In its simplest form, syndication is the pooling of investor money where the investor is typically a passive, limited partner (LP). The other partner to the deal is the general partner (GP), or active partner that puts the deal together, manages the business plan to provide a return for the benefit of all investors. You will hear General Partner (GP), Syndicate and Sponsor often used interchangeably.
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.
Generally speaking, sophisticated investors must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. To qualify as an accredited investor, at a minimum you must have 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). Reference the SEC guidelines at https://www.sec.gov/answers/rule506.htm for a more detailed description. To find out if you are qualified under this definition, contact us.
No. Red Boot works with accredited and non-accredited investors.
You don’t need a real estate background to be successful. Despite their different careers, each of our partners has demonstrated high-level success in their chosen profession. Multifamily investing is not extraordinarily difficult, but it requires specialized knowledge. If you are prepared to apply the same level of work, discipline, and determination to this endeavor as you have in your previous efforts, you will be successful.
Yes. Investors are able to invest through their traditional self-directed IRAs, but there is a UBIT tax to understand on the SD-IRA as the IRS does not want to see you take advantage of the leveraged portion of the investment. Interestingly, the solo 401K does not have this problem. Please contact Red Boot LLC if you have questions about how this works or need help selecting a custodian.
You cannot 1031 into our deals or out of our deals since you are technically purchasing units of our Limited Partnership and not actually the land itself. That said, there are mechanisms where we expect to be able to 1031 from one of our deals into another one of our deals, thus deferring the tax you would have normally paid on the sale of the first apartment.
There are three main types of returns from real estate; cash flow, principal pay-down, and appreciation. These returns will vary from property to property. We will discuss this with you on a deal by deal basis.
You can see the process in the “Process” section, but here is a quick reminder. Once we have a property under contract, due diligence is about 30 days. We start the equity raise process with investors which runs about 5-6 weeks end to end. Marketing deck goes out, investor conference call takes place, investors reserve a spot, review the PPM / sign and fund. About 2-3 weeks later we close on the property. About 60 days later first investor distribution.
Typically, at time of sale. For our deals, year 5 is the target. It could happen in year 3 or year 7 or longer if we have a long downturn but 5 is typically what value add syndicators have as a target.
Monthly quick updates (email) on how the investment’s progress. Typical bullet points / some pics on how many units were renovated, rents we are getting, etc. Quarterly property management financials can be reviewed. Following March of each year you will receive a K-1 statement from us for your tax filings.
Yes. (We typically are very conservative.) Good sponsors will want to under promise and over deliver. You want to review all financial assumptions from the sponsor and ensure they make sense. Key ones to focus on would be rents (check the area comps for before and after renovation pricing – you want to be under where the market is before and after), rent growth and occupancy. Review the T12 (prior 12 months from previous owner). Does the value add improvements, increased income and timing of those improvements make sense to the forecast?
Consult with your CPA for specifics on how this type of investment can impact you. There are typically significant tax advantages from investing in the real estate sector through depreciation. You will receive a K-1 from the partnership.