Frequently Asked Questions
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General Investor Questions
A real estate syndication is an efficient way for investors to pool their money together to purchase larger real estate assets that they typically couldn’t manage or afford to purchase as an individual investor. Generally, by leveraging and raising additional funds from outside investors to purchase it, we force appreciation and then actively manage the asset.
Typically 25%-30% of the funds are pooled together from the syndicator and the passive investors, and the other 70%-75% of the funds come from the lender/bank.
There are many parties involved in a syndication, including, but not limited to, CPAs, lenders, real estate brokers, attorneys, property managers, passive investors (you) and the syndicator who puts the whole deal together and manages the asset (Willowdale Equity).
Through our industry relationships, we go out, locate and underwrite cash-flowing multifamily real estate communities, we then raise cash from investors to acquire the asset, we then force appreciation through physical or operational improvements and we then actively manage the asset.
The General Partners are the individuals who are putting the multifamily syndication opportunity together. They then manage the asset, execute on the business plan and they then offer that investment opportunity to passive investors. They are interchangeably referred to as the syndicator, the sponsor, or the operator.
Limited Partners or passive investors have no active investor duties in a multifamily syndication. The distributions that an LP earns either monthly or quarterly, or any return for that matter is truly passive in nature. The GP or sponsor group is simply providing an opportunity to investors to invest alongside them, into a stable and appreciating asset with no active real estate investing role whatsoever.
We focus on class B & C apartment communities in strong insulated growth markets across the southern United States. Our main focus area is Middle Georgia.
The communication protocol varies based on the deal, but we will always communicate effectively via email or phone whenever there is an update. Additionally, we are available for communication Monday through Saturday!
An accredited investor is an individual who meets the guidelines and requirements of income and net worth based on securities and exchange commissions (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.
We solely invest in multifamily housing. We usually buy high-quality B and C class properties as value-adds. The money you put into the deal is used to finance one transaction, not a portfolio of properties.
No. Each deal is different and your investment can be tied up either shorter- or longer-term. The initial liquidity event may take place at the refinancing of the property. This occurrence might happen as early as year three.
The projected refinance for a deal would be somewhere between year 2-3. This would be the first large liquidly event for the deal. Typically we look to hold a property for 5-7 years, although we could sell well before that if we can achieve our desired number.
Typically, the funds are held in an escrow account in the name of the newly-created LLC for the deal until the property is officially closed on. Funds can be wired or sent by check.
Every deal is different. Generally, exit strategies for these deals are five years, but original timelines can change based on market conditions.
A K-1 form is a tax document that acknowledges revenue for the year. One will be given to each investor in a combination. It’s a standard procedure with real estate partnerships and LLCs to issue one per partner.
The income shown on your Schedule K-1 may relate to one of the following:
-Interest Income
-Rental Income
-Gains from the property sale
To further understand the differentiation between the various categories of income, we strongly recommend contacting your tax advisor or accountant.
The loss shown on your Schedule K-1 should be more than that of which you claim on your tax return. For further information, please contact your tax advisor or accountant.
The first thing to understand is that any fee is separate from all highlighted returns and projections for a deal. Simply put, that means that any fee collected by Willowdale Equity (the syndicator) has no impact on projected returns of the deal, no fees are coming out of pocket from investors. We make our money in three ways;
- Acquisition fee, which is anywhere from 1-3% of the purchase price and is paid at closing to cover all costs associated with finding and vetting closing on the deal.
- Asset management fee, which is anywhere from 1-3% of monthly revenues. This fee covers all of the time and costs we incur associated with managing the asset, overseeing the property management company and executing on the deal’s plan.
- Equity split, which is the split of cash distributions we receive as equity partners in the deal. Typically, the equity split is 60/40 or 70/30.
Investor Security Questions
We will still hold onto the property. We do our best to diligently vet the asset and the market the asset resides in to ensure that we are acquiring the property with enough room to sustain economic uncertainty. The property classes we purchase (Class B & C) are generally the best classes to be in during tough economic times.
There are factors that are beyond our control (e.g., market conditions). There is a risk that you can lose your investment just like the stock market or investing into a new business. However, we believe this to be highly unlikely for several reasons.
Firstly, the approach used to underwrite these deals are very conservative and gives us plenty of room to weather a down market. Secondly, we are buying proven assets that provide a return month-to-month or quarter-to-quarter. We are not purchasing a property to tie up all of our cash and hedging that the asset will appreciate. These are cash-flowing properties that provide frequent returns and the appreciation is a bonus.
Investor Returns Questions
Typically, the minimum investment into one of our deals is $50,000.
Every deal is different. Typically, investors are paid out from the cash flow of the deal either quarterly or monthly.
A preferred return, for example, is as follows: if the preferred return was 8% and you invested $100,000, that means that the first $8,000 of free cash flow distribution would go to the preferred return investor before paying any other general partners.
In terms of 1031 Exchanging into a Willowdale Equity deal, this is not possible because your purchasing shares of our LLC and not the actual property itself. However, you may be able to potentially 1031 from a Willowdale Equity deal into the next deal granted that the timing meets the 1031 Exchange rules and a few more factors.
Yes, it would simply entail a slight difference in how you sign the subscription agreement and fund the deal. There are some things to consider, however, such as the Unrelated Business Income Tax (UBIT), which Willowdale Equity recommends seeking the counsel of your CPA and/or financial planner.
Individuals, self-directed IRAs, solo 401ks, qualified retirement plans, business entities, or a combination of several accounts may all invest money.
The split is the investment returns that are provided to the investors in the portion of the split. So, if the split is 70% to the investors and 30% to the deal syndicator (Willowdale Equity LLC), 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. For example, a split could be 70/30, then go to 50/50 once the IRR hits 18%. Any returns higher than 18% will then be split 50/50 (Investors/Syndicator), which is a ‘waterfall’.