Although the structure in the previous example is sometimes preferred for its straightforward simplicity and perceived fairness to all the project participants, syndicated real estate investment opportunities can be structured in a variety of different ways. From the investors’ point of view, it is important that investments be made under a structure that keeps the interests of all parties aligned, including financing and operating interests. RETURN ON INVESTMENT Your returns depend heavily on the investment strategy. A yield play will return a lower rate because it is already operating well and there is little upside other than inflation of market rents and perhaps some tweaking of expenses like water conservation. On the other
hand, a value play is riskier and has the potential to return much higher rates. You may not see cash flow for 3-18 months on a value-play; however, the overall returns will be much higher. Returns also depend on the area and the ability of the sponsor to either manage the property well or hire and manage a property management company that can capitalize on all upside potential. Typically, investors expect the cash-on-cash return (COC) to be around 6% to 8% and the internal rate of return (IRR) to be in the 12% to 20% range, depending on the perceived risk of the business plan. Return of capital in a relatively short period (i.e., 3-5 years) is also a common goal of most investors unless they are more concerned with long-term passive cash flow in which they look for a 5-10-year hold.
It’s important to know what your goals are so you can look strategically at each investment opportunity placed before you. •
Jorge Abreu is the managing partner of Elevate Commercial Investment Group. He has been investing in real estate for more than 15 years, starting in
single-family, small multifamily properties, and eventually working his way up to large 100+-unit multifamily properties. Before entering into large multifamily acquisitions, Abreu had wholesaled more than 200 single-family properties and fixed-and-flipped more than 150 single-family properties. He also developed and completed several new development projects, over $20 million in ground-up construction. In addition, Abreu started and has built a construction company that brought in more than $30 million in annual revenue. He is now an active and passive full-time multifamily real estate investor. Abreu and his company Elevate currently have 6,849 doors and $500 million under management. The assets are located throughout Texas, South Carolina, Oklahoma, and South Dakota.
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