JF1541: The Power Of Your Apartment Syndication Brand Part 3 of 4 | Syndication School with Theo Hicks
For part 3 of this 4 part series, Theo will be focusing on your company presentation. If you haven’t listened to Part One or Part Two we highly recommend you do so before listening to this episode. Those were episodes 1534 and 1535. Once you’re caught up, or if you already are, hit play and learn why the company presentation is so important and how to put together a really good presentation to present to your investors and other potential team members. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the apartment syndication school, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, which is a free resource focused on the how-to’s of apartment syndications. As always, I am your host, Theo Hicks.
Each week we air a two-part podcast series focused on a specific aspect of the apartment syndication investment strategy. For the majority of the series, we are offering documents or spreadsheets or some sort of resource for you to download for free. All of these documents, as well as past and future Syndication School series can be found at SyndicationSchool.com.
This episode is part three of a four-part series entitled “The power of your apartment syndication brand.” So it’s focused on the branding aspect and the benefits of your brand towards apartment syndications. Now, I highly recommend that you listen to part one and two of this series, because we are going to grow off of those two episodes.
Part one was episode 1534, and in that episode you will learn the five primary benefits of creating a brand, which are credibility, networking, cashflow, education and contribution. You’ll also learn why and how to define a target audience for your brand, which is based off of the 2,000 true fans concept. Then lastly, you will learn how to create the first three components of your brand, which is a company name, a logo and a business card.
In part two, which was episode 1535, the focus was on the fourth component of the brand, which is a website, so you will learn how to create a website, as well as eight strategies for increasing your website traffic, as well as conversion.
Now, this is part three, and by the end of this episode you will learn about the fifth component of the brand, which is your company presentation. So we’ll be discussing the purpose of your company presentation, as well as how to create the company presentation, and since this is the Syndication School, you will also be able to download a free document, which will be a PowerPoint template that you can use as a guide to creating your own company presentation.
Now, what is the point of the company presentation? Well, what it’s not is it’s not a pitch book, or a sales tool. You don’t want to think about the company presentation as that. Instead, you want to think about the company presentation being a solution to your investors’ challenge, which is them making money, them making a return on their investment. So you’re not really selling them anything, rather you’re presenting them with a solution to their challenge and allowing them to decide whether investing in your deals will help them overcome that challenge.
Now, if you remember – or if you need a refresher, listen to episode 1534, which was part one of this series – I mentioned the five main benefits of creating a brand, and the PowerPoint presentation helps you accomplish all five of those, obviously, but the three main benefits of the company presentation as it relates to your brand are credibility, networking and education.
So in regards to credibility, this company presentation will be a passive investor’s first introduction to you and your business. Sure, maybe they listened to you before on the podcast, or they’ve filled out the Contact Us form on your website, but this is the first time that you are speaking directly to them. And what you wanna use this company presentation for is to attract the interest and obtain trust from your passive investors, because within your company presentation, which we’ll go over here later in the episode, you’ll have a chance to display your expertise and your team’s expertise, as well as experience.
So once the potential investor reads through your company presentation, they’ll know all about you and your team, and you will also include additional information in the company presentation, which will attract their interest in not only investing in apartment syndications, but investing with you in particular. So that’s where the credibility benefit comes into play.
Next, it is a great networking tool, and this is something we’ll go over in future episodes, when we begin our conversations about actually sourcing verbal interest from potential investors… But this is a presentation that you will send to them as a networking tool; it’s much better than just having a conversation with them on the phone, because they’ve already read through your company presentation and they have an idea about you, your business and your investment strategy… And at the same time, this is a good networking tool for team members. Again, rather than talking on the phone with a potential property management company and just explaining your background, instead you can send them this document before the conversation, so that they have additional information about you before the conversation, and also they can see information about you and your team’s background and expertise. So it’s a great networking tool.
And then lastly, it is also going to be educational. When you are first starting out, you are likely going to be raising money from people you already know, and they may not have a high-level understanding of the apartment syndication process, or investing in general… So the company presentation will provide them with a good introduction into the syndication process and why they should invest in real estate, and particularly in apartments.
