Our Location
- 11501 Dublin Blvd. Suite 200 Dublin, CA 94568.
- connectprventures@dspmgroup.org
services
Thumb Gallery
Common types of investment accounts include individual accounts, joint accounts, accounts held in tenancy in common, and entity accounts such as Trusts, Limited Liability Companies (LLCs), Limited Partnerships, C Corporations, and S Corporations. Additionally, there are individual retirement accounts (IRAs) and employer-sponsored 401(k) plans, which are geared towards retirement savings (more details on IRAs and 401(k)s provided below).
Certainly, it is possible to make investments using your IRA. If you currently possess a self-directed IRA, we recommend verifying with your present custodian whether they permit investments with MF Capital Partners. If you have yet to transition from a traditional IRA to a self-directed one, you should get in touch with a custodian to facilitate the process. If you require a recommendation, we can link you with the custodian we personally utilize.
Absolutely, you have the option to invest using your IRA. If you currently hold a self-directed IRA, we suggest confirming with your current custodian whether they allow investments with MF Capital Partners. If you haven’t yet converted from a traditional IRA to a self-directed version, it’s advisable to reach out to a custodian for assistance. Should you need a suggestion, we can connect you with the custodian that we personally work with.
Furthermore, various entities like banks, partnerships, corporations, nonprofits, and trusts could qualify as accredited investors. Depending on your circumstances, the following entities might be relevant:
A Sophisticated Investor does not fulfill the prerequisites of an Accredited Investor, yet they possess investment experience. This implies that the individual believes they hold adequate knowledge and experience in financial and business matters to assess the advantages and risks associated with a potential investment.
Negative. At present, we have investment prospects accessible to both accredited and sophisticated investors. To access our ongoing offerings, you will be required to complete the registration process.
Payouts are arranged to be distributed quarterly.
Investor funds are designated to cover the entirety of the property’s acquisition costs. This includes, but is not restricted to, the down payment for purchasing the property, acquisition fees, legal and transaction costs, improvements to the property, and setting aside reserves.
Certainly! Investors have the opportunity to visit the property both prior to making an investment and throughout the project’s duration. If you inform us in advance, we can ensure that someone is available to accompany you on the property tour, addressing any inquiries you may have.
An apartment syndication is a temporary collaboration of professional financial services established to manage a substantial apartment transaction that would be challenging or unfeasible for the involved entities to handle on their own. This arrangement enables companies to combine their resources, distribute risks and returns. In the context of apartments, syndication commonly involves a partnership between general partners (the syndicator) and limited partners (the investors) to collectively acquire, oversee, and ultimately sell an apartment complex, all while sharing in the generated profits.
Certainly, it is possible to make investments using your IRA. If you currently possess a self-directed IRA, we recommend verifying with your present custodian whether they permit investments with MF Capital Partners. If you have yet to transition from a traditional IRA to a self-directed one, you should get in touch with a custodian to facilitate the process. If you require a recommendation, we can link you with the custodian we personally utilize.
A sophisticated investor is an individual recognized as having ample investment experience and expertise to assess the advantages and risks of an investment opportunity.
The limited partner (LP) is a partner whose liability is confined to their share of ownership. Within apartment syndications, the LP is the investor in a passive role, contributing a portion of the equity investment.
Capital expenditures, often abbreviated as CapEx, represent the financial resources utilized by a company for the acquisition, enhancement, and maintenance of an apartment community. An expense qualifies as a capital expenditure when it extends the useful life of an apartment and is treated as an asset – distributing the expenditure’s cost over the asset’s useful lifespan.
Capital expenditures encompass both interior and exterior upgrades.
For exterior CapEx, instances comprise refurbishing or replacing a parking lot, repairing or renewing a roof, repairing, replacing, or installing balconies or patios, erecting carports, sizeable landscaping projects, community rebranding, new paint applications, new siding installations, HVAC repairs or replacements, and refurbishing a clubhouse.
Interior CapEx examples encompass fresh cabinetry, new countertop installations, modern appliances, updated flooring, kitchen space alterations like opening up or enclosing, new lighting fixtures, interior paint refreshes, plumbing ventures, new window blinds, and new hardware installations (such as doorknobs, cabinet handles, outlet covers, faucets, etc.).
Items not classified as CapEx consist of operational expenditures, like costs linked to unit turnovers (such as paint, new carpeting, cleaning, etc.), continuous maintenance and repairs, ongoing landscaping expenses, employee payroll, utility costs, and similar expenses.
Operating expenses encompass the expenditures associated with the operational and upkeep aspects of the property and its surrounding areas.
