Glossary of Terms

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An individual who qualifies to invest in private placement opportunities by earning an annual income of $200,000 (or $300,000 for joint income) or having a net worth of at least $1 million not including their primary residence.

The Total return on investment divided by the number of years the investment is held.

Payment made to the syndication's general partner for sourcing, analyzing, financing and acquiring an asset.

A fee taken from the revenue generated by an asset that is paid to the general partner for management of the asset.

Funds used by the operating partner / management company to acquire, update and improve an asset. (Ex: Funds used to replace roofs, siding, plumbing, etc.)

A bridge loan is a short-term loan used to acquire assets that are not stabilized, allowing the operating partner a period of time to stabilize the property and acquire long-term financing.

Expenses that are incurred when fees are outstanding and deemed uncollectible. Including delinquent rents.

Calculated by dividing Net Operating Income by a property's current market value to predict rate of return.

A rate of return that is found by dividing the property's cash flow by the initial cash investment.

A strategy where an investor directly finds, structures, manages and exits an investment.

Identifying assets and determining their classification, thus reducing current tax liability and deferring federal and state income taxes.

The amount that is owed to the lender as loan payments. Also used to calculate Debt Service Coverage Ratio (DSCR)

Ration used by commercial lenders to appraise and qualify deals for financing. Measuring the cash flow available to cover debt service. Typically lender want a minimum of 1.25 to approve the loan, this means the property needs to cash flow 1.25x the debt service.

Sale of an asset.

Deposit held in escrow paid by buyer to show commitment and good faith when entering a contract.

A vetting process used to evaluate a property and meet underwriting requirements made by a lender. 

(Ex: Appraisals, survey, inspections, title work)

The remaining of all incoming revenue minus operating expenses.

A region consisting of a core city and the surrounding communities with a total minimum pop. of 50,000.

The amount it takes to manage and run an investment, includes payroll , management, repairs, contractors, admin, utilities, taxes, insurance, capital reserves.

This outlines an investments risk, terms, goals and may include financial statements, operating partners bio. and business operations/plan. (Also referred to as a Private Placement Memorandum (PPM))

Referred to as the offering memorandum, outlines risk, terms, goals and operating partners financials, bio, and business plan.

An agreed upon percentage of distributions and returns an investor receives before the operating partner (GP) takes a split. This retains accountability and ensures the operating partners interest bring the investor first.

Also known as the operating partner or syndicator, this is the investor who finds, vets, operates and facilities the business plan of an acquisition. Including building relationships, negotiations, renovations, due diligence, manages the property manager. This can be one person or a company.

A passive investor who invest capital in exchange for shares but has limited voting power and no day-to-day involvement. Their liability only consist of and is limited to their investment.

A way to calculate the overall rate of return on an investment. By dividing the total cash invested by the total cash distribution. 

General partner's future plan for cashing investors out of the deal, which entails selling the property, purchasing their shares or refinancing.

Increase in market value through an increase in net operating income, which is set in motion by an increase in income or decrease in expenses.

Amount of time the GP plans to own the asset.

A monthly payment that only requires payment of interest. The principle may be due at the sale, or when refinancing at maturity.

Rate of return calculated from all anticipated cash flow, principle pay down of debt and profits on the exit, taking into account time value of money. IRR is not easily calculated, it must be calculated through trial and error or by using software like excel or 10Bii.