FAQs & TERMS
Multifamily is a fancy term for apartments. You have small multifamily which is duplexes and four-plexes, and then you have “commercial” multifamily which is anything from 5 units and above.
In its simplest form, syndication is a pooling of investors' capital to take advantage of the economies of scale and purchase a larger asset, such as a large apartment building.
PREFERRED RATE OF RETURN?
A preferred return—often referred to as pref—describes the claim on profits given to preferred investors in a project. The preferred investors will be the first to receive returns up to a certain percentage, generally 6 to 8%. Once you reach this profit percentage, the excess profits are split among the rest of the investors as agreed upon in negotiations. This type of return is most commonly used in real estate investment.
Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, rather than write them off over the "useful life" of that asset. Bonus depreciation is also known as the additional first-year depreciation deduction. This is an excellent, legal way of writing off your cash flow distributions. Please consult with your CPA.
When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure. A Cost Segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation Study is to identify all property-related costs that can be depreciated over 5, 7, and 15 years. For example, certain electrical outlets that are dedicated to equipment such as appliances or computers should be depreciated over 5 years. Consult with your tax professional.
To be an accredited investor, a person must have an annual income exceeding $200,000 as an individual, or $300,000 filing jointly, for each of the last two years. You can also qualify as accredited if you have a net worth exceeding $1 million, excluding your personal residence.
WHY INVEST IN MULTIFAMILY?
Have you watched the stock market sink, and felt your stomach sink along with it? It happens fast - sometimes before you’ve gotten out of bed for those of us on the west coast. Is putting money in the stock market investing, or is it placing your money on the table and hoping for the best? The incredible advantage of investing in apartments and real estate, in general, is cash flow, or passive income. If you know your numbers, market, and team, you get "mailbox money" via cash flow, while still building up the piggy bank, via appreciation and mortgage paydown (by your tenants). You are in control. How much of the stock market is out of your control? The president tweets and your portfolio drops 20%. What does Brexit, the economy in Greece, or US/China trade agreements have to do with my personal investments? When there is panic in the stock market, our portfolios take a serious bath, and we sit there helplessly on the sideline, hoping and waiting for it to come back. In real estate, we control the investment. If we improve it, we can improve its value, and therefore force the appreciation, and not sit there, helplessly hoping for it to appreciate. Other important factors to consider:
Earn double-digit returns every year, even during recessions. People always will need a place to live, and comfortable, affordable housing gives them that option in up and down economies.
It provides a consistent income stream, resulting in a worry-free retirement without worrying about the panic of the stock market.
High returns/ low risk.
Significant tax advantages.
Multifamily has outperformed the stock market for the past 30 years
The unique trend that is creating more renters and driving growth. As Millennials enter into the housing market they are faced with the unfortunate combination of extraordinarily high housing costs and college debt, making renting far more attractive to the nation’s largest demographic.
Minimums normally begin at $50,000 or $100,000. Maximum is only limited by the total amount of capital raised for that particular investment.
WHAT RETURN ON INVESTMENT CAN I EXPECT?
We aim for a minimum average annual returns of 12-15%.
HOW LONG WILL MY FUNDS BE COMMITTED?
Investors should be prepared to leave their money in for a minimum of 5 years, even though there is a possibility to refinance and repay the investor’s principal before then. If we refinance or sell the property, investors first receive their principal back, then receive 70% of any profits. We anticipate a long-term hold (10+ years) but expect a refinance within years 4 or 5, in which 60% of the investor’s equity can be returned. Hold period depends on the market and the final decision about when to sell will be reviewed on a yearly basis in consideration of market and property performance.. One key element to keep in mind is investors are paid cash flow distributions quarterly, so while funds can seem “tied up,” investors are rewarded with consistent income streams.
CAN I INVEST THROUGH MY IRA OR 401K
Yes. Most of us think we are limited to traditional, brokerage-type investments, but we are not. You can roll your existing IRA or 401k into a self-directed IRA or Solo 401k, and open up to a new world of investments, and not only improve your returns but gain wealth-building equity. With a self-directed IRA or 401k, you can purchase a single-family rental home, invest in an apartment building, or even invest directly into a business.