To provide an example, here are the operating expenses for our 415-unit apartment community:
Debt service pertains to the yearly mortgage payment made to the lender, encompassing both the principal and interest components. Principal signifies the original borrowed sum, while interest represents the fee for the privilege of borrowing that principal amount.
Illustratively, a loan of $19,800,000 carrying a 5.50% interest rate, spread over a 30-year amortization period, leads to an annual debt service of $1,349,067 and a monthly debt service of $112,422.25.
Net operating income (NOI) refers to the entirety of the property’s revenue minus the operating expenses, excluding capital expenditures and debt service.
For instance, consider a 415-unit apartment community with a total income of $3,033,229 and overall operating expenses amounting to $1,032,109. In this case, the NOI would amount to $2,001,120.
The capitalization rate, commonly abbreviated as cap rate, represents the return rate determined by the income the property is projected to yield. The cap rate is computed by dividing the property’s net operating income (NOI) by its current market value or purchase price (NOI / Current market value = Cap Rate).
As an illustration, consider a property with 415 units, generating an NOI of $2,001,120, and purchased for $24,750,000. In this scenario, the cap rate would be calculated as 8.09%.
The cost per unit, often referred to as price per unit, signifies the expense of acquiring an apartment community, calculated by dividing the purchase price by the number of units.
For instance, if a 415-unit apartment community is acquired for $24,750,000, the price per unit would amount to $59,639.
Cash flow represents the residual income remaining after settling all expenditures. It’s determined by deducting operating expenses and debt service from the total revenue collected.
For instance:
Closing costs encompass the additional expenses beyond the property’s price that buyers and sellers typically accrue to finalize a real estate transaction.
Instances of closing costs include legal fees, insurance, surveys, recording fees, fees for third-party reports, title endorsements, utility deposits, and due diligence charges.
Financing fees are initial charges imposed by the lender for furnishing debt service. They are also known as loan points or loan point costs. Generally, these fees amount to 1% to 2% of the loan value.
The capital reserves account serves as a separate fund, beyond the property’s purchase price, designated to address unforeseen decreases in occupancy, substantial insurance or tax payments, or unexpectedly high capital expenses. Usually, the capital reserves account is established by securing additional funds from the limited partners.
The equity investment encompasses the initial expenses required to acquire an apartment community. This covers the loan down payment, closing costs, financing fees, capital reserves account, as well as the assorted fees paid to the general partner for orchestrating the transaction. This concept may also be termed the total raise.
The sales proceeds signify the earnings obtained upon selling the apartment community.
As an illustration, let’s examine the calculation of sales proceeds for a 415-unit apartment community purchased at $24,750,000 and subsequently sold following a five-year value-add business strategy:
The internal rate of return (IRR) is the rate, expressed as a percentage, needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal pay down) to equal the equity investment. IRR is one of the main factors the passive investor should focus on when qualifying a deal.
A very simple example is let’s say that you invest $100. The investment has cash flow of $10 in year 1, and $40 in year 2. At the end of year 2, the investment is liquidated and the $100 is returned.
The total profit is $50 ($10 year 1 + $40 year 2).
Simple division would say that the return is 50% ($50/100). But since time value of money (two years in this example) impacts return, the IRR is actually only 23.43%.
If we had received the $50 cash flow and $100 investment returned all in year 1, then yes, the IRR would be 50%. But because we had to “spread” the cash flow over two years, the return percentage is negatively impacted.
The timing of when cash flow is received has a significant and direct impact on the calculated return. In other words, the sooner you receive the cash, the higher the IRR will be.
The cash-on-cash (CoC) return represents the percentage rate of return determined by the cash flow in relation to the equity investment. The calculation of the CoC return involves dividing the cash flow by the initial investment.
As an instance, consider a 415-unit apartment community generating a cash flow of $694,934, with an initial investment of $6,804,625. In this scenario, the CoC return would amount to 10.21%.
The Equity Multiplier (EM) signifies the return rate derived from the combined total net profit (cash flow plus sales proceeds) and the equity investment. The EM is calculated by adding the sum of the total net profit and the gross cash flow, and then dividing it by the equity investment.
For instance, if limited partners invested $3,645,170 into an apartment community, with a 5-year gross cash flow of $2,020,165 and total proceeds at sale amounting to $6,003,028, the EM can be calculated as ($2,020,165 + $6,003,028) / $3,645,170 = 2.2.
The market rent refers to the rental amount that a landlord could reasonably anticipate receiving, and a tenant could reasonably expect to pay for a lease, taking into account the rents charged at comparable apartment communities in the vicinity. Market rent is typically determined by conducting a rent comparison analysis.
The gross potential rent (GPR) denotes the theoretical revenue that would be generated if the apartment community were fully leased throughout the year at market rental rates.
