An accredited investor is a person that can invest in securities (i.e. invest in an apartment syndication as a limited partner) by satisfying one of the requirements regarding income or net worth.
The current requirements to qualify are an annual income of $200,000 or $300,000 for joint income for the last two years with expectation of earning the same or higher or a net worth exceeding $1 million either individually or jointly with a spouse. Click here for FAQs about accredited investors answered by the Securities and Exchange Commission (SEC).
An apartment syndication is a temporary professional financial services alliance formed for the purpose of handling a large apartment transaction that would be hard or impossible for the entities involved to handle individually, which allows companies to pool their resources and share risks and returns. In regards to apartments, a syndication is typically a partnership between general partners (i.e. the syndicator) and the limited partners (i.e. the investors) to acquire, manage and sell an apartment community while sharing in the profits.
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).
Appreciation is one of the factors included in the Three Immutable Laws of Real Estate Investing. Click here to learn more about all three laws and their importance when investing in real estate.
The asset management fee is an ongoing annual fee from the property operations paid to the general partner for property oversight. Generally, the fee is 2% of the collected income or $250 per unit per year.
Bad debt is the amount of uncollected money a former tenant owes after move-out.
A bridge loan is a mortgage loan used until a person or company secures permanent financing, which are short-term (6 months to three years with the option to purchase an additional 6 months to two years). They generally have a higher interest rate and are almost exclusively interest-only. Also referred to as interim financing, gap financing or swing loan. The loan is ideal for repositioning an apartment community.
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 considered to be 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.
Capital expenditures include both interior and exterior renovations.
Examples of exterior CapEx are repairing or replacing a parking lot, repairing or replacing a roof, repairing, replacing or installing balconies or patios, installing carports, large landscaping projects, rebranding the community, new paint, new siding, repairing or replacing HVAC and renovating a clubhouse.Examples of interior CapEx are new cabinetry, new countertops, new appliances, new flooring, installing fireplaces, opening up or enclosing a kitchen, new light fixtures, interior paint, plumbing projects, new blinds and new hardware (i.e. door knobs, cabinet handles, outlet covers, faucets, etc.)Examples of things that wouldn’t be considered CapEx are operating expenses, like the costs associated with turning over a unit (i.e. paint, new carpet, cleaning, etc.), ongoing maintenance and repairs, ongoing landscaping costs, payroll to employees, utility expenses, etc.
For example, here is the cash flow of a 216-unit apartment community:
Total Income $1,879,669
Total Operating Expense $1,137,424
Debt Service $581,090
Asset Mgmt Fee $40,195
Cash Flow $120,960
Examples of closing costs are origination fees, application fees, recording fees, attorney fees, underwriting fees, credit search fees and due diligence fees.
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.
For example, a 216-unit apartment community with a GPR of $183,072 and monthly other income of $14,153 from late fees, pet fees and a RUBS program has a gross potential income of $197,225 per month.
The gross potential rent (GPR) is the hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates.
For example, here is how the GPR is calculated for a 216-unit apartment building:
Unit Type # of Units Bed/Bath Market Rent
A1 48 1×1 $737
A2 96 1×1 $796
B1 72 2×1 $990
For example, a 216-unit apartment community purchased for $12,200,000 with a GPR of $183,072 per month has a GRM of 5.6.
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.
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.
As I found the right markets, operating partners and became happy with the stability, tax benefits and cash flow, I started sharing what I learned with my peers. It turns out, they also faced the same challenges. Many of them are unaware of the benefits of passive investing in direct syndicated real estate investments.
That’s why I decided to put together a team that I trust and start Wealthward Capital. We help employees of tech companies that want to diversify into real estate but don’t know how, learn and invest along side of us to become savvy, confident real estate investors!
Become a savvy and experienced real estate investor!
Wealthward Capital helps employees of tech companies that want to diversify into real estate but don’t know how, learn and invest along side of us to become savvy, confident real estate investors!