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WHY TO INVEST IN MULTIFAMILY REAL ESTATE
HOW MULTIFAMILY INVESTING WORKS
MULTIFAMILY INVESTING EXAMPLE
STEPS IN A MULTIFAMILY INVESTMENT
CASH FLOW
We focus our purchases in the SOUTHEAST which has strong middle-class employment and a growing population.
Complexes ranging from 50 - 250+ Units
Class B and C
Rents below market average
APPRECIATION
Unlike single family homes, a multifamily apartment syndication is a business valued primarily by its Net Operating Income (NOI), not property comps. Through physical and operational improvements, you can increase the value of the property by increasing NOI.
AMORITIZATION
Revenue from operations & rental income pays down the debt on the property, which in turns builds equity for investors
DEPRECIATION
Revenue from operations & rental income pays down the debt on the property, which in turns builds equity for investors
DISPOSITION
Lump sum payouts at time of sale or refinance
AQUISITION
We focus our purchases in the SOUTHEAST which has strong middle-class employment and a growing population.
Complexes ranging from 50 - 250+ Units
Class B and C
Rents below market average
VALUE -ADDED
Upon purchase, we perform any deferred maintenance, upgrade units and exterior in order to increase rents. A skilled third party property manager to improve operations and reduce operating expenses.
STABILIZE
Once the property is stabilized and generating greater income, it appraises at a higher value allowing us to refinance it, returning our investors initial capital, while still providing a steady cash flow, or 1031 exchange it for a bigger property.
DISPOSITION
Stabilized, cash flowing property is attractive to institutional buyers including REIT’s, institutionalized investment firms, or investors looking for real estate investments to diversify their investments. We typically plan on a 3-5 year exit strategy but may hold some properties for long-term cash flow.
HOW INVESTORS MAKE MONEY
WHY INVEST IN FOUR OAKS?
PASSIVE INCOME
As a passive equity investor you'll receive consistent income distributions directly to you bank account
LUCRATIVE ROI'S
Targeted Returns:
14%+ IRR
8%+ COC
2x+ ROI
RECESSION RESILIENT
Avoid the cyclical nature and unavoidable risk of standard equities. Invest in tangible assists that perform in all market cycles
FUNDING OPTIONS
Every investment involves the creation of it's own LLC of which you the investor are a shareholder allowing for pass-through depreciation of the assets providing significant tax benefits
INVESTMENT TYPE
Multifamily apartment complexes that are under valued or have been poorly managed creating a value-add opportunity
TARGET MARKET
The Southeastern United States:
Affordability, Rapid Population & Infrastructure growth matched with landlord friendly regulations.
PROJECTED RETURNS
15%+ AAR
(Average Annualized Return)
HOLD PERIOD
Typically 3 - 7 Years
WE FOCUS ON VALUE-ADD REAL ESTATE
Four Oaks' strategy is to capitalize on favorable demographics and supply/demand in metro areas in the SOUTHEAST through the acquisition of Class B and C multifamily assets.
Our objective is to enhance the value of investments through extensive renovations, while maximizing returns to investors and providing residents with an improved quality of living.
We target assets with highly desirable locations in close proximity to large employment centers, major thoroughfares, public transportation access points, public schools, retail centers and grocery stores.
The end result is affordable, high quality properties, in desirable locations, that are acquired at a discount relative to market.
WHY CLASS B & C APARTMENT COMPLEXES
Class B and C properties have experienced an increased demand as rising rates have pushed renters towards more affordable options. And as the wage gap and income disparity across the country builds, aggregate demand for Class B and C properties is also expected to increase.
Need for these assets exists regardless of economic cycles. In tougher economic climates, Class A- and B+ renters may be forced to trade down to Class B/C multifamily. Newer/younger entrants to the renting pool also tend to look for value properties. B/C class fills needs in both robust and weak economic cycles.
No new “B” & “C” class properties are being built for working-class individuals. When new apartment complexes are built, they are inherently class “A” properties with a corresponding higher rent.
These complexes are typically older and offer the chance for value-add renovations that we require in order to increase cash flow potential.
MULTIFAMILY INVESTING EDUCATION
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You can use your retirement funds to open a Self-Directed IRA (SDIRA) account with Rocket Dollar to invest with Four Oaks Capital. Rocket Dollar makes it quick and easy to signup online, backed by the simple and transparent price of $15 per month (regardless of the amount of assets or number of transactions) and a one-time set-up of $360. You can utilize the code FOUROAKS to take advantage of $100 off.
You will maintain all benefits of a typical retirement account, and if you are self-employed you may qualify for the Self-Directed Solo 401(k), which offers tax deferred contributions up to $56,000/year. For more information take a look at Rocket Dollar's Knowledge Base, schedule a call or signup online.
