FAQ

FAQ

General Questions

Multiple investors pool their funds to purchase a real estate asset. The group is led by a syndicator, often referred to as a “Promoter” or “General Partner”. The investors can buy a larger property than they would normally be able to purchase by themselves, and all the work is done by the syndicator. Investors are at “arm’s length” and simply provide the capital and receive reports and distributions. Provides “one stop shopping” to the investor. The syndicator handles all duties, including but not limited to the following:

Finding the property

Underwriting

Financing

Improvements

Leasing

Management

Evictions

Rental increases

Eventual sale of asset

The investor remains at arm’s length in a passive role.

Investors receive regular reporting on financial performance

Investor capital is spread across more units and more properties, diversifying their exposure to risks

If a deal performs well, there is no limit to how much investors can make.

 

An operating agreement defines the roles of all parties of the syndication. The investors are defined as limited partners, which legally means they play no role in the day to day operations of the property. Limited partners are passive investors, and as such have limited liability.

The general partner is a party to the operating agreement, in which the responsibilities of the general partner are clearly defined. The general partner is responsible for all aspects of the operation and is empowered to make financial decisions regarding the asset.

FAQ

Investment Questions

Distributions are sent out quarterly.

Although each deal is different, at TR Wealth we underwrite deals to begin cash distributions after one year of ownership.

Reports are issued quarterly.

Market cycles

Inexperienced or incompetent operators (check the track record)

Lack of liquidity

Investors in our syndicated deals can expect to receive quarterly cash flow distributions, starting at roughly 3% annual return on cash invested, and a large capital gain upon sale of the asset, typically 50% or more. The capital gain amount is somewhat dependent upon the hold period. Cash flows will increase over time, throughout the hold period. Each deal is unique, with some modeled at higher or lower returns in each category.

There is an Acquisition Fee upon purchase and a Profit-Sharing Fee upon sale of the asset.

Yes, we often do cost segregation studies. This provide tax write offs over and above what is needed to offset profits from operations. The excess write offs can be used against other passive investments.

There will be a subscription agreement, an operating agreement (which is typically an LP agreement, and LLC, or sometimes a DST or TIC if 1031 exchange funds are involved), and a property management agreement. The management agreement is between TR Wealth Management and the operating entity.

The General Partner signs on the loan, for all LP and LLC entities. However, when a DST or TIC is involved, investors may have to also sign on the loan. This becomes a somewhat complicated process, unique to each deal, and we are experts at navigating these structures.

Some principal may be returned via a property refinance. Because these distributions are a return of capital, they are tax free. At the end of the hold period, investors will receive their initial investment, along with any capital gains. In theory, if a property loses value over the hold period, investors would receive less than their initial investment at deal end. This has never happened on any of our 65+ syndications.

You will receive a K-1 and attach this document to your return.

Having navigated more than 30 years of market cycles, we have learned from experience that there are good deals available in all market conditions. Our job at TR Wealth is to conduct intensive underwriting for each deal, enabling us to predict with a high rate of certainty that a particular investment asset is worthy of syndication. Trying to time the market has proven to be a futile effort. For instance, during economic boom times, we often find it very difficult to identify good deals because everyone is optimistic and therefore overpaying for assets. We are constantly looking for buildings where the owner has some need to exit quickly, which enables us to capture the building below market. Other opportunities come up in the form of good buildings that are not priced correctly, not marketed the right way, disputes amongst ownership groups, and many other factors. These are some of the reasons why real estate presents more opportunities to buy at a discount and add value, versus stocks which are traded by millions of people every single day.

Allows investors to diversify their investments into tangible assets. 

Real estate is a great complement to stock market investments. 

Provides control in determining the investment results

Physical asset that you can inspect, monitor, and improve

A minimum investment amount is determined for each syndication project. Typically, the minimum is $50,000 for 506 B offerings and $50,000 for 506 C offerings.

The operating agreement defines the process for capital calls. Should the operating account balance fall below the level required for operations, the general partner can request more capital from partners. At TR Wealth, we avoid capital calls wherever possible. During underwriting, we allocate reserves for all anticipated costs, including maintenance, repairs, and improvements. However, it is possible for unexpected costs to trigger a capital call. During more than 65 syndicated deals, TR Wealth has only had one capital call, which was used to build an ADU.

Most syndicated offerings require all investors to be accredited. There is information readily available on what constitutes an accredited investor. The basic requirements are annual income greater than $200,000, $300,000 if married, or net worth greater than $1 million, excluding primary residence.

Yes, there are companies offering self-directed IRAs, which allow for investment in alternative assets, including real estate syndications

Yes, we accept 1031 exchange funds, with a caveat that there are timing constraints associated with 1031 exchanges.

Cash flow distributions from property operations are usually tax free, given the amount of write offs associated with operating costs, depreciation and interest expense.

There are often excess tax write offs, which can be used against other passive investments held by the investor.

The typical hold period for our syndications is 5 – 10 years.

Real estate holdings are, by their nature, illiquid, especially in comparison to stocks.

We do our best to buy investors out, when they make a request to exit an investment. However, this process typically takes months if not a year or more. If an investor can find a buyer for their share, they can exit almost immediately.

One of the primary advantages to real estate, and particularly multifamily assets, is a lack of direct sensitivity to market swings. While stocks experience immediate volatility in response to market conditions, real estate valuations and rental rates are driven by much longer-term factors. During recent stock market swings, we have seen almost zero impact on occupancy and rent payments.

Our property management is handled in house, and we are experts at promptly notifying tenants legally with an order to “pay or quit”. When tenants stop paying rent, this often gives us an opportunity to move them out, improve the unit, and lease to a new, higher quality tenant at a higher rate.

We have found that using a court ordered eviction is a last resort. While we do use legal means to remove tenants, often we can get them out by simply asking them to leave. Communicating with tenants and taking prompt action are key elements in our process.

The operating agreement defines the process for capital calls. Should the operating account balance fall below the level required for operations, the general partner can request more capital from partners. At TR Wealth, we avoid capital calls wherever possible. During underwriting, we allocate reserves for all anticipated costs, including maintenance, repairs, and improvements. However, it is possible for unexpected costs to trigger a capital call. During more than 65 syndicated deals, TR Wealth has only had one capital call, which was used to build an ADU.

As also described under the definition of a limited partner, a passive investor has no duties in day-to-day property operations. The passive investor has limited liability while still enjoying cash flow distributions, profits upon sale and many tax advantages.

Ready to Get Started?

Get in touch with the TR Wealth Team Today!

Our Projects

Case Studies