The gross potential income stands as the theoretical revenue achieved when the apartment community maintains full occupancy throughout the year at prevailing market rates, coupled with all supplementary earnings.
Illustratively, if an apartment community holds a Gross Potential Revenue (GPR) of $202,692 and generates an additional monthly income of $15,258 from sources such as late fees, pet fees, and a RUBS program, its overall gross potential income would amount to $217,950 each month.
Loss to Lease (LtL) refers to the potential revenue shortfall determined by contrasting the market rent with the effective rent. LtL is computed by deducting the total potential market rent from the aggregate scheduled rents.
For instance, consider a residential complex comprising 415 units. If the gross potential market rent stands at $3,958,680, and the cumulative scheduled rents amount to $3,166,944, the resulting LtL will be $791,736.
Bad debt refers to the outstanding sum of money that remains unpaid by a previous tenant subsequent to their departure.
A model unit serves as a demonstrative apartment used for sales purposes, showcasing potential tenants the anticipated appearance of an occupied unit.
An employee unit is a housing space leased to an employee at a reduced rate.
The vacancy rate pertains to the proportion of vacant units within a property. It is computed by dividing the total count of unoccupied units by the overall number of units present.
For instance, consider a residential complex comprising 100 units. If there are 10 units currently unoccupied, the resulting vacancy rate would be 10%.
Vacancy loss refers to the revenue shortfall caused by units remaining unoccupied.
For instance, within a residential complex of 100 units, if 10 units are vacant and each unit typically rents for an average of $800 per month, the resulting vacancy loss amounts to $96,000 annually.
Effective Gross Income (EGI) represents the genuine positive cash flow derived from an apartment community. EGI is determined by adding the sum of the gross potential rent and other income, and then deducting the revenue lost due to factors such as vacancy, loss-to-lease, concessions, employee units, model units, and bad debt.
For instance, consider an apartment community with a gross potential rent of $2,432,304. If this community experiences a vacancy loss of $145,938 (equivalent to a 6% vacancy rate) and credit-related costs amounting to $149,561 (encompassing loss-to-lease, concessions, employee units, model units, and bad debt), while also generating $183,096 in other income, the resulting EGI would be $2,319,901.
Economic vacancy refers to the percentage of tenants residing in the apartment but not contributing rent payments. It is calculated by dividing the revenue actually collected by the gross scheduled rents.
Breakeven occupancy denotes the occupancy rate necessary to offset all expenses of an apartment community. The calculation of the breakeven occupancy rate involves dividing the total of operating expenses and debt service by the gross potential income.
The physical occupancy rate signifies the proportion of units that are currently occupied. This rate is determined by dividing the total count of occupied units by the overall number of units.
The Gross Rent Multiplier (GRM) represents the duration, in years, it would take for an apartment to recoup its cost through gross potential rent (GPR). GRM is computed by dividing the purchase price by the annual GPR.
For instance, consider a 415 unit apartment community acquired for $24,750,000, with a GPR of $3,958,680. In this scenario, the calculated GRM is 6.25.
A rent premium denotes the rise in rental charges subsequent to making improvements to the interior or exterior of an apartment community. This premium is an estimation formulated by the general partner during the underwriting phase, drawing from rental rates of comparable units in the vicinity or units that have been renovated previously.
The Debt Service Coverage Ratio (DSCR) is a metric assessing the available cash flow for debt payments. It is computed by dividing the net operating income by the total debt service. A DSCR of 1.0 signifies that the net operating income covers the debt service entirely. Ideally, the ratio is maintained at 1.25 or higher. An apartment with a DSCR nearing 1.0 is susceptible; a slight reduction in cash flow could impede the capacity to meet debt obligations.
The interest rate is the percentage charged by a lender to a borrower, calculated based on the principal amount, for granting the borrower access to their funds.
An interest-only payment pertains to the monthly installment for a loan in which the lender mandates the borrower to solely cover the interest on the principal. This contrasts with the standard debt service, which necessitates the borrower to pay both the principal and interest.
The London Interbank Offered Rate (LIBOR) is a reference rate utilized by major global banks to determine the interest they charge one another for short-term loans. LIBOR acts as the initial factor in computing interest rates for a wide range of loans, including commercial loans, across the global financial landscape.
A bridge loan is a temporary mortgage employed by individuals or businesses until they obtain long-term funding. These loans typically last for a short period (ranging from 6 months to three years, with the potential to extend by 6 months to two years). They often come with higher interest rates and predominantly consist of interest-only payments. Sometimes known as interim financing, gap financing, or a swing loan, bridge loans are particularly suitable for repositioning an apartment community.
