We focus on multifamily apartment syndication's that present a value-add investment opportunity.
Syndication is an effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own. Typically, there are the two types of investors, 1. Limited Partner (non-active partner) which places funds into the real estate asset and receives partial ownership with the basis of receiving a return on investment (passive income and ownership equity), and 2. General Partner (active partner) which puts the deal together and manages the business plan to provide a return for the benefit of all investors.
When we have an investment available and get a property under contract, we start communicating with potential investors. Within the first week, investors typically reserve their spot and investment amount. The equity raise process with investors will begin immediately which runs along side the due diligence and bank underwriting which takes roughly 5 weeks. In the 5th week, investors review and sign the PPM (Private Placement Memorandum) and transfer funds to the escrow account. We then close on the property 2-3 weeks later.
Investors who choose to invest in value-add properties carefully examine the property to determine how they can increase the cash flow as quickly and inexpensively as possible.
Examples of value-add improvements:
Hence, adding value to the property results in improved cash flow and equity.
Typical cash distribution returns range 8-10% annually and 14-16% total average annual return over the life of the investment. The largest portion of the investor returns comes in the year the asset is sold, usually end of year five. Though it's not uncommon for returns to out perform these typical ranges. We do not guarantee any returns, each project has its own characteristics, and we recommend you read the PPM thoroughly.
Cash-on-Cash (COC): is the annual before-tax cash distributions received divided into the initial capital investment.
Average Annual Return: is the total before-tax cash distributions plus before-tax equity paid after sale of the property.
Most syndication's deliver cash distributions monthly or quarterly. Also, when an asset is refinanced or sold, payment will be distributed after funds have cleared escrow.
Each investment characteristics are different and an investor may receive their initial investment back as early as year 2 or as late as year 10 through a refinance or sale of the property. Traditionally, we build a 5 year holding period in our business plan and an investor may expect to receive their original investment after year five. We recommend you read the PPM thoroughly to understand the exit strategy on the investment.
The minimum investment amount usually is determined by the amount of capital required to acquire the property. In general, minimums start at $50k.
We operate with a core value of treating investors’ money as its own and we invest right alongside our clients in every deal.
We’ll provide monthly / quarterly email updates as follows:
Yes, you can invest in real estate with certain retirement accounts. We are happy to discuss how we boosted our own IRA investing returns with real estate investing. We can also refer you to professionals to discuss the process of setting up your retirement account so you may invest in real estate.
Yes, we model different scenarios to show our break-even point for profitability given a decline in occupancy or if rents drop below projections. Most of our scenarios allow occupancy to drop between 75-80% to break even. Third party data shows that in our target markets the worst vacancy levels were around 85% during the 2009 financial crisis. This process allows us to determine the strength of the asset during a down market.
In the event of a down market, we will hold the asset and continue to cash flow the property until we find positive economic conditions to sell. Our sensitivity analysis allows for the "what if" scenarios so we position the asset to weather the storm and continue to produce positive returns. Value-add properties tend to hold up much better in downturns, this is because people move away from ownership and upper class (expensive) locations and into value-add (affordable) rentals. This raises occupancy levels and improves cash flow.
The return forecasts to Limited Partners are post any fees. The most common fee is an acquisition fee based on purchase price and is paid at closing. This covers the general partner’s costs to find and close the deal. The second most common fee is the asset management fee which is compensation for actively managing the performance of the asset. The General Partners have a fiduciary responsibility to ensure the assets operates successfully by holding the property manager accountable, executing the business plan, managing the financial bookkeeping, distributing payments, and delivering K1s. The asset management fee is directly related to the performance of the property's income which aligns with our investor’s interest. Industry averages range 1-3% for both fees.
There is nothing in our prospectus for a workout or formula for such a scenario. The investment should be considered a non-liquid investment. That said, the general partner will review your situation and see if there is something that can be done to help.
Risks will be outlined in each PPM (Private Placement Memorandum). To provide some data points related to this topic...In 2009, at the bottom of the financial crisis, delinquency rates on single family homes was 5% vs 1% on MF apartments. Additionally, vacancies in Class C and B (older properties where value-add syndication is prevalent) remained steady at 8%. We further mitigate risk by targeting assets with a proven history of generating positive cash flow. Our due diligence auditing includes analyzing the trailing 12-month financials, bank records, tax returns, and whenever possible reviewing the past 3 years financials. In addition, lenders, who provide the largest portion of capital to acquire the asset, will perform an independent underwrite by assessing the business plan, financials, insurance coverage, and order an inspection by an expert before approving a commercial loan.
The Private Placement Memorandum is a legal document required by the SEC describing the investment offering, risks, partnership agreement, investment summary, and subscription agreement. It is a lengthy legal document prepared by a syndication attorney detailing the investment. The subscription agreement section includes basic information of the amounts being purchased and percent ownership of the investment. The risk section highlights the possible risks associated with the investment.
We currently market our investments under SEC regulation 506(b) which allows us to include investors who are either sophisticated or accredited, and with whom we have a relationship. A sophisticated investor is one who has sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. To be accredited you must meet one of the following criteria:
Accreditation is simply a determination by self-disclosure from the investor via the subscription agreement.
Yes. While it is more complex due to taxation, foreign exchange, and bank accounts, it is possible for a non-U.S. resident to invest in a real estate syndication. We can help our international members navigate through the entire process which may include:
An apartment syndication is very tax efficient. As a partner in our limited partnership, you could benefit from your portion of the investment’s deductions for property taxes, loan interest, and depreciation. We like to use a cost segregation strategy as well to accelerated depreciation. It’s not unusual on a $100K investment to return actual cash in your pocket of $8K while experiencing a paper loss on your annual K-1. That loss could then be used to offset other income. At time of sale, the partnership gains are treated as long-term capital gains. We highly recommend consulting an attorney or CPA for advise, we're not tax professionals and cannot give tax or legal advise.
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