FAQ’s

What Is Real Estate Syndication?

A syndication is simply a pooling of resources to invest in something as a group.

A real estate syndication allows passive investors (known as “Limited Partners” or “LPs”) to invest in a project that is larger than they would be able to purchase as individuals.

Passive investors don’t do any of the work to manage the project. Deal sponsors (also known as the “General Partners” or “GPs”) are the ones dealing with the day-to-day operations of the property. They are the boots on the ground. Our sponsors have decades of combined experience and run the project, end-to-end.

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. Our team takes care of all that and provide you regular updates as the project progresses.

How long should I plan to have my money invested?

Most projects plan for a 5-year hold, so you should plan to have your money in the investment for at least 5 years. During this time, you will receive regular cashflow returns, but your initial investment cannot be withdrawn.

That being said, we know that 5 years can be a long time, and life happens. If a major life event happens and you need out, we will do everything in our power to help you get out of the investment, including buying out your shares ourselves if need be.

What returns should I expect on my investment?

While exact percentages will vary from one investment to the next, you will receive the same TYPES of returns across the board. Cash on cash returns are paid out throughout the lifecycle of each investment. You will also receive a portion of the profits from the sale of the asset at the end of the project.

How are deals typically structured?

You will be a limited liability owner of the property which comes with all the benefits like depreciation and cash flow, meaning the property is owned by a “Property LLC” for which that property is the only asset (reduces liability). You in turn will be a direct shareholder in this Property LLC so in essence you are part owner of the company that owns the property. This allows for a direct flow-through of cash flow, depreciation, and allows you upon sale of the asset to realize long term capital gains.

What Is Accredited Investor?

An accredited investor is someone who meets certain requirements regarding income and net worth, based on Securities and Exchange Commission (SEC) regulations. This is so that the SEC can ensure proper protection for all investors.

To be an accredited investor, you must satisfy at least one of the following:

1. Have an annual income of $200,000, or $300,000 for joint income, for each of the last two years, with expectations of earning the same or higher income this year.

2. Have a net worth exceeding $1 million, not counting your primary home

How safe are these investments?

Although multifamily properties are among the safest commercial real estate investments you can make, there is always a risk in any investment. To mitigate risk, our strategy is to buy apartments “below market” and hire the very best property management team available to increase income and reduce expenses. Since strategies are pretty straightforward, success is often determined by the competence of the team executing the plan. Our team manages the property manager, making sure execution is being performed as we intended.

Commercial real estate assets like apartment buildings and self-storage operate independently of the stock market. In fact, they tend to fare better in recessions, because more people tend to downsize. They also tend to be safer investments than single family homes because if one tenant moves out, you still have the others to pay down the mortgage.

We take significant measures to mitigate risk in every project, and when something unexpected happens, we let you know immediately and work closely with our team to resolve the issues as quickly as possible.

Our #1 priority is always to protect your investment, first and foremost.

How long am I committing to this investment?

The exit strategy for these investments is generally five years, although it may vary depending on the property and specific business plan being executed. During the holding period, quarterly or monthly payouts (“mailbox money”) are sent to investors, as the project proceeds on-plan.

Changing economic circumstances can also affect the original hold time, so passive investors do need to place a certain level of trust in the management team to make decisions that will maximize all investor’s returns. Original timelines will be adhered to as much as is possible to protect everybody’s investment.

What if there is a downturn in the economy?

We won’t want to sell in a down market. 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 folks need a place to stay and rents are more in line with the market / service economy demographic that is typically still employed in downturns versus the class A renter making $100K/yr. whose jobs are more at risk.

What is a preferred return?

Typically, 8% is what I see most. This favors the limited partner. It essentially means that the first 8% return on an investment (distributions from cash flow or capital events such as refi proceeds or sale) will go entirely to the limited partner, nothing to the general partners. This is not a guarantee but the next best thing.

What happens to the money when I fund an investment?

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. Madison Investing, LLC never takes possession of your funds.

Am I able to cash out of my investment at any time?

No. By their nature, real estate investments have a longer-term time horizon than that of liquid stocks or bonds.

What is a K-1?

Similar to a 1099, a K-1 form is an accounting of the tax income for the year. Each investor receives one per investment. K-1 forms are most commonly used in partnerships and in real estate ownership.

What is a split and a waterfall?

The split is investment returns that go to the investors in the portion of the split. So, if the split is 70% to the limited partner and 30% to the general partner, after the preferred return is paid (if there is one), then the partners split all other proceeds from distributions or capital events 70/30. That split can change if a certain hurdle (or waterfall) is achieved. Example: A split could be 70/30 then go to 50/50 once the IRR hits say 18%. Any returns higher than 18%, will then be split 50/50 LP/GP. That is a waterfall.