Where most beginners start, and where they trip
Most people come to multifamily the way John Todderud did, after a career spent watching a 401(k) move with the market whether he liked it or not. Apartments looked different. Income from rent, tax advantages from depreciation, and appreciation that comes from actually improving a property rather than hoping the market does the work for you.
The trip-up is pace. Beginners often think they need to buy a building themselves, fast, to get started. That's backwards. The first and most important skill in this business is the willingness to walk away from a deal that doesn't pencil out. We evaluate hundreds of deals a year and close two or three. That's not caution for its own sake. It's the whole job.
What a syndication actually is
An apartment syndication is a group of people pooling money to buy a property too large for any one of them to buy alone. A small group of general partners finds the deal, underwrites it, and runs the operations. A larger group of passive investors, called limited partners, provides the capital and shares in the income and the appreciation without managing tenants, turnover, or maintenance themselves.
That tradeoff matters. You give up control. In exchange you give up the phone call about a broken water heater at midnight. For most passive investors, that's the trade they want.
How the money actually moves
There are two ways investors make money in this structure.
- Cash flow. If the property brings in more than it costs to run each month or quarter, that surplus is typically distributed to investors. This is the ongoing income piece, and it's taxable at ordinary rates, so it tends to matter most to investors who want a check regularly rather than spend it right away.
- Appreciation at sale. Apartment values are driven by the income the property produces and the capitalization rate the market applies to that income. Grow the income, and the value usually follows. When the property sells, investors share in that gain, usually at capital gains rates, often better than the rate on ordinary income.
Neither of these is fixed in advance. We underwrite with worst-case rent growth, stress-tested exit cap rates, and conservative occupancy assumptions from day one, because projections should never assume the best case plays out. What we show investors are targets based on that conservative math, not a promise of what will happen.
It also helps to know what kind of investor you are before you choose a deal. Some people want cash flow they can see every quarter. Others care more about the appreciation at sale. Multifamily can offer both, but knowing which one matters more to you shapes the questions you ask and the properties that fit.
Three things to look at before you invest in any deal
A deal comes down to three things, in this order.
- Location. Is population growing, are jobs diverse, and does the local government treat property owners fairly? A great building in a weak market is still a weak deal.
- Operator. Who is actually managing the repositioning, the leasing, the vendors? Operators direct the property managers, often weekly, deciding which renovations to fund and whether to push rents or push occupancy. Their priority should be safeguarding investor capital, not just collecting a fee.
- Market cycle and debt. What happens to this deal if rates move against it or rents soften for a year or two? John has watched nice properties bought with short-term, low-interest loans because that was the only way they cash flowed, then struggle to refinance when rates rose. When the interest rate is higher than the cap rate, that's negative leverage, borrowing at a higher rate than the property earns unleveraged. It's worth asking about up front.
If you're not confident in all three, that's a reason to pass, same as it is for us.
Questions worth asking any sponsor
If you're new to this, here's a short list that tells you a lot about how a sponsor operates.
- What's your underwriting assumption for rent growth, and is it conservative or optimistic?
- Do you have your own capital in this deal, on the same terms as investors?
- How often do you report, and will the report include what went wrong, not just what went right?
- What's your plan if occupancy or rents come in below projection?
- Have you done this kind of repositioning successfully more than once?
The answers matter more than the pitch. A sponsor who's honest about risk and slow to close deals is usually a better sign than one who's fast and confident about everything.
A note on taxes
Multifamily real estate carries real tax advantages, mainly through depreciation, but how those apply to your situation depends on your own circumstances. We are not accountants or attorneys. Ask your own advisor before you count on any specific tax outcome.
Where to go from here
If you're starting from scratch, the best first step isn't to pick a deal. It's to understand how the model works, what questions to ask, and what a conservative underwriting process actually looks like. Our investor FAQ covers more of the mechanics, and our approach page walks through how we screen markets and properties before we commit any capital.
Curious whether this fits what you're trying to do? Schedule a call with John. No pitch, no pressure, just a clear look at the assumptions and the questions worth asking.