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, typically prepared by an attorney who specializes in real estate investment deals. The subscription agreement section includes basic information as to amounts being purchased and percent ownership. The risk section highlights just about every possible risk that could happen.
Preferred investor returns are in the 10-12% range with a targeted IRR of 18% over the hold period. In a value-add project, a large part of the investor returns come in the year of sale. Actual returns vary on a property by property basis. See the private placement memorandum (PPM) for specific property investment risks.
We model each investment with a 3-5 year hold period. 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, if the market is down in year 5, we may want to continue to cash flow till year 7.
Minimums vary from deal to deal but generally are set at $100,000, with preference given to investors with more to invest.
Investor distributions vary from project to project, but most deals make quarterly distributions once the property has achieved positive cash flow.
We will provide quarterly email updates on the investment’s progress including renovation status/pictures, rents collected, and the distribution amount for the period. You will also receive a K-1 statement from us in March of each year for your tax filing.
In tax matters, always consult your accountant about your specific situation. However, real estate investments are typically very tax efficient and offer substantial tax benefits to investors. As a limited partner, you may benefit from your portion of the investment’s deductions for property taxes, loan interest, depreciation, etc. Every deal is different, but we typically use a cost segregation strategy to accelerate depreciation. The tax loss can then be used to offset other income depending upon your individual tax situation. At the time of sale, the partnership gains can usually be treated as long-term capital gains.
We operate on a core value of treating investors’ money as if it were our own. We invest alongside our clients in most deals.
Yes – We model different scenarios to show our breakeven point for profitability given a decline in occupancy or if rents drop below projections.
Yes – You can invest in real estate with certain retirement accounts. We are happy to discuss how to potentially boost your IRA investing returns with real estate investing. As always, please seek the advice of an accountant about your specific situation.
The returns forecasted are described in the private placement memorandum (PPM) and vary from deal to deal. 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 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, ensuring the execution of the business plan, bookkeeping, and distribution of checks and K1s. 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.