Edified Equity Podcast Episode 25: Equity Investors, Fees, and Transparency of Fees in Multifamily (Apartment Community) Syndication
Show Notes:
Welcome to the Edified Equity Podcast!
My Name’s Dino and Here we will focus on all of the unique Benefits associated with being a Passive Equity Investor in an Apartment Syndication.
You can learn more about us on the Web, iTunes, Stitcher, FB, YouTube, & our Award Winning Blog on Bigger Pockets. All associated links will be in the show notes.
Associated Links!
Edified Equity Website:
http://www.edifiedequity.com/
Edified Equity Podcast iTunes:
https://itunes.apple.com/us/podcast/dino-pierce/id1381283719?mt=2
Edified Equity Podcast Stitcher:
http://www.stitcher.com/s?fid=185852&refid=stpr
Edified Equity Facebook Group:
https://www.facebook.com/groups/MultifamilyPassiveCashFlow//
Edified Equity YouTube Channel:
https://www.youtube.com/channel/UCiTMeHhVXIMgCujDzXTxkww
Bigger Pockets Blog:
https://www.biggerpockets.com/blogs/10726-benefits-multifamily-passive-investors
Edified Equity Podcast Episode 25: Equity Investors, Fees, and Transparency of Fees in Multifamily (Apartment Community) Syndication
I work directly, in confidence, with Equity Investors and Ultra-Affluent Families offering them a turnkey collaboration opportunity in Apartment Community Syndications.
This is an opportunity, and space, they know and believe in. The collaboration provides very unique tax benefits, pays them quarterly, and when we refinance or sell the asset it will pay them a profit!
The active team of investors do ALL the work and carry ALL the responsibility associated with running the business, preserving capital, and multiplying the investment.
There are several models out there, and many operators get really creative, in regards to the way Equity is split. I’ve seen, for the most part, the operating team earning 20-30% of the Equity and giving 70-80% of the Equity (which includes cash flow, tax benefits, and profit) to the passive Equity Limited Partners (LPs). In my opinion - something simple, easy to digest, and understandable works best. Further, if the split is structured so that when one wins - we all win - it shows alignment and that’s always well received.
Additionally, there are fees rightfully earned by the team of operators. It takes a TON of work, time, and energy to find a true opportunity - not to mention - seeing it through the entire business plan. There’s a lot that goes along with the acquisition process – to name a few: vetting contractors, finding quality property managers, networking with commercial brokers, qualifying for the loan, relentlessly contacting sellers, underwriting deals, researching markets, due diligence, working with attorneys, building relationships and trust with Equity partners, etc…
Fees too, can vary in size and type but I’ve seen the following and would say they are pretty standard:
1) Acquisition fee 1-4% of the Purchase Price
2) Asset management fee 0.5-2% of the Total Net Income
3) Capital transaction fee 0.5-1% of the appraised value
NOTE: this ONLY occurs IF there’s a refinance and IF 100% of the initial investment is returned to the Equity LPs. If there’s NOT a refi then there’s NOT a capital transaction fee. If the refinance is able to return 100% of the initial capital invested (this is not taxed) then the Capital Transaction fee percentage is multiplied by the appraised value and awarded to the operating team.
So with all the variety what gives? What’s considered acceptable?
In working with Equity Investors I’ve been able to compile data, gather insights, and collect information regarding what they are looking for and willing to accept regarding fees.
Before we get into the “what” - let’s get clear on being transparent. Transparency of fees is important and should be shared openly. As you’ll see, if you are providing something of extreme value fees are going to be generally (happily) accepted.
Here are few insights and comm