Now, as you grow, this benefit of education will likely decrease, because as you grow, you’ll attract more experienced investors, who won’t need an explanation of how you find deals and data points like that, because they already know.
So those are three main benefits, but again, you also benefit from the cashflow aspect, because the company presentation is helping you attract investors, as well as contribution, because as you attract investors, they’re able to invest in your deals and meet their financial goals. So that’s the purpose of the company presentation.
Next, let’s go over the meat of the conversation, which is how to create a company presentation. As I mentioned in the beginning of this episode we will be providing a free document, which could be downloaded either in the show notes of this episode, or at SyndicationSchool.com. It’s gonna be a company presentation template, so it’ll be a PowerPoint including information that I’m gonna go over in this episode.
What you wanna do is download that company presentation, populate it with your specific information, and then I highly recommend hiring a designer on UpWork and asking them to design the PowerPoint and pretty it up a little bit. That’s what we did with our presentation, but we’re not gonna give you that one; we’re gonna give you the standard version, and you can design it to your liking.
So overall there are going to be seven components to the company presentation. The first, pretty simple – table of contents, where you outline the other six components of the presentation, which are going to be the Meet Your Team section, Why Apartments section, Investment Strategies section, Roles section, 7-Step Process section and then an example deal. I’ll go over what all those mean here right now.
The second section is going to be the Meet Your Team, or the Meet Our Team, or essentially the section where you put the bios of you and your team members. So it’s gonna be your bio, as well as the bios of anyone else involved in a deal that is relevant to your investors. For people just starting off, an important team member will be a sponsor or a board member. For example, if I were to create a company presentation, I would have Joe as a board member, because I personally don’t have experience doing a deal, but Joe does, so I’m able to leverage his experience in the eyes of my investors and team members.
And then also you might wanna put information in there about your property management company, since they’re gonna be highly involved in the business plan, as well as any partners that you have.
Now, what’s the difference between a good bio and a bad bio? Because not all bios are equal. Here’s an example of a bad bio, that you do not want to put in your company presentation… It’s as follows:
“Joe has invested in real estate for over three years. He is currently the host of a successful podcast, and in his spare time is involved in various extra-curricular activities in charitable organizations.”
You probably know why that’s a bad bio, but let’s break it down quickly. The first sentence, “Joe has invested in real estate for over three years”, the only information they’re getting about Joe’s real estate business is how long he’s been doing it. They don’t know how much real estate he owns, how many deals he’s done, what type of deals he’s even doing, what type of real estate he’s investing in, so it’s not specific enough, or quantifiable, which you’ll see is gonna be a trend for a bad bio.
The next sentence, “He is currently the host of a successful podcast” – it doesn’t say what the podcast is, you don’t know how long he’s been doing it for, you don’t know what “successful” means… Is that number of downloads, is that just him doing it consistently? How is that success measured? And they also don’t really know what the format is – is it interview-based? Is it Joe just talking about his day? What’s the podcast even about?
And the third sentence, “In his spare time, he’s involved in various extra-curricular activities and charitable organizations” – again, what does this mean? What are the extra-curriculars? Is Joe just considering staying home and playing video games as being extra-curricular, or is he talking about something else? How long has he been involved in these organizations and what are they, and how many?
All of those are addressed in a good bio, which is as follows:
“Joe controls over 400 million dollars worth of real estate in Dallas-Fort Worth and Houston. He is the host of the world’s longest-running daily real estate investing podcast, Best Real Estate Investing Advice Ever, which generates over 350,000 monthly downloads. Joe is also on the Alumni Advisory Board for Texas Tech University, and on the board of directors for Junior Achievement, as well as created his own charitable organization, Best Ever Causes.”
Huge difference. Joe is explaining exactly how much real estate he owns, as well as where he owns his real estate, so he’s measuring the success. He’s also explaining how long he’s been running his podcast for, what the podcast is actually about, as well as how many downloads he is generating, which is the gauge for success.
Then lastly, he explains exactly which extra-curricular activities and charitable organizations he’s involved in, rather than just saying he’s involved in some unknown activities. Based off of that explanation, go ahead and create a bio for you and your team; a good approach is to just list out all of your stats – how much real estate you own, how long you’ve been in real estate, things like that. Then do the same thing for your property management company, your partner, as well as your sponsor, and add that to the Meet Our Team section in the company presentation template.
