Any person whose individual net worth, or joint net worth with that person's spouse, exceeds $1 million ( excluding equity in that person's principal residence).
Search Rule 501 for the full definition of "accredited investor"
A fee paid to the general partner for finding, analyzing, financing and closing on the investment. Fees can range from 0.5% to 5% of the purchase price.
A group of people pooling money and resources to buy an apartment complex. General partners (the syndicator(s)) and the limited partners (investors) work together to acquire and share the profits.
The increase in value of an asset over time.
Natural appreciation occurs when the market cap rate decreases (building becomes more valuable due to location).
Forced appreciation occurs when the net operating income is increased (increasing the revenue or decreasing the expenses). This is achieved through value-add apartment syndication.
Asset Management Fee
An annual fee given to the asset manager for the oversight of the property. This fee ensures someone is paying attention to all the details, hires the operators, analyzes the market, evaluates offers, oversees the budget, the loan, property management, and makes sure we are on track with the goal of the property.
The amount of uncollected money that a former tenant owes after move-out.
The lowest occupancy needed to cover all expenses of the apartment complex.
Bridge Loan / Interim Financing / Gap Financing / Swing Loan
A short term (6 months - 5 years), high interest loan used until the syndicator can obtain permanent financing.
Capital Expenditures (CapEx)
The funds used by the company to upgrade/maintain the apartment community while improving the useful life of the building. These expenditures spread the cost over the useful life of the asset.
Capitalization Rate (Cap Rate)
Cap Rate = Net Operating Income / Current Value
The money left over after paying all expenses. Cash flow is used for distributions between Limited Partners and General Partners.
The cash on cash return is the ratio of annual before-tax cash flow to the total amount of cash invested.
Closing costs are extra billed expenses, not incurred by the syndicator, to complete a real estate transaction.
Perks given to tenants to move in.
The mortgage for a loan over a year.
Debt Service Coverage Ratio (DSCR)
A ratio that measures the ability to cover your debt from your net operating income (NOI). A DSCR of 1.25 means you have 25% more money after you pay your debt service. This is useful to determine your ability to pay your loans.
The portions of profit sent out on a monthly, quarterly or annual basis. Distributions are dependent on cash flow, refinance proceeds or sale of an investment.
Economic Occupancy Rate
The rate of paying tenants based on the total possible revenue and the actual revenue collected.
GPI of + $4,023,195
Concessions and bad debt of - $144,050
Vacancy of - $180,999
Effective Gross Income (EGI)
The true cash flow of an apartment complex.
Gross Potential Income + Other Income = $4,023,195
Vacancy, LtL, Concessions, Employee Units, Model Units, Bad Debt = $325,049
A unit rented to an employee like a groundskeeper at a discount or free.
The total money required for putting a deal together.
Equity Multiplier (EM)
The total return based on (cash flow + sale/refinance proceeds) / equity investment.
The plan to reach the investment goal of a building through refinance or sale.
Fees charged by lender for providing the debt service (mortgage)
General Partner (GP)
The managing partner who is active in the day-to-day operations of the business. GP is also known as a sponsor or syndicator.
Gross Potential Income (GPI)
The total amount of income you receive if all of the apartment units are 100% leased year-round, plus all other income.
Gross Potential Rent (GPR)
The total amount of income you receive if all the apartment units are 100% leased year-round excluding other income.
Gross Rent Multiplier (GRM)
The total number of years it would take for an apartment building to pay itself off if you used every dollar towards the purchase price (excluding interest of the loan).
A fee that a loan guarantor gets paid at closing. A loan guarantor signs their name for the loan and gets paid a fee of 0.25% to 1% of the principal balance.
The percentage amount charged by a lender for the use of their funds.
A debt service (mortgage) payment has 4 payments included: principal, interest, taxes, and insurance (PITI).
Internal Rate of Return (IRR)
Your average annualized return year over year. A dollar today is more than a dollar tomorrow because you can invest a dollar today, but you can’t invest a future dollar. The IRR considers the time value of money. The IRR also assumes that every year you receive a profit on your money, you are able to reinvest into something else and not let it lose value in the bank.
Limited Partner (LP)
Limited partners are passive investors. Limited partners supply the money but don't have to deal with the day to day operations of an apartment complex. As a limited partner you reap the benefits of owning real estate: cash flow, forced appreciation, and a tax sheltering asset.
London Interbank Offered Rate (LIBOR)
The rate at which banks charge each other for short-term loans. LIBOR is used to calculate interest rates throughout the world.
Loss to Lease (LtL)
The revenue lost based on market rent and the actual rent.
The average rent in comparison to similar apartment communities in the area.
A unit used as a sales tool to show prospective tenants what to expect at our community.
Net Operating Income (NOI)
The total income of an apartment complex minus operating expenses. This does not include capital expenditures or debt service (mortgage). NOI is used as a tool by banks to determine the value of the complex.
Operating Account Funding
Also known as reserves. Operating account funding is money raised above the price of the property to cover unexpected dips in occupancy, high than expected capital expenditures, or lump sum tax/insurance payments.
The costs of running and maintaining the apartment complex.
Permanent Agency Loan
A long-term mortgage loan secured through Fannie Mae or Freddie Mac. These loan lengths are 5, 7, or 10 years amortized over 20 - 30 years.
Physical Occupancy Rate
The rate of occupied units.
A return given to the limited partners prior to general partners receiving payment.
A monetary penalty in a mortgage clause if you pay off a loan too soon
Private Placement Memorandul (PPM)
A document that outlines the terms of the investment along with the risk factors involved.
Property Management Fee
A monthly fee charged by the property manager to manage the day-to-day operations of the property.
Profit and Loss Statement
Also known as a T12. T12 stands for the trailing 12 months. The previous 12 months of profit and loss for an apartment complex.
The projected income and expenses for an apartment building based on the competition and expertise of the property management company in the area over the next couple years.
Property and Neighborhood Classes
The following is subjective:
Ratio Utility Billing System (RUBS)
A system created to bill utilities such as water or electricity back to the tenant.
The replacement of an existing debt with another debt under different terms. It is beneficial to refinance when the building is worth more in to all of the investors.
Some general partners charge a fee for the work required to refinance the property. This fee can range anywhere from 0% to 2% of the total loan amount.
An increase in rent after performing renovations to the interior or exterior of an apartment building.
A spreadsheet that contains detailed information on each of the units at the apartment community.
The profit at the sale/refinance of the apartment complex.
Someone who has sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.
The property we are looking to purchase.
The process for evaluating an apartment complex to determine the projected returns.
The amount of revenue lost due to unoccupied units.
The percentage of units unoccupied.