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FREQUENTLY ASKED QUESTIONS

Real estate syndications are group investment opportunities. As a limited partner/passive investor in a real estate syndication, your capital is invested alongside other investors in a single commercial asset (i.e. a 250 unit apartment complex in Allen, Texas).

The best part about passively investing is you don’t have any other responsibilities – you get to leave the hard work to us! REIDOC Capital, alongside other General Partners in the deal will actively manage the asset and execute the business plan.

These types of deals are unique and highly sought after. We spend a lot of time underwriting deals and submitting offers – but very few of them end up going to contract. We typically offer 1-3 investment opportunities per year to our investors.

Typically deals fill up in a couple of weeks.

Keep in mind these investment opportunities are being sent out to thousands of investors to evaluate, and there’s only space for 60-80 total investors on the average deal.

The quicker you can act in your evaluation and reach out to us with questions, the more likely you’ll be able to participate before it fills up.

As soon as we have a deal under contract, we’ll send you an email with high-level details of why we love the deal, business plan objectives, and the potential returns.

You’ll be invited to participate in an investor webinar that’s typically a couple of weeks after we initially notify you of the deal. So be sure to block off time on your calendar and attend this live to ask questions.

Once the webinar is completed, we’ll email out a recording with the slide deck that includes all the business plan details and a link to review the documents in the investor portal.

If you love the deal and want to invest, you’ll complete the documents in the investor portal and wire your funds with the instructions provided.

You can invest through cash (wired funds from your account), Self-Directed 401K or IRA, personally or through an entity like an LLC or Trust, and individual or joint-registration with your spouse.

Yes. As a multifamily investor, you can get the tax benefits of property ownership, including *accelerated depreciation through cost segregation, which can help lower the taxable passive income you receive.

*Cost segregation identifies costs that would typically be depreciated over 27.5 years and reclassifies them to permit a shorter, accelerated depreciation method. This segregation model leads to substantial tax savings for the investor versus the standard depreciation model.

Every year, you’ll receive a Schedule K-1 tax form for your tax filings. This form will report your income and losses for the investment.

There is an opportunity to apply the losses against your ordinary income if you are a real estate professional.

While not all deals will have all of these fees and some deals may have other fees, the typical deals that we sponsor have the following fees:

  • Acquisition fee: this is typically a percentage of the purchase price of the property and compensates the General Partners for all of the work and some of the costs involved in identifying and acquiring a property. It takes analyzing many, many deals in varying levels of detail before closing on one. This fee is typically between 1-2% of the purchase price for the property
  • Asset management fee: this is the fee paid to the asset manager for overseeing and executing on the overall business plan of the property and is typically 2% of collected revenues
  • Property management: while this is typically represented as a fee, it is an ongoing operational expense item paid to the property management firm for ongoing operation of the property. This typically averages between 3 and 4% of revenues

In addition, there can be other costs in the deal including broker fees, lender fees, and other closing costs. It should be noted that the pro forma returns communicated to investors are all net of these fees. 

The preferred return is the threshold return that must be paid to the Limited Partner (LP) or passive investor before the General Partners (GP)are compensated. For example, if the preferred return is 8%, the total equity in the deal is $1mm, and the available cash for distribution in a given year is $120,000, $80,000 is paid to the LPs and remaining $40,000 is distributed to LPs and GPs according to the specifics of the deal (see the FAQ on split).

Preferred returns are typically carried over to the following year if not met in a given year. For example, in the example above, if there was only $70,000 available for distribution in that year, all $70,000 is paid to the LPs and the remaining $10,000 is rolled over to the following year when the LPs are owed $90,000 before the GPs receive any compensation.

After the preferred return is paid to the LPs, the remaining cash is distributed amongst the LPs and GPs according to the split documented in the PPM. If the split is 70% to LPs and 30% to GPs, then the remaining cash is distributed accordingly: 70% of the cash in excess of the preferred return is paid to the LPs and the remaining 30% is paid to the GPs

The typical minimum is $50K although certain deals have a $75K or even $100K minimums

Distributions are typically made quarterly and usually start after 6 to 9 months after acquisition. Any return of capital and any gains from sale are typically made within 30 days after sale. Similarly, any return of capital on refinancing events are also made within 30 days of the refinancing event.

APARTMENT SYNDICATION TERMINOLOGY

The rate at which empty units are leased in a given market
A person that can invest in an apartment syndication as a limited partner by satisfying the requirements regarding income or net worth. The current requirements to qualify are an annual income of $200,000 for an individual, or $300,000 for joint income for the last two years with expectation of earning the same or higher in the current year or a net worth exceeding $1 million (not including primary residence) either individually or jointly with a spouse.
The acquisition fee is the upfront fee paid by the partnership entity to the general partner(s) for finding, performing due diligence, financing, and closing the property. Fees range from 0.5% to 5% of the purchase price, depending on the size of the deal.
A syndication is typically a partnership between general partners (i.e., the syndicator) and the limited partners (i.e., the investors) which allows investors to pool together their money and share risks as well as returns in acquiring, managing, and selling an apartment community.
The valuation of a property by a certified appraiser. The assessment can be based on cost, sales comparable, and an income approach
Appreciation is an increase in the value of an asset over time. There are two main types of appreciation: natural and forced. Natural appreciation occurs when the market cap rate “naturally” decreases. Forced appreciation occurs when the net operating income is increased (either by increasing the revenue or decreasing the expenses).

