What Passive Apartment Investors Earn Beyond Cash Distributions: A Sioux Falls Developer Explains

Many investors judge an apartment investment by one number: the size of the distribution check. Dusten Hendrickson, founder of Mailbox Money Real Estate, says that check tells only part of the story. His firm develops workforce housing in Sioux Falls, South Dakota, and other secondary and tertiary Midwest markets for passive investors, and he spends much of his time explaining where the rest of the return comes from.

Seeing the full picture helps investors understand how an apartment investment builds value over time. Here is how Hendrickson breaks it down.

Distributions Are Only One Part of the Return

According to Hendrickson, cash distributions are the smallest portion of the return on an apartment investment. Most of the value builds in ways that do not show up as a quarterly check.

By his estimate, before tax benefits are counted, about 15% of the return comes from appreciation, debt reduction, and improved value, while about 5% comes from distributions.

Debt paydown is a good example. Rent from the property covers the mortgage, and part of every payment reduces the loan balance. That growing equity belongs to the investors, and so does the cash the property sets aside in reserves.

The equity that gets paid down on the note, thats your money, Hendrickson said. The reserve account is your money.

Tax Benefits Arrive Early

Depreciation is one of the first benefits investors see on a new development. Hendrickson says investors typically receive depreciation deductions equal to roughly 80% of their investment, and more than 100% over about five years.

If you can invest, youre going to get your tax depreciation, youre going to save on your taxes, youre going to pay less to Uncle Sam, he said.

How much of that benefit an investor can use depends on their own tax situation, so it is worth reviewing with a CPA. Hendrickson says many of the investors coming in today are focused on this benefit because they want to lower their tax bill while owning a real, long-term asset.

A Hedge Against Inflation

Hendrickson also points to real estates role as an inflation hedge. He compares it to a certificate of deposit: if a CD pays 5% and inflation also runs at 5%, the investors buying power does not grow.

An apartment community works differently. It is a physical asset with intrinsic value, and Hendrickson notes that over the long run, both construction costs and rents have consistently risen. Both lift the value of existing buildings.

Real estate also moves slowly, which gives owners flexibility. A well-capitalized owner can hold a property through market cycles and choose the right time to sell.

Real estate is a patient endeavor, Hendrickson said. You have brand new buildings, theyre beautiful buildings, people are living in them.

What Investors Entering Real Estate Today Are Looking For

Hendrickson says the investors coming in now tend to fall into a few groups: those who want to reduce their taxes, those who want to diversify beyond the stock market, and those who are new to real estate and want to learn how it works before investing more.

All of them value visibility into what they own. Investors can review property reports, and they can visit the communities in person.

You can drive through and see all the cars in the parking lot, he said.

Mailbox Moneys portfolio includes completed and under-construction workforce housing communities in South Dakota and Minnesota, built for working professionals and held with a long-term view.

If you’re interested in learning more, book a call with Mailbox Money’s investor relations team.

About Mailbox Money Real Estate Mailbox Money Real Estate is a vertically integrated developer of workforce housing in secondary and tertiary Midwest markets, including Sioux Falls, South Dakota, and Rochester, Minnesota. The firm manages each project in-house, from site selection and construction through leasing and asset management, on behalf of its accredited investor partners.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.

Disclosure: Individuals or companies mentioned may have a commercial relationship with KeyCrew.

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