The third section is gonna be — the company presentation you’ll see is titled “Why apartments?”, but essentially, this is a section where you want to prove why apartments are the best asset class for your investors to park their money in order to receive solid returns.
In this section, essentially what we have is different metrics that we measure for apartments versus other asset classes, and just any metric related to apartments. We include graphs and charts and data tables to get that point across in a visual form.
The first slide that you’ll see is an explanation of the risk versus returns. Essentially, what you wanna determine is how does real estate as a whole returns compare to other investment vehicles, like stocks, bonds, mutual funds, retirement accounts, REITs, things like that, as well as how do apartment returns compare to other real estate investment vehicles, like industrial, office, retail, hotel.
For the first one, real estate versus other investment vehicles, we have a data table that shows the number of down years or negative return years, compare to the number of up years or positive return years for real estate, stocks and bonds, and as you will see, there are many more years of up years for real estate, as well as much fewer down years for real estate compared to stocks and bonds. So it gets that point across.
And then next, we have a data table that shows how the average apartment returns compared to other commercial property types – industrial, office, retail and hotel – and at this point in time, apartments have the highest average return over the 3, 5, 7, 10 and 15-year periods. For all of these, you’re going to want to make sure you’re staying up to date on the current data, because some of the things that I’m gonna explain right now might not hold true in five years, so those are things that you wanna either remove, or address differently. Also, there might be other data points that are not included or are not discussed, that are relevant in five years from now and aren’t necessarily relevant now. So this is not something to be copied exactly, just to give you an idea of the types of things to include in this “Why apartments?” section.
Another section is about taxes. Typically, passive investors who invest in apartment syndications, the distributions that they receive are less than the actual depreciation that’s passed on to them, so most likely they won’t have to pay taxes on their ongoing distributions, and they won’t have to pay taxes at all until the sale of the property. But depending on the syndicator, and you and your investment strategy, you might be able to delay taxes even longer by doing a 1031 into a new deal.
Essentially, in this new section any tax benefits as it relates to your passive investors investing in apartments should be referenced in this section. Next, we discuss the home ownership rates, so you wanna determine if home ownership is low and decreasing, or if it’s high and increasing… Because the lower the home ownership rate, by default, the higher the rental rate is, which means more customers for you and your company.
For this, we have it represented by a graph that shows the rate of home ownership over time, and as you’ll see if you’re looking at the company presentation, the home ownership peaked around 2005, and has been decreasing ever since.
Similarly, you want to also take a look at the population. This is gonna be just kind of the overall snapshot population of the country; is the population increasing? Similar to the decreasing home ownership, if the population is increasing, then that means there’s more renters, which means, again, more customers for your business.
Then lastly, of course, you want to actually look at the rate of rental occupied units to determine if that number is increasing, because again, if it is increasing, there’s more renters, and therefore more customers. For this, it’s represented by the number of renter-occupied housing units over time, and it’s been steadily increasing since the early 2000’s.
Something else that you want to take a look at is demand data. One data point would be the vacancy rate… So how is the vacancy rate for the renter-occupied units changing over time? ideally, it is going to be trending downwards, because the lower the vacancy rate, the higher the demand, which is going to be a benefit for apartment investors. We have this represented by the vacancy rate over time, and the vacancy rate peaked around 2011, and has been steadily decreasing over time.
Another demand factor to take a look at is the supply, so how many units need to be constructed to keep up with the future projected demand? More than 4.6 million new apartment homes are expected to be built by 2030, and there are nearly 39 million people living in apartments, so the industry is quickly exceeding the capacity, so it’ll take building an average of at least 325k new apartment homes every year to meet the demand. But on average, just 240k apartments were delivered from 2012 to 2016. So from a demand perspective, based off of this data, there are more people than there is supply, which is gonna be a positive benefit for apartment investors.
