Month: March 2022

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Forced Appreciation – How It Works and Why We Like It

Before discussing the topic of forced appreciation, I feel that I need to give you some context. Real property appreciates or depreciates in value due to different market forces on the different types of property. In other words, each type of property has its own set of rules. Where single-family homes rely on comps (external forces) to determine value, commercial real estate is valued by the underlying business (internal forces) or income stream of the property. Withing the broad category of commercial real estate is multifamily property, which is defined as a property having 5 or more rental units (doors).

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Preferred Return vs. Non-Preferred Return – Which One Should You Pick?

What’s a Preferred Return?

The term preferred return is a return that puts you, an investor, in a preferred position when it comes to profit distribution of a project’s cash flow. Money goes to you first when there is a distribution, and until the hurdle of the preferred return is totally met, the syndicator gets nothing. If a project doesn’t make any money, chances are that you will not receive a return. A preferred position is first in line. This preference offers a bit of comfort to investors because it subordinates the sponsor’s profits (sometimes called the ‘promote’) to yours. The profits can come from the operation of a project (rents) and even from the sale or refinance of the property.

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