How does a Real Estate Syndication generate Cash Flow?
One of the main benefits of investing in Real Estate syndications compared to other options, like the stock market, is the passive income it provides. Although stocks can provide dividend payments, these payments are traditionally smaller than a syndication would provide.
We understand that for individuals who are new to real estate investing this may seem too good to be true.
The key is to understand how a real estate syndication generates cash flow and, in turn, how it makes its way from the asset itself back to you. To explore this process, let’s start at the beginning.
The Day One – Vertically Integrated – REEP Difference
Upon closing, your real estate syndication journey begins. You are now invested in a property and how that business plan is executed will impact the performance of your investment. REEP (Real Estate Equity Partners) is right there with you, we are your partners in this process. REEP is vertically integrated and our property management team, REEP Management, is on-site taking charge of the property within minutes of closing. But well before this point, the management team was working behind the scenes from the beginning – working with the Equity team to build the business plan and to be ready to implement it from the moment we assume ownership.
Building towards Cash Flow Distributions
Once our management team is on-site, the fun really begins. Our teams begin implementing the business plan right away. Depending on the property and its unique needs, we will start making improvements. These changes can include a variety of things such as adding amenities, improving management, controlling costs, and making unit upgrades. These changes work together to improve the property.
Within a short period of time, the property begins to show increased income from these improvements. Depending on the complexity of the business plan, it can take up to six months for this process to start impacting the property’s bottom line. At this point, the increase in income is passed along to the investors in monthly or quarterly payments, depending on the property.
At REEP, we believe in continually working to improve the property throughout the time we have it. Once we have addressed a property’s immediate needs, we really dig in and expand our efforts, creating a community our tenants love to call home. Every property has income and expenses. However, by being vertically integrated we are truly in touch with our communities and their unique needs. This allows us to maximize our income by improving our occupancy levels.
Gross Potential Income vs. Net Rental Income
The main source of income in a multifamily investment is the tenants’ rent.
For example, if we purchased a 200-unit building with units renting for $1,000, our potential gross income would be $200,000 per month or $2,400,000 per year.
These numbers can be negatively impacted by unit vacancies but can also be improved by proper management. This is where the REEP team really shines. We know that these numbers can be directly impacted by our business plan and continually improved. Across our portfolio, we are engaged with our tenants and working to ensure they love our communities. Due to these efforts, we are consistently at nearly 100% occupancy, with renewal rates well above the industry average. Our team is also aggressively watching the market for any fluctuations in rental pricing so that we are proactively keeping pace with market rents. By raising rents, the potential property income is improved.
Controlling Operating Expenses and Adding Income Sources
Each property has a unique set of operating expenses. This is due to the size of the property, staff, and property features that impact the daily operation. These details are accounted for during our due diligence process.
Prior to closing, we have a plan in place on where we can cut costs and improve property management, but REEP does not stop there. We also look for ways we can add additional income beyond just tenant rents. Examples of these sources can include, but are not limited to, covered VIP Parking, Storage Rental, Increased Pet Fees, adding in unit Washer/Dryer, and Private Business Center rentals. By cutting costs and adding new sources of income, REEP improves the overall financial performance and health of the property.
How this impacts You
We know you have many options when it comes to investments. If passive income is an important consideration, then investing in real estate syndications might be a good option for you.
Is this passive income guaranteed? No, because like any investment we are only able to provide projected returns. However, our REEP team does everything we can to execute the business plan as presented. We do not hand off our properties to a third-party management team. Our vertically integrated teams take great pride in being a partner with you and our tenants through the entire process.
We hope this explanation of the process was helpful. But if you still have more questions, please let us know.
With each new opportunity, we will walk through what makes the property unique and our improvement strategy for how we will impact the bottom line. You will find this information through the property’s executive summary and in the webinar. These opportunities are announced exclusively to our Investor Network email list. If you are not sure if you are on this exclusive list, please email us and we can confirm your subscription.
If you are not ready to invest but would like to learn more, we have several options for you. Our knowledge center has many articles, a glossary, and a podcast library full of helpful information. If you would like to talk to our team, our Investor Relations Manager is here to speak with you by phone or email should you have any questions.
Thank you for reading our blog and for your continued relationship with us. We hope you found this informative and helpful.