Here’s what you can expect as a passive investor after closing a multifamily investment.

I wanted to talk briefly today about what happens after closing on multifamily property. So if you’re the sponsor or you’re the person running the deal after you close, you’ve got to execute the business plan. This may be things like reducing expenses, improving the looks of the property, increasing income, renovating units, raising rents, changing the tenant profile.

There’s lots and lots of things we do as sponsors of a deal to go in and improve the property. That’s the name of the game is to improve our net operating income so we can improve the value of the property and get those returns for our investors, which is the whole name of the game. This entire thing is investor return driven.

As a passive investor in a deal, let’s say you put 50 or 100K or more into a sponsor’s deal, what happens for you after the deal actually closes? Well, you’ve evaluated the investment, you’ve vetted the sponsor. Maybe it was a referral or you’ve had your CPA look at the investment summary, all the things you need to do for due diligence on your side before you invest. Then you wire the funds, the deal gets closed. Then what happens?

Well, typically what happens with our company and with a lot of other sponsors is starting after the close, you’re going to get monthly email updates. These could be updates on the operations of the property, things like occupancy, things like how the renovation’s coming along, maybe pictures of the progress of the renovation, and then the big thing that we all care about is those quarterly distribution checks.

Typically a sponsor on a multifamily project is going to send out quarterly distributions and financials. So we’re doing fractional multifamily ownership here, meaning that all the limited partners own a piece of the deal. And as such, you’re going to have access to all the financials. Really, anything that you want to know about how the business is running, you have 100% access to.

So you’re going to get monthly emails from your sponsor most likely. That’s how we do it, anyway, and you’re going to get quarterly distribution checks and financials. Now, depending on the deal, the sponsor may withhold those distribution checks for the first quarter or first few quarters. If it’s a massive value add, a big turnaround project, they may not have distributions projected the first quarter or longer. In fact, we’re doing a deal right now where we told the investors, “No distribution checks. We’re going to go in, flip this property, have a big payout at the back end. It doesn’t make sense with all the value add that we’re doing to do quarterly distributions.” And all the investors understood that and they’re okay with that.

There’s other projects that we do that we say, “Starting the first quarter, you’re going to start getting the distribution check.” So that will be in the investment summary, all part of your criteria as you evaluate the deal.

And then from there on out, we call it mailbox money. It’s the reason to be a passive investor in multifamily, because typically you’re getting a return every quarter, but then at some point the property’s getting refinanced or the property’s getting sold, and you see your return of equity, and then you’re going to see a big pop on the back end, and usually that’s how these deals are structured.

So that’s what you can expect as a passive investor, a limited partner, is monthly email updates and quarterly checks. A friend of mine said, “The best way to communicate with investors is with a check.” I think that’s a great takeaway, and I agree. As a passive investor in my deals, I don’t really want to be bothered a whole lot. I want to let the sponsor run it and I want to just get my money in the mailbox, and that keeps me happy and that’s how we like to keep our investors happy.

So that’s what happens after the deal closes. And one of the nice things that we like about investing in multifamily as a passive investor is you’re not only getting a return, but you’re also an equity participant. So as the value of that property is improved, there’s more than just the annualized return that you’re getting. You’re also getting equity in the property, which is one of the reasons to do this in the first place.