What is a syndication
You probably are already sold on the idea of real estate investing, but maybe you don’t know what way is best for you, maybe commercial real estate appeals to you but you aren’t really sure why, or maybe the way you’re currently investing is starting to show some flaws and you’re looking for other approaches. Climb Capital likes commercial real estate investing because it allows us to buy assets at scale, it’s a tried and true commodity which means fairly predictable results and fairly low risk, banks know and love multifamily so we can work with lenders for creative terms and cheap debt, and our favorite part of all: it allows us to bring in capital from our social circle so we can all make money together. It’s all the best benefits of single family rentals but with no ceiling on how big we can go.
WHAT EXACTLY DO YOU MEAN BY COMMERCIAL REAL ESTATE?
There are a lot of ways to invest in real estate and a lot of asset classes. Single family homes, retail or office buildings, industrial, and then multifamily apartments. When we say commercial real estate we specifically mean apartment buildings, mobile home parks, and RV parks. This is what we love, this is what we believe in, this is what we buy, and this is what we want to talk about. When Climb Capital started buying properties it was solely focused on apartments but as the market has changed we have worked diligently to change with it and more importantly, to stay ahead of it. We still love multifamily but we think there is a lot of opportunity in RV parks and mobile home parks as well, and we include those when we talk about commercial real estate.
Multifamily and single family are far more similar than different. They are both residential housing assets, they both share a very simple fixed cost business model, both work great with debt, and both are in huge demand! Unfortunately single family properties have some inherent problems, specifically when it comes to scaling, and that’s why we focus on larger commercial assets.
WEAKNESSES IN SFR
Single family homes are a great way to create a low risk low impact retirement plan for your family but they make for a terrible business. It’s no small feat to acquire 40 or 50 single family homes and maintain them, lending also becomes very difficult because that’s 50 origination fees and 50 loans to do, it also means 50 title searches, 50 roofs to maintain, potentially multiple property managers, and 50 addresses to individually go to each one of them for maintenance and repairs. Worse still at the end of the day it’s only 50 units. What multifamily allows you to do is take all those problems and consolidate them so you only have to deal with them once, giving you bigger benefits for much less work. Additionally, debt is cheaper on a big property than it would be on 50 singles, property management companies are more sophisticated and cheaper at scale, it’s one roof instead of 50, it’s one address to drive to instead of 50, and this goes on. Now take that same idea and imagine the hassle of trying to buy 1000 units instead, in multifamily this is maybe 5 or 10 transactions, sometimes a little more, sometimes a little less, but if you’re buying single family that’s 1000 individual transactions. Not only is it not feasible, it’s also not as profitable, so why bother?
DOES THIS SOUND INTERESTING?
People invest in commercial real estate in one of two ways, as an active or passive partner. A passive investor just sits back and collects profit, while an active partner has an ongoing job in the deal. If you’re someone who doesn’t have the time or bandwidth for another full time job and would rather place some capital with reliable operators in this industry then we should definitely talk. If you’re looking to be an active partner in a deal then the best two ways to do so with us are to find a deal that we close on, or to bring a large source of liquid capital that goes towards one of our deals. This makes for a variety of ways a new investor can get started in commercial real estate investing, and it all starts with an easy conversation.