What returns can I expect?
What is the minimum investment?
How large are these apartment buildings?
Can anybody invest in apartment syndications?
What is an accredited investor?
Class A? B? C? What is the difference between classes of properties in real estate?
How does Cove Investments find and evaluate its partners?
Like all investments, past performance is not necessarily indicative of future returns. Targeted returns are currently ~100% over a 5-7 year holding period. A portion may come through a preferred return of 7-8% per year, paid monthly or quarterly. Note that due to depreciation charges, most (or ideally all) of that dividend will not be taxable to you as income. The balance of the total return comes through transactions such as a sale of the property or a refinance/cash return to investors. Those returns typically occur beyond the window of short-term capital gains, meaning that the bulk of the taxable profit is treated at the lower long-term capital gains rate (currently 20%).
It depends on the deal and the sponsor team. That said, $50,000 is a typical minimum. Since lack of liquidity can be a concern (5-7 year target holding period), a self-directed IRA or similar vehicle can be an excellent source of funds for these investments. If you want to learn more about how to use your IRA or a 401k from a former employer, we can explain the process in more detail and recommend specific providers.
When people hear the word apartments, many assume we’re talking about a single unit, a duplex, or even a small multi-family with 5-10 units. While many individuals invest in these assets, we prefer to focus on apartment buildings of 75-250 units to provide sufficient scale.
Yes and no. The SEC regulates the process under Regulation D, Rule 506. The rules restrict participation in privately issued securities only to those investors with a minimum income or net worth. Most apartment syndications require an investor to meet ONE of these two requirements:
Annual earnings of $200,000 for an individual, or $300,000 for a couple who files jointly, for each of the past two years, and with the expectation of meeting that level in the current year.
A net worth exceeding $1 million, not including your primary residence.
Sometimes, syndications filed under the exemption 506b may be available to both accredited and a limited number of non-accredited sophisticated investors.
To be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one’s primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount in the current year.
The class of a property is based on a subjective view of a building’s quality that reflects its location, age, and level of rent. Class A (AKA luxury or lifestyle) buildings are typically new, with high-end finishes, in the most prestigious parts of town and therefore garner the highest rents. Class B properties will be older though renovated to modern standards and located in solid, safe areas. They are designed to appeal to a wider group of tenants. Class C properties will be older in vintage not recently renovated. These properties must charge below-market rents to attract tenants.
Every year, we attend a wide range of industry conferences and events around the country and meet with dozens of potential partners. Over time, we cultivate relationships with a handful of these operators and continue to evaluate them.
Our vetting process must be rigorous. We take time to assess each partner’s personal background, their investment track record and the quality of their investor communication. We will contact references and others within our network who can speak to the potential partner’s work ethic, transparency, and operational skills.
Whenever appropriate, we’ll also invest our own capital with a new partner to get to know them better and to see how they work with investors.