Syndication is the pooling of investor money where the investor is typically a limited partner and the general partner puts the deal together and manages the business plan to provide a return for the benefit of all investors.
We underwrite our deals to deliver an average annual return in the 15% range. Overall we’re are looking for 2x ROI (Return on Investment) over the life of the investment (typically a 5 -7 year hold) with a good portion of that return coming from the sale of the property.
Yes. Each investment will be held in its own LLC of which you the investor will own a proportionate percentage of the shares.
Distributions are made quarterly from available operating cash flow and are automatically deposited into investors’ bank accounts. Investors are notified of upcoming distributions and are able to track their distribution history through their investor portal.
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 depreciation. We like to use a cost segregation strategy as well to accelerate 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 can then be used to offset other income. At time of sale the partnership gains are treated as long-term capital gains.
Risks are outlined in the Private Placement Memorandum. 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 syndicators play) remained steady at 8%. We further mitigate risk by targeting proven assets where current owner is generating good cash flow (our due diligence includes auditing the trailing 12-month financials, bank records and tax returns). Additionally, lenders will not partner with us unless we have a good business plan, conservative underwriting (bank’s will underwrite the deal as well), have adequate insurance, and have an inspection completed by outside experts.
Yes, and 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.
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 because folks need a place to stay and rents are more in line with the market / service economy demographic that is typically still employed in downturns versus the higher paid class A renters whose jobs are more at risk.
We’ll let you know we have an investment available when we get a property under contract. We start the equity raise process with investors immediately and it runs concurrent to due diligence and the bank’s underwriting which takes about 5 weeks. Typically investors reserve their spot in the 1st week. In the 5th week, investors review and sign the PPM and transfer funds to the escrow account. Then we close on the property 2-3 weeks later.