight riches here.
James Kandasamy of Austin Texas explains that generational wealth isn’t constructed by splashing $50,000 on a couple of multifamily investments and reaping the profits. Instead, it means reinvesting money and allowing it to grow over time.
Diving Into the CAP Rate
The CAP rate is one of the most important figures to consider when investing in multifamily properties, but it often ends up overlooked by those who are just starting in the field. It’s the number on which all commercial properties are traded, and should be the first value in mind for discerning investors.
James Kandasamy of Austin Texas notes that CAP rates vary from state to state and city to city. Typically, buildings in less desirable neighborhoods will have a higher CAP value. The rate shows the building’s profit divided by the property’s purchase price. The formula is as follows:
CAP rate = Net Operating Income (NOI) / Building Value (BV)
Experts state it’s akin to a stock’s PE ratio — stocks of similar companies boast similar PE ratios, and if there’s a differentiation, there’s always a reason.
Going the Apartment Syndication Investment Route
Thanks to the continued growth of the rental market, it’s still possible for individuals to build substantial wealth by investing in multifamily structures. One of the smartest ways to do so is through apartment syndication.
With this strategy, a syndicator (a.k.a., lead investor) forms a group of investors to buy a property by creating an LLC (limited liability corporation) and selling shares of said company to the other investors (known as passive investors). Those involved get numerous advantages, like tax benefits and the ability to invest in properties that are considerably larger than what they could afford alone.
James Kandasamy of Austin Texas notes that the passive investors may not have an active role in the deal, but they still acquire an ongoing income and the appreciation of the building upon its sale — a win-win for those without the time or experience to manage the deal themselves.
Trying The Value-Add (BRRRR) Method
The value-add strategy is otherwise dubbed the BRRRR method which stands for:
- Buy
- Rehab
- Rent
- Refinance
- Repeat
It’s generally the most common strategy employed by investors, as it can work with almost any project type.
James Kandasamy of Austin Texas maintains that the key is to find a value-add property. Generally speaking, individuals look for multifamily properties necessitating cosmetic updates, but that isn’t the only method. Investors can bring additional value to a building in many ways, including improved operations, better debt structures, and advanced leasing strategies.
After that, operational or physical rehabilitation occurs (i.e., where the investor adds the value) before it’s rented to the right tenants. At this stage, acquiring an experienced management and leasing team is crucial in order to avoid any extra stress.
Once the asset is stabilized, investors should refinance their commercial loan, pulling over 100% of the original capital investment while still benefiting from the tenant-provided cash flow.
Finally, James Kandasamy of Austin Texas says that it’s time to repeat this same process on the next multifamily property!
Following The Core Multifamily Investment Strategy
For individuals with extreme aversion to risk, this is the ideal method of multifamily investing. Core investing works solely with low-risk, highly stable assets with characteristics like full leases, trophy buildings, or major market locations.
Such properties will trade for the lowest CAP rates while providing investors with reliable cash flow and capital preservation.
James Kandasamy of Austin Texas says that those who want a touch more risk can even convert to the core plus strategy, an amalgamation of value-add and core. Despite their slightly higher-than-core CAP rates, these properties still have exceptional quality and are relatively stable.
Summary
Sticking to a proven strategy in real estate investing will boost one’s chances of growing substantial wealth through multifamily investments.
