Frequently Asked Questions
What is an Accredited Investor?
What is a preferred return?
Typically, 8% is what I see most. This favors the limited partner. It essentially means that the first 8% return on an investment (distributions from cash flow or capital events such as refi proceeds or sale) will go entirely to the limited partner, nothing to the general partners. This is not a guarantee but the next best thing.
What is a Syndication?
In its simplest form, syndication is the pooling of investor money where the investor is typically a passive, limited partner. The other partner to the deal is the general partner, or active partner that puts the deal together, manages the business plan to provide a return for the benefit of all investors. You will hear General Partner (GP), Syndicate and Sponsor often used interchangeably.
What is a Limited Partner?
A passive investor in the deal. They have limited liability. Their risk is limited to the amount they invest in the deal, no more. Their other assets are protected. They cannot be sued, they are not on the loan and are not responsible for the active performance of the property..
Does the GP invest in their own deal?
You will typically see this being the case to align with investors. However, when the GP invests, that money goes with all other investors money into the LP investment bucket (70% split). In other words, the GP split of say 30% is what the GP wants to earn for doing all the work. If he puts money in the deal, he’s increasing his stake in the deal so it is going in on the LP side. That’s how it works.
Can I use a SD-IRA or solo 401K to fund the deal?
Yes, you can but there is a UBIT tax to understand on the SD-IRA as the IRS does not want to see you take advantage of the leveraged portion of the investment. Interestingly enough, the solo 401K does not have this problem.
What is the process / timeline?
Once we have a property under contract, due diligence is about 60 days. We start the equity raise process with investors which runs about 5-6 weeks end to end. Marketing deck goes out, investor conference call takes place, investors reserve a spot, review the PPM / sign and fund. About 2-3 weeks later we close on the property. About 60 days later first investor distribution.
What is the minimum investment?
For us, it's $50K minimum and increments of $5K on top of that
How will you communicate with me?
Monthly quick updates (email) on how the investment’s progress. Typical bullet points / some pics on how many units were renovated, rents we are getting, etc. Quarterly property management financials can be reviewed. Following March of each year you will receive a K-1 statement from us for your tax filings.
What is a K-1?
Similar to a 1099, a K-1 form is an accounting of the tax income for the year. Each investor receives one per investment. K-1 forms are most commonly used in partnerships and in real estate ownership.
What is a sensitivity analysis?
We like to show investors under different scenarios if our forecasts are off, what is the breakeven point for profitability given a decline in occupancy or if rents don’t project where we expected. Surprisingly most of our scenarios allow occupancy to go to 75% to break even. That is comforting to our investors to know this information.