What is syndication?
Syndication is the pooling of investor money where the investor is typically a limited partner (passive investor) that teams up with a general partner (managing partner) who puts the deal together and manages the business plan to provide a return for the benefit of all investors. The limited partners are buying shares of the company that is purchasing the asset (property).
What are your return projections and how are your returns calculated?
We seek properties that produce Average Annual Returns of 10-20% over a 5-year hold period or 50-100% total return on capital after the 5-year hold period through Refinancing or Sale of the asset. These returns include the equity share since in a value-add project, a large part of the investor returns come in the year of sale.
Note: Upon the sale of the property, you get an additional piece of the pie in addition to the cash flow you had been receiving monthly (or quarterly) in your direct deposit account. You also get a piece of the equity (appreciation) per your ownership percentage.
What is the minimum investment?
We generally set it between $25K and $100K, depending on the deal size. We operate on a core value of treating investors’ money as its own and we invest right alongside our clients in every deal.
When and how will I get paid?
Most projects provide monthly or quarterly distributions.
Can I invest using a Self Directed retirement account (IRA or 401K)? Yes, you can invest in real estate with certain self-directed retirement accounts. I’m happy to discuss how we have boosted IRA investing returns with real estate.
When will I get my original investment back and what is the holding period?
We target a 5-year hold on our deals. This provides ample time to execute our value-add plan and then cash flow for a few years while looking for an opportunistic sale. Some investor principal could be returned as early as year 2 from a refinancing event or we may want to continue to cash flow till year 7 if the market is down in year 5.
Can international investors participate?
Yes!! While it is more complex due to taxation, foreign exchange, and bank accounts, a non-U.S. resident can invest in real estate syndications.
We can help our international members navigate through the entire process which may include:
ITIN: Registering with the IRS as a foreign investor
Tax Preparation: Our network of accountants is experienced in dealing with taxation services and advice for non-resident investors.
Transferring your money in and out of the U.S.
Limited Liability Company (LLC): An LLC is an entity that can provide legal protection and taxation benefits
No Financing: If you invest in one of our deals there is no need to obtain U.S. bank financing, as we secure the debt (our names are on the loan).
How will you communicate with me?
We typically provide monthly/quarterly email updates as follows:
Monthly Updates: Current operations and capital improvements.
Quarterly Financials: Detailed financial results and distribution information.
Quarterly Distributions: Distributions sent 15 days after the close of each quarter.
Tax Documents: A K1 is sent on or before March 31st.
Do you invest your own investments? Yes. We’re confident in them to the point we go out and raise additional funds through syndication to leverage the size of deals we can invest in.
Is This Risky?
Any investment carries risk. While we cannot guarantee anything, real estate (and in particular, multifamily real estate), has proven to be amongst the safest investments available.
In 2009, at the bottom of the financial crisis, delinquency rates on single-family homes was 5% while it was less than 1% on the apartment communities. Vacancies in Class C and B (our target asset class) remained steady at 8% (and have been steady for over four decades per market research).
Additionally, lenders will not loan millions of dollars unless we are experienced, have a good business plan, conservative underwriting (banks will underwrite the deal as well), have adequate insurance, and have an inspection completed by outside experts.
What are the tax impacts?
Apartment syndications are very tax efficient. As a partner in our limited partnership, you will benefit from your portion of the investment’s deductions for property taxes, loan interest, and, especially, depreciation. We like to use a cost segregation strategy as well to accelerate depreciation.
Cost Segregation is a tax planning strategy utilized by commercial real estate owners to accelerate depreciation deductions, defer tax, and improve cash flow.
What happens if I have a hardship and want my money before the property is sold?
There is nothing in our prospectus for a workout or formula for such a scenario. The investment should be considered an illiquid investment. That said, the general partners will review your situation and see if there is something that can be done to help.
What if we have a downturn in the economy?
We won’t want to sell in a down market. The goal would be to continue to cash flow and hold until the market is healthier to achieve a better price at sale. Class B/C value-add properties tend to hold up much better in downturns than any other asset class.
What are the general partner’s fees?
The returns forecasted to you are post fees. The most common fee is an acquisition fee based on purchase price and is paid upon closing. This covers the general partner’s costs to find the deal and get it under contract. The second most common fee is the asset management fee which is compensation for holding the property manager accountable, to ensure execution of the business plan, bookkeeping, and distribution of checks and K-1s. The asset management fee is aligned with the investor’s interest as it is based on the property’s revenues. Industry averages are 1-3 % for both fees.
What is a PPM?
The Private Placement Memorandum is required by the SEC and describes the offering, risks, includes the partnership agreement, investment summary and subscription agreement. It is a lengthy legal document (approx. 100 pages) prepared by a syndication attorney. The subscription agreement section includes basic information regarding purchase and percent ownership. The risk section highlights just about every possible risk that could happen.