Many investors new to syndications are curious to know how much and when they will make their returns if they invest in a deal. So let’s break it down!
In most of our deals our investors get compensated 2 ways: cash flow + appreciation = total return.
When we buy a property, it is typically 90%+ occupied and it generates enough income that even after paying all the expenses we still have plenty of cash leftover every month to send distributions to investors.
When we send our investors our Offering Memorandum (the fancy slide deck) showing you the property, business plan, and financial projections, you will run into a table that looks like the one here below outlining year by year the projected returns in terms of cash flow and appreciation.
Figure A.
Figure A. In red I have circled the cash flow that’s projected to be generated year by year. We typically send out monthly distributions to investors. You will have to divide by 12 the amount shown on the table to compute your monthly cash flow. If you had invested $100k then your monthly cash flow distribution for Year 1 will be $381/month ($4,580 / 12).
Now let’s take a look at the appreciation side of things on Figure B.
Figure B.
Appreciation is the goal of value-add deals. We make improvements to the property to increase income and decrease expenses that will result in higher NOI (Net Operating Income) which in turn results in appreciation for the property.
Since we can only capture the appreciation created when we sell the property, we only have a one-time payout shown in our projections for appreciation.
If you look to the far left it shows “Return on sale”, meaning if you invested $100k, then when we sell the property we are projecting you will receive $186,716. This includes your original investment of $100k.
So on top of the $100k you invested and on top of the $30,055 you will receive in cash flow, you will also receive $86,716 from appreciation.
Cash flow + Appreciation = Total Return
$30,055 + $186,716 = $216,771
If you invest $100,000 and receive $216,771 that’s a 23% Average Annual Return.
Satch Bernhardt
CEO | V1 Capital
Disclaimer: V1 Capital is not a financial or tax advisor. This shall not be construed as solicitation to invest. Please consult with your own CPA, tax or financial advisor.
