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 this video where we cover a property currently in Wall to Main’s portfolio that we own and operate with our partners.
Invest with us to see your own returns in action as a Main Street Investor.
PUT YOUR MONEY TO WORK HARDER FOR YOU, NOT WALL STREET
1. Start learning
Eliminate the confusion. Quickly learn how to passively invest with your existing retirement account.
2. Create a self-directed IRA account
Work with our preferred partners to open a self-directed retirement account.
Join the Main Street Investors (it’s free!), a group of people just like you, building a better future by investing in America’s Main Street.
READY TO BUILD A BETTER FUTURE WITH RETIREMENT-ALIGNED INVESTMENTS?
Leverage the power of investing with others to enjoy the cash flow, appreciation, and tax benefits that real estate is known for while freeing up your time and energy.