A lasting agency loan is a extended mortgage acquired from Fannie Mae or Freddie Mac, offering extended terms and reduced interest rates in contrast to bridge loans. Usual loan durations are 5, 7, or 10 years, with amortization extending over 20 to 30 years.
A prepayment penalty is a stipulation within a mortgage agreement indicating that a fee will be imposed if the mortgage is either paid down or fully settled within a specified timeframe.
A refinance involves substituting an existing debt obligation with a new one featuring altered terms. In the context of apartment syndication, a distressed or value-add general partner might choose to refinance after enhancing a property’s value, using the generated funds to repay a portion of the limited partner’s equity investment.
Appreciation signifies a rise in the value of an asset as time progresses. There are two primary forms of appreciation: natural and forced. Natural appreciation transpires when the market capitalization rate naturally diminishes. Forced appreciation takes place when the net operating income is elevated, achieved either by augmenting revenue or curbing expenses.
The Residential Utility Billing System (RUBS) is an approach used to determine a tenant’s utility charges, relying on factors like occupancy or the square footage of the apartment, or a combination of both. After computation, the determined amount is invoiced to the resident, leading to a boost in revenue.
Property and neighborhood classifications encompass a system of categorization – A, B, C, or D – assigned to properties or neighborhoods based on various factors. While these classes are often subjective, the following guidelines can be considered:
Property Classes:
Class A: Recently constructed, demanding the highest rents in the locality, furnished with upscale amenities. Class B: About 10 to 15 years old, well-maintained, typically housing a mix of blue-collar and white-collar residents. Class C: Constructed within the past 25 years, displaying signs of age, housing predominantly blue-collar occupants. Class D: Over 30 years old, lacking amenity offerings, exhibiting low occupancy rates, and requiring renovation.
Neighborhood Classes:
Class A: Occupying the most prosperous area, featuring expensive homes nearby, and potentially including amenities like a golf course. Class B: Situated in a middle-class locality, characterized by safety and security. Class C: Located in a region with moderate to low income levels. Class D: Found in areas with high crime rates, representing challenging living environments.
Distributions represent the share of profits allocated to limited partners. These distributions are disbursed periodically—monthly, quarterly, or annually—and can also occur during refinancing and/or property sales.
The subject property is the apartment that the general partner plans to acquire.
Underwriting involves the financial assessment of an apartment community to estimate potential returns and establish an offer price.
A pro-forma is a forecasted budget for an apartment community, detailing income and expense line items for the upcoming 12 months and 5 years. It is a result of the underwriting process.
The rent roll is a record or spreadsheet that provides comprehensive details about each unit within the apartment community, accompanied by various data tables summarizing the income.
The profit and loss statement is a record or spreadsheet that offers in-depth insights into the revenue and expenses of the apartment community throughout the preceding 12 months. It is also known as a trailing 12-month profit and loss statement or T12.
The exit strategy outlines the approach for selling the apartment community upon completion of the business plan.
The rent comparable analysis involves evaluating comparable apartment communities in the vicinity to ascertain the market rents for the subject apartment community.
A submarket is a geographical subdivision within a larger market.
For instance, Mooresville is considered a submarket of Charlotte.
A metropolitan statistical area (MSA) refers to a geographical zone encompassing a significant population center, along with neighboring communities exhibiting strong economic and social ties to that central core. The determination of MSAs is carried out by the United States Office of Management and Budget (OMB).
The acquisition fee constitutes the initial payment made by the new purchasing partnership entity to the general partner, compensating for their efforts in discovering, assessing, analyzing, securing financing, and finalizing the investment. These fees typically range from 3% to 5% of the purchase price, varying according to the deal’s magnitude and potential returns.
The property management fee is a continuous monthly payment remitted to the property management company in exchange for overseeing the property’s daily operations. This fee’s scope varies between 2% and 8% of the property’s total monthly collected revenues, contingent upon the deal’s scale.
The refinancing fee pertains to compensation for the efforts involved in refinancing the property. When finalizing the new loan, a fee ranging from 0.5% to 2% of the total loan amount is disbursed to the general partner.
The guaranty fee is a payment rendered to a loan guarantor during the loan’s closure. This guarantor assures the loan. When sealing the loan, a fee ranging from 0.25% to 1% of the mortgage loan’s principal balance is disbursed to the loan guarantor.
The private placement memorandum (PPM) is a document delineating the investment terms and core risk factors related to the investment. It comprises four primary sections: an introduction that provides a concise overview of the offering, basic disclosures encompassing details about the general partner, asset description, and risk factors, the legal agreement, and the subscription agreement.
A subscription agreement is a pact between a company and investor(s) that defines the price and conditions of purchasing shares in the company. This agreement outlines the rights and responsibilities connected to the acquisition of shares.
Enjoy passive real estate income without the hassle of management