Value-Add Multi-Family Information
Our value-add multi-family investments are existing properties that we purchase with the intention of renovating and improving to maximize value. This allows investors to build equity in the property from the value-add phase, then generate cash flow from the rental income while gaining additional equity over time through appreciation.
As an investor, you can take advantage of all the benefits of multi-family rentals (including passive rental income, tax breaks, and property appreciation) without the high upfront costs of doing it yourself.
These deals are made easily accessible through real estate syndication. Syndication is the process of pooling money from multiple investors to finance a single deal, with each investor becoming a member of the LLC that owns the property. This structure enables you to invest with a low minimum investment amount, giving you a share of a multi-million-dollar property in an elite real estate market without the burden of funding the project alone. Just as importantly, this structure allows you to leverage the skill, knowledge, and connections of an experienced team of real estate experts who manage the project from start to finish.
If you wish to invest as a lender rather than an owner, we also offer the option to invest in the property’s debt rather than equity.
The benefits of investing in multi-family value-adds
Stability.Real estate is less volatile than the stock market and has historically outperformed the S&P 500.
Equity.Through improvements and renovations, the property will increase in value, which also increases your equity in the deal.
Cash flow.Existing properties often generate rental income right away. The monthly rents received from the residents cover property expenses and can provide passive income to investors.
Appreciation.Investors benefit from the growth of real estate values over time.
Tax advantages.Claim deductions on your income taxes for your real estate holdings. 100% of the property’s depreciation expense will pass through to the equity investors based on their respective ownership percentages in the deal.
Choosing the right property
Through years of experience in the industry, our team of experts has developed a proven system to maximize profits. This starts by finding properties with the greatest transformation potential. We use our industry connections to find qualified properties from sources like property auctions, probate courts, and pocket listings. We typically complete a detailed due diligence analysis of dozens of properties before making offers on a few properties with exceptional yield potential.
We search for properties in up-and-coming submarkets, which are centrally located, in neighborhoods that have solid amenities like entertainment, parks, job opportunities, and good schools, and that are seeing strong rental increases and property value growth.
We look for existing, well-priced multi-family properties, with 50 units or fewer, that have the potential for us to immediately improve the overall look and feel of the property and add value. We specifically target properties that have been mismanaged, have below-market rents, or are otherwise performing below the property’s potential. These properties provide opportunities to push rents.
If, for example, we find a qualified property that is only 70-80% occupied, we see this as an opportunity to immediately renovate the empty units, which we can fill with qualified renters at a higher rental rate. Similarly, if we find a property with 10-20% tenant turnover, we know that we will be able to renovate that percentage of the units as existing renters vacate the property. Providing higher-quality interiors will allow us to increase the rental rates, while also reducing turnover of the higher-value units.
Securing the property
Once we find a property that meets all of our criteria, we open the LLC in which the property will be held, secure any financing needed, complete all title and escrow documents, and successfully close the deal. Investors have a chance to join in the deal and claim an ownership stake in the property.
Once the property is purchased, we begin the renovation process.
We can improve both the interior and exterior of the common areas of the building through new facades, upgraded landscaping, updating the lobby and hallways, adding new light fixtures to brighten up the space, etc. We also look for renovation potential in the individual units. We can replace cabinets, countertops, and flooring and upgrade fixtures to appeal to today’s renters.
The initial renovation can take anywhere between 8 and 14 months. Additionally, we will continue to remodel units as tenants move out during the rental holding period. Any time an unrenovated unit is vacated, we will remodel that unit so that we can rent it to the next renter at a higher rental rate.
With the vacant units remodeled, we can begin filling those units at higher rental rates to stabilize the property
The rental holding
Our experienced team handles every aspect of the process from start to finish. We negotiate financing options, secure the loan, advertise the property to qualified tenants, complete tenant screenings, oversee the property management company, and handle the accounting services including quarterly investor distributions, 1065 tax filings, and Schedule K-1s.
Equity and debt offerings
For selected properties, investors have the option to invest in equity or debt. With the equity structure, you have an ownership stake in the underlying real estate. With the debt structure, you serve as a lender to the deal.
The estimated timeframe for a value-add multi-family investment is 3-5 years. This includes both the renovation phase and the rental hold period.
The timeline starts the day we open escrow for purchasing the property. Then it typically takes anywhere from 8-14 months to complete the renovation. Once the renovation is complete, and any vacant units are filled, we stabilize the property.
At that point, equity investors will typically start generating quarterly distributions from any rental income. Then, they will continue to generate rental income throughout the hold period. Distributions are prorated based on the time you invest in a project and how many shares of that investment you own.
Debt investors will get monthly distributions at fixed rates throughout the investment hold period.
Gatsby will make the decision on when it is the right time to sell the property based on several factors, including general market conditions, interest rates, and buyer demand. Investors will be informed when we start the property appraisal process and put the property on the market for sale.
Once the property is sold and escrow closed, investors receive their distributions from the sale of the property within 10 business days.