Forced appreciation is the increase in the value of an investment property due to an investor’s actions, in this case, making it more profitable. Contrast this with natural appreciation, sometimes called market appreciation, where uncontrollable (by the investor) market forces are at play.
A 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. A preferred position is first in line. If a project doesn’t make any money, chances are that you will not receive a return.
This accounting expense can seem almost magical, but as assets tend to wear out over time, we can account for that reduction in value, deducting the cost of an asset over its useful life. Contrary to popular belief, depreciation does not fully eliminate the need to pay taxes… But it can delay them substantially and there are great benefits along the way.
When you are analyzing real estate investments in which you might be passively investing, you should be using these data demographic hacks to learn about the neighborhood where that property is. Bad areas can make bad investments, BUT great demographic patterns increase the likelihood of success.
CoC stands for Cash-on-Cash Return, IRR means Internal Rate of Return, and AAR is Average Annual Return. They are all various measures of how profitable an investment might be, though have their own characteristics. Understanding returns, and the different metrics that are used, helps compare different investment opportunities.
Each class of multi-family real estate implies different levels of risk, reward, challenge and value. When reviewing syndication offerings, these are often referred to as class A, class B, class C and even class D. The characteristic classes help classify a property based on geographic area and physical condition.