Questions, answered.

An apartment syndication is a collaboration of people for the purpose of investing in one or more apartment properties. People pool their money, and this allows them to buy larger properties, which are usually more stable, safer, and often provide better returns.

Typically a syndication is organized by three to five experienced investors called General Partners, and the capital required to purchase the property is provided by a larger number of passive investors, called Limited Partners.

Investors make money from the income that the property produces. If the property is producing income that is over and above the expenses for the month or the quarter, those funds are typically distributed to investors.

Property values for apartment investments are determined by how much income the property produces, and by a capitalization rate that is set by the market and can be influenced by many factors, such as interest rates and population growth. If the property's income has grown and the capitalization rate has remained steady or fallen, the property's value has very likely appreciated. When the property is sold, investors share in the appreciated value.

You won't be managing day-to-day operations or managing the property manager. You won't have personal responsibility for anything associated with the property, such as lawsuits, storm damage, or recovering from any of the risk events mentioned elsewhere in this FAQ.

Likewise, since your risk is much lower by passively investing in real estate, your returns might be lower too. You would need to determine if the returns you receive from your passive investment, including tax benefits (which are considerable), are sufficient to make this a good choice for you.

An investor should fully understand that real estate investments have qualities that are different from other investments. Whether they are better is in each person's judgment. It's our intent to offer investments in apartments as either an alternative to other investments or as a foundation for wealth building.

We don't offer advice on whether it is the right fit for any investor, as that is for each investor to determine.

Advantages of real estate, particularly multifamily, over stocks and bonds include the ability to defer taxes, better visibility into how the investment is performing, an expectation of higher returns that is less subject to the volatility of a public market, and an opportunity to have a positive social impact on the quality of life for many hard-working people.

Return projections are unique to each property and will vary with each property. When you talk with us, we will be happy to share more details on the performance of properties that have been in our portfolio.

This also varies by property, but we generally look for properties that we can sell within five years. We might sell sooner if we hit our target projected returns earlier, and the management team might decide that there are advantages to investors in holding the property longer than five years.

Distributions are paid from excess cash flow. We typically project distributions to begin in the first year of ownership, and paid quarterly. There can be circumstances where cyclical changes to the market or other factors limit the property's ability to produce excess cash flow, but those circumstances are temporary and not common.

Although these investments are not liquid, hold periods are almost always under five years, and investors exit when the property is sold.

Risks common with most apartment investments can include loans expiring, drastic changes to the local market, a major employer shutting down or laying off, economic conditions deteriorating resulting in unemployment, undiscovered physical deficiencies in the buildings, storms and floods, fires, and more.

An experienced syndicator has taken steps to either prevent these risks from impacting the property and investment, or to mitigate any negative outcomes that might result. For example, there will be rules about smoking and lighting candles that should prevent a fire, but tenants sometimes do these things and unfortunately fires can occur. Insurance will cover complete rebuilding to current code, as well as lost rent.

Ask us about how we mitigate each of these risks, and we'll gladly elaborate.

If the property's performance has not met projections, investor returns are likely reduced. This is why it's very important for investors to confirm that the syndicator's assumptions have been conservative. Projections for returns should not assume best-case outcomes.

There are several ways to qualify a syndicator's assumptions. Ask about rent growth assumptions, the capitalization rate when the property is projected to be sold in five years, vacancy rates, and any line item in the proforma income statement. Ask for justifications for their assumptions.

Look also for a Sensitivity Analysis. It is a simple table of numbers with assumptions across the top and down the left. For example, Rent Growth across the top with assumptions of 2%, 2.5%, 3%, 3.5%, and 4%, and Exit Cap Rate down the left. The body of the table might show IRR values for each combination. Upper left is probably worst case; lower right is best.

We look mainly for B Class properties, built in the 1990s or newer, which have opportunities to grow in value and where we can drive that growth. We identify properties already experiencing growth with a relatively high level of rental occupancy.

We look for properties currently leased below what nearby competitors are charging, low market vacancy rates, and high rental demand in that area.

We look for diversity in employment. Many markets typically have robust employment in the education and healthcare sectors, and other government-run institutions. In our approach, we look for strong private-sector growth engines, such as companies moving into the area or expanding, which indicates a stable and growing rental market.

We look for several key indicators for a market to invest in. That includes, but isn't limited to, population and jobs growth, household income, home values, and crime rate.

We want to know there's a large enough population and a diversity of employers.

We want to know that the city, county, and state have laws and regulations that support ownership of real estate investments.

We create a business plan to force appreciation. If we are not able to, we will pass on the property. Forcing appreciation means investing in improvements to the property, usually the interiors of the apartment units, so that we can re-lease the unit at a higher rent.

Increasing the income on the property may also come from more focused management, obtaining favorable loan terms, and working with the utility companies, the county, the insurance company, or any other entity which might help us reduce expenses.

That is very much dependent on the property. An unstable, low-occupancy property might need a lot of renovation work and might project very strong, above-market returns, but require a significant investment in renovations. Likewise, a newer, stable property might only need lighter upgrades and lower investment in renovations, but still produce a solid return.

This varies depending on the property, the terms of the purchase, and current financial market conditions, but we will typically look for a loan of between 60% and 75% of the purchase price. Loan terms will almost always be fixed rate, for five years or more, with three or more years of interest-only debt service payments, and non-recourse.

In most cases the exit strategy is to sell the property within five years, but that time period could be shorter or longer. In some cases, a loan can be refinanced after two to three years if there has been sufficient appreciation in the property and market loan products are at reasonable rates. In those cases, funds may be distributed to investors, but that would not be an exit. Investors would remain in their investment.

Cardinal Oak Investments began acquiring multifamily properties in 2010 and has been acquiring and operating many more properties since then. We share a few measures of our purchasing volume on this website's home page.

We also share overviews of the apartments in our portfolio. While we don't publish many details of these properties on our website, we are glad to share more details in conversations with investors.

None of our acquisitions are dependent on any one individual. There are always teams, and those teams always consist of other experienced individuals.

As a disclaimer, we are not accountants. You should consult with your accountant to confirm or clarify any accounting question you might have.

We will almost always get a cost segregation study done on an acquisition soon after closing on the purchase. We expect this study to produce bonus depreciation in year 1, and that is almost always sufficient to provide significant tax benefits to investors. If you invested as an individual or an LLC, it should shelter much of the income you receive from your investment.

Fees will typically include a one-time acquisition fee and an annual asset management fee, although these are dependent on the property itself.

General Partner compensation is structured so that investors are prioritized. Investors get most of the cash flow, and General Partners only receive cash flow when it has exceeded a threshold determined when the offering is created. Investors also get most of the appreciation in the value of the property when the property is sold.

The structure of these payments varies for each acquisition.

Investors receive a preferred return, which is the cash flow from the property's operation. Usually it is communicated as a percent, and the percent is a percent of their investment.

For example, if the preferred return is 8%, and all of the investors together invested $1,000,000, and cash flow distributions are paid quarterly, and there is $25,000 of cash flow for that quarter, then $20,000 would be paid to the investors. (8% of $1,000,000 is $80,000, and one quarter of that is $20,000.)

How the remaining $5,000 of cash flow gets distributed is determined by the offering, and is typically called the waterfall structure. There could be a formula that determines how much of additional cash flow amounts are distributed to investors and how much to General Partners.

Yes, in nearly all cases. You would need to consult your accountant to determine how your investment will be reported on your taxes.

Almost always monthly reporting, which shows the income produced and other financial performance metrics, as well as operational overviews highlighting both the good things that have happened and any issues or concerns.

Investors are invited at all times to contact us with any questions.