SD Homes real estate syndication company specializes in the acquisition and operation of small to mid-sized apartment buildings. By raising the necessary capital, acquiring the asset, managing the property, and maintaining the partnership, it is our purpose to provide our investors with real estate investment opportunities in multi-family commercial real estate.
We provide the vehicle for investors to take part in long-term, multi-million dollar, cash producing investments with relatively small capital contributions and no time or effort spent in acquiring or maintaining the investment.
Investing in multi-family commercial real estate is considered by many to be one of the safer and more profitable real estate investments around. Multi-family investments provide tax-deferred returns immediately while still offering the same, and often greater, element of appreciation.
Another benefit with investing in multi-family commercial real estate is that such an investment allows one to capitalize on the economies of scale. With a single family investment, when the property is vacant, the owner is responsible to cover the mortgage, any repairs necessary, and all marketing costs and efforts to re-occupy the property. When investing in apartments, vacancies can be more easily absorbed because multiple units are still producing income. The same principle applies to property improvements and repairs; costs for such items are spread over all of the units in the complex.
In addition to the aforementioned safety characteristics of operations, apartments are also inherently safe in terms of market growth. Economic downturns or recessions do not impact apartment rentals in the same way as other investments (i.e. the stock market, other real estate investments, etc.) are effected. Apartments are affected differently because they are essentially the lowest form of housing available and are needed regardless of the current state of the economy. In fact, downward turns in the residential housing market often spark rents to increase as fewer people are buying homes.
Why San Diego? SD HomesHome focuses its efforts in San Diego because San Diego has yet another level of safety. San Diego is an “infill development” type of area, meaning, for any development to occur, one must re-develop areas as opposed to expanding to lower populated, more affordable vacant areas. The reason for this is because San Diego is bordered by the Pacific Ocean to the west, the Mountains to the east, Mexico to the south, and Camp Pendleton to the north. This limits the opportunity for new development to infill development in which case building and land costs are much too high to ever compete with the type of commercial real estate assets we target. We feel San Diego Apartments are a very conservative yet profitable way to invest in real estate.
Cash on Cash Returns
SD Homes searches for investments that it anticipates will produce tax deferred cash on cash returns of 5-6% and greater. These cash on cash returns begin immediately upon the acquisition of the asset. As rents increase, cash on cash returns can also be expected to increase.
Cash on cash returns are only one type of return that our investors can anticipate in this type of real estate investment. Appreciation is also a key component in providing investors with long-term high yield returns on their investment. When property values increase, investors benefit from that increase in value, especially when the property is leveraged. For example, when a property is financed with a 65% loan to value ratio, a very conservative 3% asset appreciation can result in an appreciation return of 5-7% per year over the entire holding period. As evidenced by San Diego’s phenomenal real estate growth over the years, depending on the city and the cycle, appreciation can reach very significant levels.
In addition to cash on cash returns and appreciation, when conventional financing is used, there are long-term returns in the form of principal reduction. The principle is reduced throughout the financing term with the cash flow produced from the asset, which is also an increasing benefit as time goes on and the existing debt is paid down with inflated dollars. Returns in the form of principle reduction are approximately 1.5-2.5% in the beginning of the investment, and increase throughout the amortization period. The principle reduction aspect of the investment is realized upon the refinance or sale of the building.
In addition to the returns listed above, this type of real estate investment can yield substantial tax benefits. Some of the benefits are as follows:
· Tax deferred cash flow
· Taxable loss used to offset other passive gains
· Inheritance tax benefits- step up in basis
· IRA dollars may be used as this is a passive investment
· Distributions from a refinance are not taxable
· Capital gains can be deferred if asset is sold and 1031 exchanged into another asset
(please consult your CPA as we are not tax professionals)
As the General Partner in the investment, it is our goal to accomplish the following for our Investors:
- Raise the capital necessary to acquire the asset, as well as reserve funds for necessary capital improvements and operating reserves.
- Manage all relevant legal issues including the structuring of the partnerships.
- Locate and evaluate properties that meet our investment goals.
- Secure all financing necessary for the acquisition.
- Negotiate the purchase of the asset for the partnership.
- Oversee and evaluate all necessary inspections during the due diligence period.
- Manage, evaluate, and oversee partnerships finances and distributions to investors.
- Conduct all property management functions as necessary for the operations of the properties.
Evaluate market conditions and financing options for refinancing and repositioning opportunities.
Knowing the market, comparable rental rates, sales comparisons, etc.