How It Works

While real estate investments are considered illiquid, there are three most common ways an investor gets their initial investment back, along with a profitable return.

There are several ways investors get paid from their real estate investment:

• Via Quarterly Distributions

• Through a Capital Event (Refinance)

• After Sale of the Asset

Quarterly Distributions

If a real estate asset is underwritten to have a prolonged hold period (can be 5–7 years), investors can rely on projected quarterly distributions from the net operating income produced by the asset. Because you are a part-owner of the asset, you get paid like one too. Depending if there needs to be any value-add and stabilization done to the property, distribution commencement could be delayed.

A good rule of thumb is to aim for a 6–9% cash-on-cash amount. Cash-on-cash is calculated by taking the initial investment, and dividing it by the annual distribution amount. For example, $100k initial investment divided by the annual distribution of $7k equals 7% cash-on-cash return.

Refinance Event

Every deal is different but sometimes we will refinance a project during the hold period. This will allow us to get more favorable financing terms and in some cases be able to return some of the investor capital.

The asset was purchased at a certain price and considerable upgrades were made to raise its value. The rents have been increased to market and any vacancies have been filled. After “stabilizing” the asset for at least a year, showing that the returns are consistent and dependable, the value of the asset increases to allow for the refinance.

A refinance event is what allows investors to capitalize on this additional value created by the investment management team. All before the sale of the property.

For investors, this frees up funds to pursue other investment opportunities while maintaining their original ownership percentage in the project.

Sale of the Asset

Once the investment seasons through the investment period, it will be sold. The syndicator pays any outstanding debt, any sales expenses, any outstanding property expenses, then investor capital is returned. Once all these have been paid then profits are distributed between the LP and GP pro rata, based on equity ownership.

Typical investment accounts are as individuals, joint accounts, tenancy in common, entity accounts (Trusts, Limited Liability Companies, Limited Partnerships, C Corporations, S Corporations) and individual retirement accounts (more info on IRA’s / 401k’s below).

Typically, a minimum investment ranges from $50k–100k.

So, we’ve closed on a multifamily asset, you’ve been presented with an investment opportunity, you’ve contributed your investment, and now the deal is fully funded. What happens next?

Here’s what to expect —

Regular Ongoing Updates

Once per quarter (with any critical updates in between), expect to receive an email from us with a description of what transpired in the last 3 months. The description may include the following:

• What renovations were done to the property?

• What the occupancy rates and collections were like. Why it either increased or decreased. What will be done next?

• Did our expenses match up with our projections?

• Is the business plan on track? Why or why not? What will be done next?

• Distribution checks are sent quarterly. You would log into your investor portal to keep track of your investment return.

• And any other newsworthy events about the property and market in general.

Transparency and Access to Information

If you’d like more information beyond the quarterly updates, feel free to ask us for additional documentation. We’d be happy to provide that for you.

We are available via email or phone should you have any questions or concerns. We pride ourselves on being responsive and transparent.

Distributions

Now, for the fun part. Receiving the cash flow distribution checks! Mailbox money!

The first distribution may be delayed for two quarters after the deal closes to give us time to start stabilizing the property and deal with any unexpected issues immediately after closing on the property. It’s important to have enough cash on hand for any unexpected issues.

Once any issues have been dealt with and the asset has been stabilized, we will begin paying out distributions to you as cash permits. We pay out these distributions quarterly.

To see how distributions are calculated please see your Operating Agreement. Each deal varies.

Annual Reports and Tax Documents

Once the books are closed for the year and the corporate taxes completed then we will send out an annual report along with the K-1 tax document. This will be uploaded to your investor portal for access.

The annual report will provide a summary of the project’s actual performance.

A real estate syndication is a group of investors combining their skills, resources, and capital to purchase real estate investments that would otherwise be difficult or impossible to acquire alone. For example, an apartment complex or storage facility.

A “Syndicated” investment is synonymous with “Crowdfunded” investment.

High Minimum Investment

Sometimes starting at $25k—but, usually, it’s $50k–100k—real estate syndications have a relatively high entry point for investors.

Illiquid Investment Type

Even though investors can receive quarterly distributions, investments can be typically tied up for up to 5–7 years before they are returned along with any additional profit.

Lack of Industry Regulation

Unlike public markets, real estate investments operate at a much lower level of scrutiny from the SEC. When engaging in a real estate syndication, make sure you only engage with companies you know and trust.

Real estate syndications are typically available to verified “accredited investors”. The Securities and Exchange Commission (SEC) defines an accredited investor as someone who has an annual income of $200,000 (or $300,000 joint income) or a net worth of at least $1.00MM, not including a primary residence.

Some syndications—like 506(b) offerings—are available to non-accredited investors as well as accredited investors. Many real estate syndications are designated as 506(b). This means they are open to non-accredited investors or “sophisticated” investors.

A sophisticated investor should have enough know-how and/or experience in investing in alternative investments such as real estate, ATMs, oil, gold; any investments outside of the stock market. A sophisticated investor should be able to make educated decisions about syndication offerings.

Aside from being “sophisticated”, the investor needs to have a pre-existing “substantive relationship” with the General Partner(s). The SEC doesn’t exactly define what a “substantive relationship” entails. This document from the SEC alludes to what a “substantive relationship” may consist of.

When you decide to become an investor with Bulldog Equities you are guided through an onboarding process that allows us to gather important information (your experience, goals, etc.) and begin to develop a relationship with you.

There are many roles to fill in a real estate syndication—General Partners (GP), Lenders, Brokers, Attorneys and Limited Partners (LP). Each plays a key role in making sure the deal sourcing, fundraising, acquisition, reposition, sale and distribution of capital go as smoothly as possible.

A General Partner is the party who organizes the syndication. General Partners find the investment opportunity, secure the financing, and manage the property. “General Partners” is synonymous with “Sponsors”, “Operators”, or “Syndicator”.

The group of people who provide capital (Cash, 401(k) or IRA (Traditional or Roth)) for the investment are called Limited Partners, LPs, or “Passive Investors”.

The Limited Partners receive a share of the equity in the real estate investment along with distributions (cash flow) and profits, in return for their contribution with limited liability up to their investment amount.

Lenders, when used, provide debt leverage to increase buying power and can help achieve a higher ROI than otherwise possible.

When it comes to participating in real estate crowdfunding, the real estate investment offering can be under one of the two SEC exemptions— rules 506(b) and 506(c) of Regulation D. These exemptions make it possible for companies to raise capital from investors without having to register a public offering.

Rule 506(b) of Regulation D allows real estate investors to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 sophisticated investors. The catch is that investors and syndications must have a “substantive relationship” already in place before being able to offer their deal to investors. No advertising allowed.

Rule 506(c) of Regulation D is a relatively new modification of the rule (est. 2012) which allows syndicators to advertise their offerings to the general public. The difference being, is that syndicators must only raise capital from accredited (and verified) investors.

Depreciation is a key component of why real estate syndications make such attractive investments.

In the eyes of the IRS, depreciation is the ability to write-off the cost of business items, such as the property itself. The actual building itself, over time, will break down, and as an investor you are allowed to write off this wear and tear on your taxes.

Using a simple formula, the IRS allows you to report a smaller profit (accounting for depreciation that offsets gains), reducing the amount you owe in taxes.

• Depreciation Recapture. When the property is sold, the gains need to be taxed. There is a rate at which the taxes are capped, which is still better than the top income tax bracket. Please consult your tax professional before allocating any capital.

Be sure to consult with your tax professional to fully understand your tax implications as everyone’s situation is unique.