“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
Have you been looking to get into your first multi-family deal?
Or have you started the process of investing and are wondering what comes next?
Let me tell you, knowing what to expect is both extremely helpful and important. Not only does it allow you to be better prepared, but it also gives you the peace of mind of knowing what to expect.
The process of getting into a deal can take a lot of time.
You’ve done your networking, you have found the deals that were right for you, and you did your due diligence looking at both the deal and your sponsor. Then you had to follow all that up with actually wiring the funds.
And then you wait…. 30 days… 60 days… and sometimes more until the deal closes.
Communication From Your Sponsor
Right after the deal closes you will hear from your sponsor. This is when the sponsors will confirm that you are part of the deal.
Oftentimes, they can’t confirm this until the deal is fully closed.
This delay in confirmation is because if they say your part of a deal and it doesn’t end up closing, it leads to a lot of disappointment.
From here, the sponsors will get your direct deposit information from you. This allows you to get your distributions from the property as soon as they are available.
They will also take this chance to give you any updates on the property.
However, you are part of this process too!
This is the perfect time to ask all the questions that you may have!
And please, ask away!
Sponsors are used to answering all kinds of questions, and they can be extremely helpful at this stage.
You are going to be in this deal relationship with your sponsor for a period of anywhere from 5 to 7 years. It’s not uncommon for these relationships to start to feel more like friendship or family!
It is important to note, if the sponsor is non-communicative in this stage, that can be a big red flag. Something to keep in mind!
Unfortunately, we have arrived at the hard part.
Nobody likes to wait! I’m right there with you.
Waiting can be hard, but I like to imagine all the great things that are coming my way. That, and making a nice long list of household projects to keep me busy.
Typically there is a 6 to 9 month period after closing before you’ll start to see distributions from your investment. And this is specifically from a value add approach.
The reason behind this waiting period is it takes time to increase the value of the property. Therefore, it takes a bit longer to see the return on investment.
Some groups will pay much sooner, around 30 to 90 days. However, that is the less common practice.
As this is the much less common timeline, in deals that payout that quickly I would make sure you understand how they are generating that revenue.
The good news is that the wait won’t last forever. Even when you are waiting for returns to come in, there is a bit of a silver lining.
After waiting, soon after the deal closes you will have the delight of receiving reports on the property.
Depending on your sponsors, you will be treated with quarterly or even monthly reports on how the property is fairing.
This will include things like income, what improvements are being made, what is going well, what is going better or worse than expected, and much more.
On top of all that, you will get an end of year report.
This report will include your tax document, the K-1.
This document includes all the information about your passive losses, which is one of the great tax benefits of these multi-family deals.
With this document, you can either defer payment or write off taxes. If you ask me, this is amazing!
But it is not as amazing as what comes next.
Now, the part you have been waiting for! Getting your distributions!
Everyone loves getting this cash! Once the property starts doing well, you will regularly get distribution payments.
Typically, these payments happen quarterly.
You will also quickly start to see how the property is performing based on your returns.
Some variance is to be expected. Payments can go up or down based on the performance.
At this stage, there is also the option of refinancing the property. This would usually happen 2 or 3 years into the deal, and it can be a great chance to get some of your money back earlier than expected. It is never guaranteed, but happens when a deal performs well.
However, the big moment is what comes next.
Sale of Property
While you may miss those distributions, you won’t for long after you see the size of the check you have in store for you
The sale of the property is when you get your principal investment returned to you.
Usually, this happens around 3 to 7 years after the deal begins. But it can be even earlier if a really good offer comes in.
Deals vary, but often you will get around 70% of the total returns made on the property when it sells.
That’s a big check! Obviously, this is a time that a lot of people look forward to.
But really, this is a new opportunity.
The challenge moving forward is to figure out what to do with all that money that you made.
Where am I going to invest it next?
Let me say, you are lucky to be here because I can help you with that.
Check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.