Projected Returns of a Commercial Real Estate Syndication

Having your money sitting in a checking or low-interest savings account could mean that it’s actively witling away. With inflation at near record highs, you don’t just want your money to work for you, you need it to work for you.

Those who have built their careers in medical professions have worked hard. You want to make sure that your money works just as hard to build the lifestyle you’ve always dreamt of. That’s where real estate investing comes into play, but being an active investor isn’t always the best route. Passive investing through syndications is a great real estate investment outlet that allows medical professionals to invest without the hassle of day-to-day management.

But the number one question Rx Real Estate Investmentgets is: “What kind of returns do syndications typically provide?

Investors want to know how their money is being used, and how much they will earn in terms of cash flow and at the end of the hold period. As you research syndications and the various projects they’re involved in, you’ll notice that most groups advertise the projected returns that are tied to each investment.

What you need to remember is that these aren’t guaranteed returns, but projected returns. Our company performs a careful market analysis and a detailed underwriting of each property weadd toour portfolio. We are typically very conservative in our underwriting. But do you know what that means? Sometimes the actual returns are even higher than our projections.

To properly evaluate a syndication offering, there are fourmain types of returns that every Investor should consider:

  • Projected Cash-on-Cash (CoC) Returns

Cash-on-cash return is the metric used to communicate yearly returns after costs. Costs include debt servicing, operating expenses, renovations or upgrades, vacancy costs, and more. After these expenses are paid, the remaining money is distributed to investors.

For example, a 6% cash-on-cash return means that an investor who’s invested $100,000 is receiving $6,000, or $500 a month, paid out to them.

  • Projected Internal Rate of Return (IRR)

The IRR is a metric that you can use to analyse the time value of your investment. For general understanding, the higher the IRR, the more profitable the investment. It represents the annual rate of growth that a property has, similar to a compound annual growth rate. In real life application, a property won’t have the same rate of growth year after year, however from a projectionstandpoint we use an estimated average IRR to help with potential investors’ decision making.

  • Projected Equity Multiple

The term, “Equity Multiple,” might sound complicated, but it’s the simplest metric to understand. This figure represents the amount your capital will multiply over the course of the investment. If the equity multiple is higher than 1.0x, you are receiving more money back than your initial investment. If a projected equity multiple is 2.0x, then you can expect to receive double your initial investment over the course of the investment.

  • Preferred Return

The Preferred Return is often overlooked but can be a considerable comfort to investors. A preferred return is the minimum an investor will receive before the syndicator or investment manager can earn a fee. It’s our promise to investors that they can have confidence in our assets. We don’t make money if you don’t.

Our company is motivated to deliver above-market returns to passive investors with each investment opportunity. We strongly encourage each investor to educate themselves on how syndications function and how they calculate their returns. Want more information on syndications and our new investment opportunities? Contact us now or sign up to our investor portal if you’re ready to start your i

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