Frequently Asked Questions
Typical returns for Class B and C properties vary from 15-22% per year. Total returns can range anywhere from 75-110% for a 5 year or less hold period. There are some cases where the asset is sold early before reaching the original forecasted amount although you get a higher return on an annualized basis. These numbers are based on historical performances, which does not guarantee future returns.
Please consult your tax accountant on these matters to verify as the tax landscape is constantly evolving.
Yes – Bonus depreciation is a wonderful tax incentive that a passive investor can attain when investing in multifamily properties. When you buy an asset, you can depreciate the building, the building contents and any improvement (not land). The 2017 Tax cuts and jobs acts allowed depreciating assets that have a useful life of 20 years or less, accelerated in year 1. That means you will have a massive “paper loss” on your Schedule K1 that you can use to passively offset your passive income from this deal or other investments. 2022 is the last year that you can depreciate up to 100% of your investment then it steps down by 20% per year until the year 2026.
Yes – Bonus depreciation is a wonderful tax incentive that a passive investor can attain when investing in multifamily properties. When you buy an asset, you can depreciate the building, the building contents and any improvement (not land). The 2017 Tax cuts and jobs acts allowed depreciating assets that have a useful life of 20 years or less, accelerated in year 1. That means you will have a massive “paper loss” on your Schedule K1 that you can use to passively offset your passive income from this deal or other investments. 2022 is the last year that you can depreciate up to 100% of your investment then it steps down by 20% per year until the year 2026.
Income distributions to passive investors come in two ways –
1) Quarterly cash distributions.
2) Equity Gain at sale. Rising interest rates lower the quarterly cash distributions because of higher interest paid per month. We also have to point out that multifamily property values are strongly derived from the Net Operating Income (NOI), which comes before any interest expense is taken out. So as long as the property maintains a strong NOI, the property value holds and equity gain is still achieved.
1) Quarterly cash distributions.
2) Equity Gain at sale. Rising interest rates lower the quarterly cash distributions because of higher interest paid per month. We also have to point out that multifamily property values are strongly derived from the Net Operating Income (NOI), which comes before any interest expense is taken out. So as long as the property maintains a strong NOI, the property value holds and equity gain is still achieved.
The two common ways to fund the deal are through a direct wire from the passive investor’s bank account or IRA account to the property’s bank account. All your distributions go back to the investor’s bank account if an investor uses this method. This process typically takes 2-3 days only to clear the wire. The other is through a self-directed IRA. You can use a previous employer’s 401k/403b and transfer it to a self-directed IRA (SDIRA). We suggest going through Quest Trust Company to setup your SDIRA account. After this is setup, you can fund the deal from your new SDIRA account.
You will have to find reputable deal sponsors. You can find them in local meetups and real estate investment clubs. We cannot stress the importance of finding a sponsor that you know, like and trust. This will be a multi-year relationship and sponsors need to support their investors during this periods. Review the overall performance of their portfolio, meet with them on a 1:1 basis and ask them about their goals. Once you are getting consistent dal flow, we strongly suggest assessing the sponsorship team first and then looking into the deal, not the reverse.
The typical investment minimums are $50,000 dollars. Some deals require a higher amount of $75,000 or $100,000. We encourage you to think of it this way instead of the amount the minimum amount – “How much of my net worth can I comfortably move to invest in this deal?”. This way, you are not biased toward a particular number.
Your first cash flow distribution typically happens in 6 – 9 months after the property is acquired (closed).
Yes. Despite focusing on properties in non-flood zone areas, we get flood insurance to cover our bases.
As a passive investor, you actually buy a stock unit of the LLC that owns the property. Stock units are typically 1 unit = $1 or 1 unit = $1000. It is structured this way to have a layer of LLC between the property and passive investors for protection.
The sponsorship team hires a reputable property management company to handle this aspect as we want a team solely dedicated to running the property at its best. The property management company handles the execution of the renovation plan to screening tenants up to hiring Santa Claus and the Easter Bunny for the kids in the property during the holidays.
Apartment leases are often renewed every 12 months and there are renewals on a monthly bases. Rents are adjusted to keep up with inflation and/or interest rates upon renewal of the contract.
Though uncommon, there are still risks involved in multifamily like any investment. A property may not cash flow for several reasons – from economic factors to large unexpected expenses. It is important to now that your sponsors did their due diligence in researching a property and forecasting its performance based on extensive research and most often than not actual results differ – for better or worse. Despite these, multifamily properties still remains a solid investment property (both literally and figuratively) for the medium and long term.
You can invest in a deal if you are a sophisticated or accredited investor. Sophisticated investors understand the merits and risks of the deal. Accredited investors are individuals who have a net worth of over $1,000,000 or meet the salary qualification of $200,000 or $300,000 combined per household.
Multifamily syndication deals are typically a 3-5 period hold. An investor may not withdraw their money during the hold period. Hence, we always ask our investors if they are willing and able to keep their capital fully invested for this period.
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