WHY WE USE ROCKET DOLLAR
-The fees are about ⅓ of your traditional Self-Directed IRA custodian
-The fees are pulled from your credit card as opposed from being pulled from your IRA account
-We at Four Oaks Capital appreciate intuitive design
-They offer our investors $100 off the set-up fee with code FOUROAKS
INVESTING IN REAL ESTATE WITH A SELF DIRECTED IRA
Investment property depreciation is the amount that can be deducted from income each year as the depreciable items at the apartment community age. The IRS classifies each depreciable item according to its useful life, which is the number of years of useful life of the item. The business can deduct the full cost of the item over that period.
The most common form of depreciation is straight-line depreciation, which allows the deduction of equal amounts each year. The annual deduction is the cost of the item divided by its useful life. The IRS considers the useful life of real estate to be 27.5 years. So, the annual depreciation on an apartment building worth $1,000,000 (excluding the land value) is $1,000,000 / 27.5 years = $36,363,64 per year.
As one of the tax benefits of apartment syndications, the depreciation amount is such that a passive investor won’t pay taxes on their monthly, quarterly, or annual distributions during the hold period. They will, however, have to pay taxes on the sales proceeds.
COST SEGREGATION
DEPRECIATION
COST SEGREGATION
DEPRECIATION RECAPTURE
BONUS DEPRECIATION
CAPITAL GAINS
ANNUAL TAX STATEMENTS
In addition to the capital preservation and cash flow benefits, one of the main reasons that passive investors seek to invest in real estate opportunities, and apartment syndications in particular, is because of the tax benefits of rental property.
When a passive investor invests in a value-add apartment syndication, they will typically receive a profit from annual cash flow and the profit at sale.
Being a profit, this money is taxable. However, for apartment syndications, there are five pieces of tax information that the investor need to understand in order to determine the tax advantages of investing.
TAX BENEFITS OF INVESTING IN REAL ESTATE
Investment property depreciation is the amount that can be deducted from income each year as the depreciable items at the apartment community age. The IRS classifies each depreciable item according to its useful life, which is the number of years of useful life of the item. The business can deduct the full cost of the item over that period.
The most common form of depreciation is straight-line depreciation, which allows the deduction of equal amounts each year. The annual deduction is the cost of the item divided by its useful life. The IRS considers the useful life of real estate to be 27.5 years. So, the annual depreciation on an apartment building worth $1,000,000 (excluding the land value) is $1,000,000 / 27.5 years = $36,363,64 per year.
As one of the tax benefits of apartment syndications, the depreciation amount is such that a passive investor won’t pay taxes on their monthly, quarterly, or annual distributions during the hold period. They will, however, have to pay taxes on the sales proceeds.
DEPRECIATION
BONUS DEPRECIATION
One of the major changes with the Tax Cuts and Jobs Act of 2017 was the bonus depreciation provision, where business can take 100% bonus depreciation on a qualified property purchased after September 27th, 2017. This is definitely one of the tax benefits of rental property you should learn more about, so click here for more information on the qualifications and benefits of the change in bonus appreciation.
CAPITAL GAINS
When the asset is sold and the partnership is terminated, initial equity and profits are distributed to the passive investors.
The IRS classifies the profit portion as long-term capital gain.
Under the new 2018 tax law, the capital gains tax bracket breakdown is as follows:
Taxable income (individual or joint)
-
$0 to $77,220: 0% capital gains tax
-
$77,221 to $479,000: 15% capital gains tax
-
More than $479,000: 20% capital gains tax
DEPRECIATION REPACTURE
Depreciation recapture is the gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is “recaptured” by reporting it as income.
For example, consider an apartment that was purchased for $1,000,000 and has an annual depreciation of $35,000. After 11 years, the owner decides to sell the property for $1,300,000. The adjusted cost basis then is $1,000,000 – ($35,000 x 11) = $615,000. The realized gain on the sale will be $1,300,000 – $615,000 = $685,000. Capital gain on the property can be calculated as $685,000 – ($35,000 x 11) = $300,000, and the depreciation recapture gain is
$35,000 x 11 = $385,000.
Let’s assume a 15% capital gains tax and that the owner falls in the 28% income tax bracket. The total amount of tax that the taxpayer will owe on the sale of this rental property is (0.15 x $300,000) + (0.28 x $385,000) = $45,000 + $107,800 = $152,800. The depreciation recapture amount is $107,800 and the capital gains amount is $45,000.
ANNUAL TAX STATEMENT
At the beginning of the following year, our CPA will create Schedule K-1 tax reports for each passive investor. The K-1 is a tax document that includes all of the pertinent tax information that the passive investor will use to fill out their tax forms.
