Frequently Asked Questions
How are deals typically structured?
You will be a limited liability owner of the property which comes with all the benefits like depreciation and cash flow, meaning the property is owned by a "Property LLC" for which that property is the only asset (reduces liability). You in turn will be a direct shareholder in this Property LLC so in essence you are part owner of the company that owns the property. This allows for a direct flow-through of cash flow, depreciation, and allows you upon sale of the asset to realize long term capital gains.
How safe are these investments?
Although multifamily properties are among the safest commercial real estate investments you can make, there is always a risk in any investment. To mitigate risk, our strategy is to buy apartments “below market” and hire the very best property management team available to increase income and reduce expenses. Since strategies are pretty straightforward, success is often determined by the competence of the team executing the plan. Our team manages the property manager, making sure execution is being performed as we intended.
How long am I committing to this investment?
The exit strategy for these investments is generally five years, although it may vary depending on the property and specific business plan being executed. During the holding period, quarterly or monthly payouts ("mailbox money") are sent to investors, as the project proceeds on-plan.
What if there is a downturn in the economy?
What is a preferred return?
Typically, 8% is what I see most. This favors the limited partner. It essentially means that the first 8% return on an investment (distributions from cash flow or capital events such as refi proceeds or sale) will go entirely to the limited partner, nothing to the general partners. This is not a guarantee but the next best thing.
What is a "syndication" and what does it mean to be a passive investor?
What is an "accredited investor?"
What happens to the money when I fund an investment?
Funds can be wired directly into the subscription account of the fund, or sent by check. The funds are typically held in an escrow account in the name of the LLC until the closing of the property. Madison Investing, LLC never takes possesion of your funds.
What is a K-1?
Similar to a 1099, a K-1 form is an accounting of the tax income for the year. Each investor receives one per investment. K-1 forms are most commonly used in partnerships and in real estate ownership.
Am I able to cash out of my investment at any time?
No. By their nature, real estate investments have a longer term time horizon than that of liquid stocks or bonds.
What is a split and a waterfall?
The split is investment returns that go to the investors in the portion of the split. So, if the split is 70% to the limited partner and 30% to the general partner, after the preferred return is paid (if there is one), then the partners split all other proceeds from distributions or capital events 70/30. That split can change if a certain hurdle (or waterfall) is achieved. Example: A split could be 70/30 then go to 50/50 once the IRR hits say 18%. Any returns higher than 18%, will then be split 50/50 LP/GP. That is a waterfall.
How long should I plan to have my money invested?
What returns should I expect on my investment?
While exact percentages will vary from one investment to the next, you will receive the same TYPES of returns across the board. Cash on cash returns are paid out throughout the lifecycle of each investment. You will also receive a portion of the profits from the sale of the asset at the end of the project.