Also, something else you wanna take a look at is the economic impact of apartments, so what is the total number of renters, how much money are they contributing to the economy through their rental payments, and then how many jobs are actually generated by apartments? So apartments and their 39 million residents contribute 1.3 trillion dollars to the U.S economy, and generate about 12.2 million jobs annually.
Then finally, you wanna take a look at other demand drivers, for example changing lifestyles. Today, people are delaying both marriage and starting families, and the data to support that is 19% of U.S. households are married couples with children, compared to 44% in 1960. So a huge drop. And there’s 75 million people between the ages of 18 and 34 who are entering the housing market, and the majority of them are entering as renters. From that, you know that the demand for rentals are not going to be going down, because people who are delaying marriage and starting a family are more likely to rent than buy.
You also wanna take a look at any interesting demographic data. Currently, ages 55+ account for more than 30% of rental households, and more than half of the net increase in renter households over the past decade came from the 45+ demographic. So historically, the older you are, the less likely you are to rent; however, that seems to be changing, because there is a large percentage of people who are renters that are within that 45+ age demographic.
Then another demand driver to take a look at would be immigration growth. International immigration is expected to account for 51% of all new population growth in the U.S., and immigrants have a higher propensity to rent and typically rent for a longer period of time.
Those are just three examples of demand drivers, but again, that might change based off of the current economic climate in five years.
Essentially, in this “Why Apartments?” section, think of any other timely data point that’s relevant to the current apartment conditions, and make sure that you’re focused on continually updating this section. So that’s section three.
Section number four is going to be titled “Our Investment Strategy.” In this section you wanna give an overview of your investment strategy. We are value-add investors, so I will be using that as the example for this section. First, you wanna talk about your target market, so what metrics are you using to select your target market, and what are your actual target markets? In regards to the metrics, we have six things in this presentation. Number one are employment drivers. We wanna see a low or decreasing unemployment, new businesses, increasing jobs, the job diversity, and things like that, because those provide stable income and lower the risks of apartments by keeping the occupancy levels high. So those are the types of markets we look at in regards to employment.
For supply, we wanna look at the absorption rate, which is the ration of the number of rental units coming online, to the number of units rented in that same period. That rate is used to determine if supply is keeping up with the demand. You also wanna take a look at future population growth, and that should be sufficient to absorb the scheduled future supply. In other words, you’ve got a certain number of apartments available and a certain number of people that are wanting to rent, and there should be a balance between those two numbers, and ideally, there is more demand than there is supply.
Third is the GDP growth. We avoid markets that are nearing a potential bust, which we determine by decreasing GDP, and we also avoid markets with abnormally low cap rates.
This brings us to number four, which is cap rates. In order to achieve our projected returns to our investors of at least 8%, we wanna see that the class B cap rates are not below 5%.
Fifth, our rental trends. We want to see an increase in rent, because that indicates a healthy, stable economy, with lower risks.
Six is occupancy trends. Again, we wanna see a healthy occupancy rate, ideally above 95% in that market, which indicates a growing population that’s outpacing current supply. I guess there’s actually seven points to this section, not just six, because the last thing you wanna have is a map of your target markets. As you’ll see in the company presentation template, there’s a map of the U.S. with different points denoting different markets that we target, as well as their respective cap rates.
Another component of the investment strategy are the types of deals that we look at. For this section, since we are value-add investors, we give some examples of the types of value-adds that we do. On one slide we have a before and after picture of an interior, with a list of the types of unit upgrades. For example, “New vinyl plank flooring throughout the unit. Stainless steel appliances. Granite countertops. Tile backsplash. Updated hardware and lighting packages”, things like that.
Similarly, we discuss some of the exterior value-add strategies that we implement – renovating the clubhouse, rebranding with new signage, a dog park, fitness center renovations, adding a movie theater, things like that.
Also, we discuss not only what types of deals we do, but how we source these deals. We explain the process, which is the 100/30/10/1 process. Essentially, what that means is for every 100 deals sources, 30 are underwritten; of those 30, we submit offers on 10, and of those 10, we actually close one. That’s an explanation of the funnel and how many deals we look at, and how long it takes to go from looking at 100 deals, to actually closing on one of those deals.