The asset management fee is an annual fee paid to the general partner for overseeing the property. Typically, the fee is 2% of the collected income or $250 per unit per year.

A fee paid by a buyer of a property who is taking over an existing mortgage. (Standard fee is 1%).
Bad debt is the amount of uncollected rent/fees a former tenant owes after move-out.
Breakeven occupancy is the occupancy rate required to cover all of the expenses of an apartment community. The breakeven occupancy rate is calculated by dividing the sum of the operating expenses and debt service by the gross potential income.
A bridge loan is a short-term mortgage loan (6 months to 3 years) used until the syndication secures long-term financing. They generally have a higher interest rate and are almost exclusively interest-only. Also referred to as interim financing, gap financing or swing loan.
Capital expenditures, typically referred to as CapEx, are the funds used by a company to acquire, upgrade, and maintain an apartment community. An expense is a capital expenditure when it improves the useful life of an apartment and is capitalized – spreading the cost of the expenditure over the useful life of the asset.

Capitalization rate, typically referred to as cap rate, is the rate of return based on the net operating income that the property is expected to generate. The cap rate is calculated by dividing the property’s net operating income (NOI) by the current market value or acquisition cost of a property (cap rate = NOI / Current market value)

 
Cash flow is the revenue remaining after paying all expenses. Cash flow is calculated by subtracting the operating expense and debt service from the collected revenue.
The cash-on-cash (CoC) return is the rate of return, expressed as a percentage, based on the cash flow and the equity investment. CoC return is calculated by dividing the cash flow by the initial investment.
Closing costs are the expenses that buyers and sellers normally incur to complete a real estate transaction on top of the purchase price of the property.
Examples of closing costs are origination fees, application fees, recording fees, attorney fees, underwriting fees, credit search fees and due diligence fees.
Concessions are the credits given to offset rent, application fees, move-in fees, and any other revenue line time, which are generally given to make it attractive for tenants to sign or renew lease.
A method of calculating a property’s value based on the cost to replace (or rebuild) the property from scratch. Also referred to as the replacement approach.
Debt service is the annual mortgage paid to the lender, which includes principal and interest.
The debt service coverage ratio (DSCR) is a measure of the cash flow available to pay the debt obligation. DSCR is calculated by dividing the net operating income by the total mortgage payment. A DSCR of 1.0 means that there is enough net operating income to cover 100% of the debt service. Ideally, the ratio should be 1.25 or higher.
A loss in value of any asset over time. Can be used as a strategy to offset taxable income.
A property with an occupancy rate of less than 85%, typically due to bad location, mismanagement or deferred maintenance.
Distributions are the limited partner’s portion of the profits, which are sent on a monthly, quarterly, or annual basis, at refinance and/or at sale.
The process of confirming that the property does not have any problems that will affect the business plan and underwriting. This is the responsibility of the general partners.
A payment due at the time of signing the contract to indicate to the seller buyers intention and ability to carry out sales contract.
The economic occupancy rate is the rate of paying tenants calculated by dividing the actual revenue collected by the gross potential income.
Effective gross income (EGI) is calculated by the sum of the gross potential rent and the other income minus the income lost due to vacancy, loss-to-lease, concessions, employee units, model units and bad debt.
An employee unit is a unit rented to an employee at a discounted rate or for free.
The equity investment is the Initial costs for purchasing an apartment. This includes the down payment for a loan, closing costs, financing fees, operating account funding, and the various fees paid to the general partner for putting the deal together. May also be referred to as the initial cash outlay or the down payment.
Equity Multiple (EM) is the rate of return based on the total net profit (cash flow plus sales proceeds) and the equity investment. EM is calculated by adding the sum of the total net cash flow and dividing it by the initial investment.
The exit strategy is the plan for selling the apartment community at the end of the hold period as outlined in the business plan. It is generally 5 years for apartment syndication.
Financing fees are the one-time, upfront fees charged by the lender for providing the debt service. Also referred to as a finance charge. Typically, the financing fees are 1.75% of the purchase price.
Financing fees are the one-time, upfront fees charged by the lender for providing the debt service. Also referred to as a finance charge. Typically, the financing fees are 1.75% of the purchase price.
The gross potential income is the hypothetical amount of revenue if the apartment community was 100% leased year-round at market rates plus all other income.
The gross potential rent (GPR) is the hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates.
The gross rent multiplier (GRM) is the number of years the apartment would take to pay for itself based on the gross potential rent (GPR). The GRM is calculated by dividing the purchase price by the annual GPR.
The guaranty fee is a fee paid to a loan guarantor at closing. The loan guarantor guarantees the loan. At closing of the loan, a fee of 0.25% to 1% of the principal balance of the mortgage loan is paid to the loan guarantor.
The amount of time the general partner plans on owning the apartment from purchase to sale.
An interest-only payment is the monthly payment on a loan where the lender only requires the borrower to pay the interest on the principal.
The internal rate of return (IRR) is the rate, expressed as a percentage, needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal pay down) to equal the equity investment.
Tax form issued annually for an investment in a partnership. It reports each partner’s share of the partnership’s earnings, losses, deductions, and credits.
