FREQUENTLY ASKED QUESTIONS
the basics
GETTING STARTED
A real estate syndication is an efficient way for investors to pool their money together to purchase larger real estate assets that they typically couldn’t manage or afford to purchase as an individual investor. Generally, by leveraging and raising additional funds from outside investors to purchase it, we force appreciation and then actively manage the asset.
A Multifamily Apartment Syndication allows investors to participate in otherwise unobtainable real estate investment opportunities by aggregating capital and experience by teaming up with other like-minded investors. This also allows you to diversify your capital into other real estate syndications or in other economic sectors.
Every multi-family property investment is different and there is never a guarantee on an amount of return on investment. However, we typically strive to achieve a double-digit annual return with no guarantees over the life of the investment. This comes from cash-flow, forced appreciation from adding value, and the profits from the disposition of the property. In addition, we target a 13%-17% IRR (Internal Rate of Return) over the life of the investment. We invest our own capital into these properties and seek every opportunity to maximize investor returns. We discuss the business plan, projected returns, and equity structure with investors for each investment property.
The General Partners are the individuals who are putting the multifamily syndication opportunity together. They then manage the asset, execute on the business plan and they then offer that investment opportunity to passive investors. They are interchangeably referred to as the syndicator, the sponsor, or the operator.
Limited Partners or passive investors have no active investor duties in a multifamily syndication. The distributions that an LP earns either monthly or quarterly, or any return for that matter is truly passive in nature. The GP or sponsor group is simply providing an opportunity to investors to invest alongside them, into a stable and appreciating asset with no active real estate investing role whatsoever.
A preferred return, for example, is as follows: if the preferred return was 8% and you invested $100,000, that means that the first $8,000 of free cash flow distribution would go to the preferred return investor before paying any other general partners.
You must qualify as an “accredited” or a “non-accredited” investor. These designations are to ensure that investors possess a certain level of financial and investing competence.
NON-ACCREDITED
In this context, a “non-accredited” or sophisticated person means the person, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.
ACCREDITED
An accredited investor, in the context of a natural person, includes anyone who:
earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
On the income test, the person must satisfy the thresholds for the three years consistently either alone or with a spouse. You cannot, for example, satisfy one year based on individual income and the next two years based on joint income with a spouse. The only exception is if a person is married within this period. In this case the person may satisfy the threshold on the basis of joint income for the years during which the person was married and on the basis of individual income for the other years.
In addition, entities such as banks, partnerships, corporations, nonprofits and trusts may be accredited investors. Of the entities that would be considered accredited investors and depending on your circumstances, the following may be relevant to you:
any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person, or any entity in which all of the equity owners are accredited investors.
Regulation D of the SEC (Securities and exchange commission) act of 1933 defines an accredited investor as (OR)
An individual with income exceeding 200k in the previous year, or 300k jointly with a spouse and a reasonable expectation of the level for the current year
An individual (or jointly with a spouse) that has a combined net-worth in excess of $1MM at the time of the purchase of the security
Not necessarily. Our offering typically fall in two SEC regulated exemptions, 506b and 506c. While a 506c offering is limited only to accredited investors, a 506b is not.
We focus on class B & C apartment communities in strong insulated growth markets across the southern United States.
Investing in a syndication is not the same as investing in a REIT (Real Estate Investment Trust). When you invest with TB Capital Group in a syndication, you are a partner in the actual, physical property. You get the advantages of the ownership of that building, the tax advantages, the cash flow, and the upside.
THE CORE
RETURNS, COMMUNICATIONS, INVESTMENT STRATEGY, FUNDING, AND LOGISTICS
Every multi-family property investment is different and there is never a guarantee on an amount of return on investment. However, we typically strive to achieve a double-digit annual return with no guarantees over the life of the investment. This comes from cash-flow, forced appreciation from adding value, and the profits from the disposition of the property. In addition, we target a 13%-17% IRR (Internal Rate of Return) over the life of the investment. We invest our own capital into these properties and seek every opportunity to maximize investor returns. We discuss the business plan, projected returns, and equity structure with investors for each investment property.
We solely invest in multifamily housing. We usually buy high-quality B and C class properties as value-adds. The money you put into the deal is used to finance one transaction, not a portfolio of properties.
$25,000 to $50,000 is the minimum to invest in a project depending on the investment property. Learn how to invest using your current IRA/401K money without penalty from a third-party self-directed custodian company. Please contact TB Capital Group for more details.
Investors can typically expect to commit their capital to an 18 month to 5 year hold period before we employ an exit strategy, such as a refinance or sale. This time period varies based on the specific business plan being executed for each property. Economic conditions may alter the strategy. Investors will receive projected timelines upon acquisition of the property and throughout the life of the investment. We the sponsors will always attempt to remain consistent with the initial projection and will execute the strategy that results in the greatest returns for all investors.
