FAQ's For Investors

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, and 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 which 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.

In this context, a sophisticated person means the person must have, 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.

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Cash on Cash Return, often abbreviated as COC, is a financial metric used to measure the cash income generated by an investment property in relation to the amount of cash invested in the property. It is calculated by dividing the annual pre-tax cash flow of a property (i.e., net operating income minus debt service) by the total amount of cash invested in the property, including the down payment, closing costs, and any other upfront expenses. The resulting percentage represents the annual rate of return on the cash invested in the property. COC is a useful metric for investors looking to evaluate the profitability of a potential investment property and determine whether it meets their investment goals.

Calculation: Annual Dollar Income Return / Total Equity Invested = CoCR

Check out our article Cash on Cash Return: The Math Behind Real Estate Investing

Cap Rate, short for Capitalization Rate, is a financial metric used to measure the value of an income-producing property by comparing the property's net operating income (NOI) to its current market value or purchase price. It represents the rate of return on a real estate investment property based on the expected income that the property will generate.

Cap Rate is used to estimate the investor’s potential return on his or her investment, and is calculated by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property.

When acquiring income property, a higher capitalization rate (“Cap Rate”) is generally considered better, as it implies a higher potential rate of return on investment. On the other hand, when selling income property, a lower Cap Rate is typically preferred, as it suggests a higher sale price.

It is important to note that Cap Rate alone should not be the sole determinant of a property's value, as other factors such as market trends, property condition, and location also play important roles in determining the property's overall value. However, Cap Rate is a useful tool for real estate investors and appraisers to evaluate the potential value and profitability of an income-producing property. A higher cap rate implies a lower price, while a lower cap rate implies a higher price.

Investor funds are used for the total acquisition cost of the property. This includes but is not limited to the actual purchase price of the property, acquisition fees, legal and transaction costs, capital projects, and reserves.

Investors invest directly into the real property.

Check out our article How Invested Capital in Real Estate Can Maximize Your Wealth

A Limited Partner (LP) is an investor who provides capital to a business or partnership but has limited liability and is not involved in the day-to-day operations of the business. Limited Partnerships are a common structure used in real estate investment where the general partner (GP) manages the investment and assumes full liability, while the limited partners (LPs) provide capital and share in the profits of the investment but have limited liability.

Limited Partnerships are governed by a partnership agreement, which outlines the roles and responsibilities of the general partner and limited partners. In a typical real estate investment partnership, the GP is responsible for sourcing and managing the investment, while the LPs provide capital and have limited say in the decision-making process. The partnership agreement also outlines the distribution of profits and losses between the general partner and limited partners.

Limited Partnerships are often used in real estate investments as they provide a way for investors to gain exposure to real estate without taking on the full risks and responsibilities of ownership. LPs also benefit from the potential for higher returns on their investment than they would achieve in more traditional investments, such as stocks or bonds.

Preferred Return, also known as Preferred Equity, is a financial term used in real estate investment to describe a priority return on investment that is paid to certain investors before other equity investors receive any profits.

In a real estate investment partnership, preferred return is a contractual arrangement between the general partner and limited partners, where the general partner agrees to pay a specific rate of return to certain investors before sharing any profits with other equity investors. This preferred return is typically paid out on a regular basis, such as quarterly or annually, and is often calculated as a percentage of the total investment.

Check out our article How to Get the BEST Preferred Return in Real Estate Today

An Acquisition Fee is a fee paid by a real estate investment partnership to the general partner for finding, analyzing, evaluating, financing, and closing an investment property. It is an upfront fee that the new buying partnership entity pays to the general partner for their expertise and services related to the acquisition process.

The Acquisition Fee typically ranges from 2% to 5% of the purchase price, depending on the size of the deal. This fee compensates the general partner for their time and effort in identifying and evaluating investment opportunities, negotiating the purchase, and ensuring that the investment meets the partnership's investment criteria.

The Acquisition Fee is usually paid out of the partnership's equity at closing and is a one-time fee. It is important to note that this fee is distinct from other ongoing management fees that the general partner may receive for their ongoing management of the investment property.

Check out our article What is an Acquisition Fee in Real Estate?

The Private Placement Memorandum (PPM) is a legal document used in a private placement offering to provide prospective investors with detailed information about the investment opportunity. The PPM outlines the terms of the investment and the primary risk factors involved with making the investment.

The PPM typically includes an introduction, basic disclosures, legal agreement, and subscription agreement. The Basic Disclosures section is one of the most important parts, providing investors with information about the investment opportunity, including the investment strategy, asset description, and risk factors. This section should provide detailed information on the market conditions, the asset class, and the specific risks involved with the investment.

The PPM is an important document for both investors and the general partner. It helps ensure that investors are fully informed about the investment opportunity and can make an informed decision about whether to invest. Additionally, the PPM can protect the general partner from potential liability by disclosing all relevant information to investors.

Investor funds are used for the total acquisition cost of the property. This includes but is not limited to the actual purchase price of the property, acquisition fees, legal and transaction costs, capital projects, and reserves.

Investors invest directly into the real property.

Check out our article How Invested Capital in Real Estate Can Maximize Your Wealth

Investor funds are used for the total acquisition cost of the property. This includes but is not limited to the actual purchase price of the property, acquisition fees, legal and transaction costs, capital projects, and reserves.

Investors invest directly into the real property.

Check out our article How Invested Capital in Real Estate Can Maximize Your Wealth

Investor funds are used for the total acquisition cost of the property. This includes but is not limited to the actual purchase price of the property, acquisition fees, legal and transaction costs, capital projects, and reserves.

Investors invest directly into the real property.

Check out our article How Invested Capital in Real Estate Can Maximize Your Wealth