What is multi-family syndication?
The standard process of coordinating the acquisition of a property and the pooling of investor money. A syndication involves two parties: The investor, typically a passive limited partner (LP) and the General partner (GP), the active partner that puts the deal together and implements the business plan to provide a return for all parties. As a passive investor, you invest your money, then sit back and start receiving returns. You reap the financial benefits of real estate investment without the time commitment and hard work. - no need to worry about tenants, termites, or toilets. We take care of all that and provide you regular updates as the project progresses.
What is a limited partner?
A passive investor with limited liability in the investment property. Their risk is limited to the amount they invest. Their other assets are protected. They cannot be sued, Limited partners are not on the loan, and are not responsible for the active performance of the property.
Is there a minimum investment amount?
Yes, but every offering is different. Typically the minimum amount you can invest can be $25,000-$50,000. The maximum amount is offering specific.
Who can invest?
Anyone 18 or older can invest, although you must be an accredited or sophisticated investor. For more information visit www.sec.gov
What is the typical structure of an investment?
This is deal specific and if it is a specified offering, the investment involves a particular property. The title of the property will be held in an LLC. Example, "ABC Property LLC" for which that property is the only asset (reduces liability). Your investment will represent a specific class and number of shares in this LLC.
What are your fees?
The Acquisition fee (3-5%) based on purchase price and paid up front to the sponsor at closing. The acquisition fee covers all the Sponsors’ costs to get the investment under contract. The second fee is the Asset management fee (1-2%) based on the monthly revenues. The fee is for the sponsor to hold the property manager accountable and to ensure execution of the business plan. A third fee could be a disposition fee (1-2%) which is collected when the property is sold.
What is the equity split?
This is offering specific and will be covered in the project offering memorandum should you decide to invest in an offering.
How will you communicate with me?
Through multiple conference calls and emails. We will provide monthly email updates on the investment’s progress. Example: How many units were renovated, progress, rental income impact , and overall financial performance.
When will I get my original investment back and what is the holding period?
At time of sale or refinance (recapitalization). Our goal is to target an exit between Years 5-7, but that is property specific and market cycle dependent.
What is the process / timeline?
Once we have a property under contract, due diligence begins and is approximately 60 days. We start the equity raise process with investors which can run about 5-6 weeks. An investor offering packet is sent out to interested parties. A conference call takes place, investors reserve a spot, review the PPM (see next question), sign and fund. All investments are held in an escrow account setup under the property's LLC. Approximately 2-3 weeks later we close on the property. Investor distributions could begin approximately 60 days after close.
What is a PPM?
The Private Placement Memorandum is required by the SEC and describes the offering, risks, includes the partnership agreement, investment summary, and subscription agreement. The agreement is what investors will review and sign. The agreement includes basic information; number of units, amounts being purchased, and wiring instructions.
What are the risks?
As in all investments there are inherent risks and your investment returns are not guaranteed. Our group mitigates this by only acquiring performing properties. The acquisition will have occupancy greater than 90% already in place, and the previous owner must have had positive cash flow in the trailing 12 months. A comprehensive audit will confirm all target metrics. We want to focus on fine-tuning a property’s performance, not buying on hope. Returns are ultra conservative for this reason.
Where are the investor's funds held?
Funds can be wired directly into the subscription account of the fund or sent by check. The funds are typically held in an escrow account in the name of the LLC until the closing of the property. NK Development Group, LLC never takes possession of your funds. Please be wary of any investment company that asks to wire funds directly to their accounts.
What kind of tax impact is there?
Apartment syndications are very tax efficient. As a partner in our limited partnership, you will benefit from your portion of the investment’s deductions for property taxes, loan interest, and depreciation. Work with your tax advisor for specifics.
How do you renovate with people living there?
When we take over a property, even a 300-unit apartment will have 15 vacant units if occupancy is at 95%. We start there. Next month when 10-12 leases are up, we introduce the residents to their new renovated unit (move them in) and start renovating their vacated unit and keep repeating this process month after month. Our goal is to improve the interiors and exteriors enough to increase renewal rates.
What if we have a downturn in the economy?
The goal would be to continue to pay the preferred return minimum and hold on until the market is healthier to achieve a better price at sale. Class B/C value add properties tend to hold up much better in downturns because people still need a place to stay.
What is an accredited investor?
The definition of an accredited investor in the U.S. is a person earning $200,000 per year or a couple earning $300,000 per year, over the past two years and expected to do so in the current year. A person is also considered an accredited investor if that have a net worth of $1,000,000 or more, either individually or with a spouse. (excluding primary residence).
What if I do not meet the accredited investor criteria, can I still invest? That depends on the specific structure of the offering. Some offerings are limited to accredit investors only. Others allow a limited number of non-accredited/sophisticated investors. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have adequate knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.