Cash, self-directed IRAs, solo 401ks, qualified retirement plans, business entities, or a combination of several accounts may all invest money.
Yes. Investors are able to invest through their traditional self-directed IRAs. Investors are also able to invest through their LLC, LP, or Trust. Please contact TB Capital Group if you have questions about how this works or need help selecting a custodian.
We send monthly updates on the investments progress. We share data on current execution plan progress and other performance metrics. As always, we are always happy to answer questions so as to ensure that you continue to be comfortable and happy with your investment.
An investor can expect to receive monthly or quarterly distributions depending on the specific business plan for each investment property. TB Capital Group may also distribute additional capital to investors from time to time. This depends on the performance of the properties and when properties are sold or refinanced.
Returns are in the form of excess ash flow from rents, and an equity bump when their is a liquidity event, such as refinance or selling the property.
We look at 100+ assets to find one that has the ability to distribute cash monthly and gives a high degree of confidence that TB Capital Group can execute its value add strategy. So, when it comes time to sell, the targeted returns can be delivered.
Typically, the funds are held in an escrow account in the name of the newly-created LLC for the deal until the property is officially closed on. Funds can be wired or sent by check.
Absolutely we do! We invest anywhere from 5% to as high as 20% equity in the deal. Also, bear in mind that the initial capital needed to pursue the deal is ours and is at highest risk. We can lose all that money. Also, we guarantee the loan. Hopefully, you can see that we have enough skin in the game.
Value add apartment opportunities require active management, and it takes a team to execute the business plan. TB Capital Group strives to be in the middle of the bell curve so that it isn’t fee-heavy and still has the resources to put an A-team on the field for the best chance to win.
Fees are deal-specific, but some examples are acquisitions fee, asset management fee, and disposition fee.
Yes, on a case by case basis as long as compliance with U.S. Securities Law is satisfied.
THE UNIQUE ADVANTAGE
TAX IMPACT
As usual, investing in real estate provides tax advantages. Investing in multifamily amplifies it, both in accelerated depreciation and the ability to shelter cash flow.
A K-1 form is a tax document that acknowledges revenue for the year. One will be given to each investor in a combination. It’s a standard procedure with real estate partnerships and LLCs to issue one per partner.
If an investor has both Series A and Series B units, they will get two K-1 packages. But, if an investor has only Series A OR Series B, then they will receive only one K-1 package.
The income shown on your Schedule K-1 may relate to one of the following:
-Interest Income
-Rental Income
-Gains from the property sale
The loss shown on your Schedule K-1 should be more than that of which you claim on your tax return.
To further understand the differentiation between the various categories of income, we strongly recommend contacting your tax advisor or accountant.
THE “WHAT IF”S
RISKS AND REAL ESTATE
In a real estate syndication, the investor will own shares or percent of ownership in the company that owns the property.
Prior to closing on the property and at investment, the investor will sign legal documentation prepared by a securities attorney stating ownership and terms of the project.
A LLC or company “Operating Agreement” will be established for the company owning the property dictating profit distribution terms, how an investor might exit or sell shares, ownership percentages, etc.
No. Commercial real estate investments are longer-term in nature than traditional liquid stocks and bonds. Investors would receive a projected hold period timeline from the beginning of the investment and consistently throughout the life of the project. Cash distributions are done through cash flow from the property during the holding period of the asset. Many times investors may not receive their full principal investment back until the property sells and investors cash out from the profits upon disposition. TB Capital Group makes no guarantees of investor returns.
The investment should be considered an illiquid investment. That said, we understand that life happens. We will consider each request in its own merit and will attempt to best accommodate you.
Although multi-family properties are often considered stable and safe among various investment asset classes, there is always risk to any investment. In order to manage risk, we leverage established relationships with local brokers to obtain “off-market” and “below-market” deals. We partner with local, experienced property management companies that know the neighborhood markets we invest in, so the property is operated as efficiently as possible by optimizing income and reducing expenses. As with investing in the stock market, where are no guarantees in investing. We the sponsors invest our own personal capital into the deals so we have aligned interests and goals with the investors in the group.
We will still hold onto the property. We do our best to diligently vet the asset and the market the asset resides in to ensure that we are acquiring the property with enough room to sustain economic uncertainty. The property classes we purchase (Class B & C) are generally the best classes to be in during tough economic times.
There are factors that are beyond our control (e.g., market conditions). There is a risk that you can lose your investment just like the stock market or investing into a new business. However, we believe this to be highly unlikely for several reasons.
Firstly, the approach used to underwrite these deals are very conservative and gives us plenty of room to weather a down market. Secondly, we are buying proven assets that provide a return month-to-month or quarter-to-quarter. We are not purchasing a property to tie up all of our cash and hedging that the asset will appreciate. These are cash-flowing properties that provide frequent returns and the appreciation is a bonus.
