Passive Investing

Returns

8m3s

What are preferred returns?

A look at a past deal

The power of refinances

Impact of UBIT for SDIRA investors

Now it’s time to discuss everyone’s favorite topic: returns.

Let’s think back to the lesson just before this on syndications. If you recall, most deals are typically split 70/30, with 70% of the profits going to Limited Partners and 30% going to the General Partners.

But in thinking about this, what if for the first year in a project, the property only returns a small 5% on our investment? That’s not a lot, are we really going to split 5% 70/30? The answer is no, and this is where the concept of a preferred return comes into play. Most opportunities offer around an 8% preferred return. This means that the General Partners won’t receive any profits until an 8% return for Limited Partners is met. So when passively investing, you should expect to receive 100% of the profits up to 8% and then after that, everything is split 70/30.

So what would happen in the case we just talked about, where only 5% is returned in a year? Well the preferred return now begins to accrue and the remaining 3% that wasn’t realized is rolled over to the following year. So in the next year, Limited Partners will receive 100% of the profits, now up to 11%. Only until any accrued preferred return is met will the General Partners share in the profits of an investment.

A Case Study

To see returns in action, check out the video above where we cover a property currently in Wall to Main's portfolio that we own and operate with our partners.

Apply now to see your own returns in action as a Main Street Investor.

Real Estate Accelerator Certified.png

Under no circumstances should any material at this site be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of the Confidential Private Offering Memorandum relating to the particular investment. Access to information about the investments are limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments. You should always consult certified professionals before making decisions regarding your individual financial situation. Josh Plave is not a financial or tax professional, and Wall to Main is not a brokerage, dealer, or SEC-registered investment advisory firm.