These days at BAM, my primary focus is on big-picture ideas, company strategy, acquisitions, and equity finance. We’ve built Barratt Asset Management into a best-in-class property management company, and recently...
A question potential investors often ask me has to do with return on investment. “How do I get paid back as a real estate investor?” Excellent question!
We have a setup where investors receive a preferred return and a split of the upside. What that means is the investor gets paid first after all property expenses are addressed. Investors typically receive a certain percentage on their original investment paid back. Depending on the deal, it might be quarterly or semi-annual distributions. It’s kind of like getting a dividend stock but getting much higher dividends than you would from a large blue chip company.
The other half of how an investor gets paid back is they get a split of the upside. It can be a 50/50 split, all the way up to a 90/10 split depending on the deal structure. What we commonly see is a 70/30 or 80/20 split, with the investor getting the lion’s share of that. We seek out deals where that preferred return and split equals a high teens rate-of-return back to the investor annualized over the entire period of the investment.
Sometimes an investor asks me if they can get their money back early. The short answer is yes, but the long answer is a little more complicated. Often, exiting early means taking a discount on their shares. Real estate investment is not like a stock, mutual fund or bond where there’s this large exchange market for buying and selling. Investing in workforce housing is very well aligned for long-term cash flow capital appreciation.
What I often tell the investor is this: If you think you might need the investment money back within ten years, workforce housing real estate is probably not the right investment for you at this time. My team is as transparent as we can with how we’re setting up these investments, and seriously consider what might and might not be suitable for all parties involved.View More Articles