We also discuss how we actually analyze those deals, which is through our comprehensive underwriting process. First, we select a submarket location, next we look at the history of the property, so we wanna look at the age of the construction and the current demographic, as well as the ownership history. We’ll take a look at the T-12 and the rent roll and plug that into our cashflow calculator. Then we take a look at the condition of the property, so we look at deferred maintenance and the quality of the interiors in order to determine an exterior and interior renovation budget.
Next we look at the competition, so we perform a rent comp analysis, as well as a sales comp analysis, to determine what the new rents will be after we’ve implemented our value-add program. And then lastly, we will set our business plan, so we will have a detailed explanation of the types of interior and exterior renovations we will do, the new demographic we expect to attract, as well as our rebranding in order to rebrand the apartment community and the market.
Then lastly, we also do a brief overview of how we structure the deals and our investment targets. We look at deals that are at least 100 units, we will secure debt at 70%-75% loan-to-value; the deals must have annual returns that are greater than 8%, and a five-year IRR that’s greater than 15%, and we project to hold on the property for 5-10 years, depending on the business plan.
Section five goes over the roles, and if you remember, as I mentioned earlier, as you gain more experience, you could probably remove this section, because your investors will have enough experience to know what their role is and what your role is. But for now, the two groups that are discussed are the investors and the general partners.
The investors – their responsibility is to fund a portion of the equity for the project, whereas the general partner is responsible for everything else – finding deals, reviewing deals and determining which ones to make offers on, making and negotiating offers, coordinating with professional property inspectors, finding the best financing methods for the property, coordinating with the attorneys to create the LLC and different partnership agreements, traveling to the property in person to perform due diligence on both the property and the market, hire and oversee the property management company after close, as well as perform additional asset management duties, including lender conversations, overseeing the business plan, and ongoing investor communication. Again, you can probably remove that as you gain more experience, but for now that will be a good overview for your newer investors.
Section number six is gonna go over the actual process, what the overall process is for buying apartments – similarly, this could be removed as you gain more experience, because your investors are gonna know the process already… But the seven-step process that we include in our company presentation template is 1) our team finds a property that projects to meet the goals of our investors; 2) our team makes an offer and negotiates a sales price; 3) the offer is accepted and the deal is shared with the investors; 4) our team performs more detailed due diligence on the property; 5) our team renegotiates the offer based on due diligence (if applicable); 6) legal documents are created by the attorney and signed by both the general partnership and the investors; 7) finally, the deal is closed.
Now, the seventh section – you might not be able to make this right away, because you won’t have a deal, but once you’ve done a deal, or if you have a sponsor or a board member who’s done a deal, you wanna include an example of what your investors can expect. For example, you want to essentially include all the information that was included in the investment summary you created when presenting that deal, which we’ll go over in future episodes… But essentially, you wanna include a property description, as well as the unit mix information. You want to include the equity, the amount of money that would be returned at the sale of the property – the projected sales proceeds, or the actual sales proceeds if the deal was sold, as well as yield projections for the entire project.
You want to include an operating income and cashflow statement, as well as a data table showing the returns for a sample investment of, say, $100,000. Then lastly, you can toss in the actual five-year proforma of the rental income and expense line items. Then you can conclude your presentation with your contact information.
Now, make sure you go to SyndicationSchool.com or the show notes to download the free company presentation template, which is what I discussed during this episode, and include all of those seven sections. Again, you want to download that and put your data, and then have someone professionally design it. The purpose of this company presentation is to build that trust and personal connection with your passive investors before you hop on a phone call with them. Again, we’ll go in a lot more detail on how to actually use this company presentation in the future, but for now, I wanted to discuss how to actually create this, so you have it done and you’re able to use it to the best of your abilities.
That concludes part three, where you learned the three primary benefits of the company presentation, which are credibility, networking and education, and you also learned the seven-section company presentation, and you have a free document to download that goes over all of that as well.
Now, in the fourth and final part, which will be released tomorrow, we will discuss the sixth and final component of the brand, which is the thought leadership platform. To listen to all other Syndication School series about the how-to’s of apartment syndications, and to download your free company presentation template document, visit SyndicationSchool.com.
Thank you for listening, and I will talk to you tomorrow.