The limited partner (LP) is a partner whose liability is limited to the extent of the partner’s share of ownership. In apartment syndication, the LP is the passive investor and funds a portion of the equity investment.
The ratio of the value of the total project costs (loan amount + capital expenditure costs) divided by the apartment’s appraised value.
The ratio of the value of the loan amount divided by the apartment’s appraised value.
benchmark rate that some of the world’s leading banks charge each other for short-term loans.
A rent that a tenant is willing to pay for a unit. This is determined by analysing the rent for similar units in the same market.
A metropolitan statistical area (MSA) is a geographical region containing a substantial population, together with adjacent communities having a high degree of economic and social integration with that core.
A model unit is a representative apartment unit used as a sales tool to show prospective tenants how the actual unit will appear once occupied.
Net operating income (NOI) is all revenue from the property minus operating expenses, excluding capital expenditures and debt service.
The operating account funding is a reserves fund, over and above the price of the property, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments or higher than expected capital expenditures.
A legal document used in an apartment syndication that outlines the responsibilities and ownership percentages for the general and limited partners.
Operating expenses are the costs of running and maintaining the property and its grounds.
A permanent agency loan is a long-term mortgage loan secured from Fannie Mae or Freddie Mac and is longer-term with lower interest rates compared to bridge loans. Typical loan term lengths are 5, 7 or 10 years amortized over 20 to 30 years.
The physical occupancy rate is the rate of occupied units. The physical occupancy rate is calculated by dividing the total number of occupied units by the total number of units.
Preferred Return: the threshold return that limited partners are offered prior to the general partners receiving payment.
A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain period.
Price per unit is the cost of purchasing one unit in an apartment complex based on total purchase price. The price (or cost) per unit is calculated by dividing the purchase price by the number of units.
The private placement memorandum (PPM) is a document that outlines the terms of the investment and the primary risk factors involved with making the investment.
The profit and loss statement is a document or spreadsheet containing detailed information about the revenue and expenses of the apartment community over the last 12 months. Also referred to as a trailing 12-month profit and loss statement or a T12.
It predicts anticipated results for future years.
Property and neighborhood classes is a ranking system of A, B, C, or D given to a property or a neighborhood based on a variety of factors including demographics, median income, crime rate and school rankings. These classes tend to be subjective.
The property management fee is an ongoing monthly fee paid to the property management company for managing the day-to-day operations of the property. This fee ranges from 2% to 8% of the total monthly collected revenues of the property, depending on the size of the deal.
Ratio Utility Billing System (RUBS) is a method of calculating a tenant’s utility bill based on occupancy, apartment square footage or a combination of both. Once calculated, the amount is billed back to the resident, which results in an increase in revenue.
A refinance is the replacing of an existing debt obligation with another debt obligation with different terms. In apartment syndication, a distressed or value-add general partner may refinance after increasing the value of a property, using the proceeds to return a portion of the limited partner’s equity investment.
The refinancing fee is a fee paid for the work required to refinance the property. At closing of the new loan, a fee of 0.5% to 2% of the total loan amount is paid to the general partner.
The rent comparable analysis is the process of analyzing similar apartment communities in the area to determine market rents of the subject apartment community.
A rent premium is the expected increase in rent after performing renovations to the interior or exterior of an apartment community.
The rent roll is a document or spreadsheet containing detailed information on each of the units at the apartment community, along with a variety of data tables with summarized income.
A sophisticated investor is a person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.
The subject property is the apartment the general partner intends on purchasing.
The submarket is a geographic subdivision of a market with similar characteristics.
A subscription agreement is an agreement between a company and investor(s) that sets out the price and terms of a purchase of shares in the company. The subscription agreement details the rights and obligations associated with the share purchase.
Underwriting is the process of financially evaluating an apartment community to determine the projected returns and an offer price.
Vacancy loss is the amount of revenue lost due to unoccupied units.
The vacancy rate is the rate of unoccupied units. The vacancy rate is calculated by dividing the total number of unoccupied units by the total number of units.
An opportunity to increase the value of the property by making exterior and interior improvements.
a method for splitting profits between the partners. It allows for the uneven distribution and the payout changes when certain return hurdles are met. For example, an 8% return is met. After the returns may be split 70/20 between the investor and the general partner.
A penalty paid by the borrower on a loan is the principal is paid off early.
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No Offer of Securities—Disclosure of Interests.

Under no circumstances should any material at this site be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of the Confidential Private Offering Memorandum relating to the particular investment. Access to information about the investments are limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments. We are not financial professionals, and REIDOC capital is not a brokerage, dealer, or SEC-registered investment advisory firm.

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