Real Estate Investments
Frequently Asked Questions
We believe that informed investors are our best investors and that informed investors provide strategic value, not just capital. That is why we remain committed to giving investors the tools they need to learn how to properly evaluate real estate investments and opportunities while helping them reach their financial goals. We have built this website to not only providing you with opportunities that help you safely grow your wealth but to empower you through constant educational content.
Rental property investing is an investment strategy for investors who want an additional source of monthly income along with a slow but steady appreciation in the value of their portfolio. When it comes to residential real estate, there are two main types of properties that one can invest in: single-family and multi-family.
As the name implies, single-family properties are residential buildings with only one available unit to rent, while multi-family properties, commonly known as apartment complexes, are buildings with more than one rentable space. While single-family investing poses fewer barriers to entry, there are a multitude of advantages when investing in large residential complexes.
Here are three reasons to consider investing in multi-family real estate as opposed to single-unit rental properties.
- Multi-family is more expensive but a lot easier to finance. It might seem that securing a single-family a loan would be a lot easier than raising money for a million-dollar asset but the reality is that a multi-family loan is more likely to get approved than a non-owner-occupied home.
- Multi-family real estate consistently generates strong cash flow every month. This remains the case even if a property has a handful of vacancies or tenants who are late with their rent. By contrast, if a single-family tenant moves out of a home or if the tenant is late with rent, the owner is stuck making the mortgage payment.
- Consequently, the likelihood of a foreclosure on an apartment building is not as high as a single-family rental. All of this equates to a less risky investment for a lending institution and can also result in a more competitive interest rate for the property owner.
- Growing a portfolio takes less time. Multi-family real estate is very suitable for property investors who wish to build a relatively large portfolio of rental units. Acquiring a 20 unit apartment building is a lot easier and much more time-efficient than purchasing 20 different single-family homes.
- Multi-Family Investing Makes Better Financial Sense. Many investors who own single-family homes do not have the luxury of contracting an external manager because it is not financially feasible due to their small portfolio. The amount of money that multi-family properties produce each month allows their owners room to hire property management services without significantly cutting into their margins.
- Tax benefits including depreciation and cost segregation,
- Equity build-up through having someone else paying down the note and
- Significantly better cash-flow. Real estate is a tangible asset, and they aren’t making any more land.
In total, real estate investing fits the five must have for any investment: need, entry, control, scale, and time.
Real Estate Private Equity (REPE) firms raise capital from outside investors, called Limited Partners (LP’s) and then use this capital to acquire, develop, operate, and improve properties which are eventually sold to realize a return on investment. These outside investors or LP’s might include pension funds, endowments, insurance firms, family offices, fund of funds and high-net-worth individuals. REPE firms usually focus on commercial real estate – offices, industrial, retail, multi-family, and specialized properties like hotels – rather than residential real estate.
In its simplest form, a syndication is a pooling of investor capital – the Limited Partners (LP) – to take advantage of economies of scale when purchasing a large commercial asset. Syndications are an effective way for investors to combine resources with an experienced sponsor – the General Partner (GP) – to purchase properties that are much bigger than they could afford or manage on their own.
Private equity real estate is typically capitalized via a Joint Venture (JV) between a General Partner (GP) and a Limited Partner (LP). The two parties can be defined as follows:
- The LP Investor is typically an individual or group that would like to invest directly in real estate but lacks the expertise or infrastructure to do so. The LP investor is the “money partner” and in many structures contributes 90% of the required equity in a project.
- The GP Investor is a Developer/Sponsor that has the required expertise and infrastructure to invest directly in real estate, but generally lacks the sufficient capital to do more than one deal. The GP typically contributes the remaining 10% of the equity needed to fund a project, but also takes on the day-to-day management of the asset.
Ultimately, the structure is a matter of convenience. Neither partner has what the other does. Indeed, the LP either has equity or can easily raise it and the GP has the skills to execute the business plan. Simply, the LP investor is passive equity while the GP Investor is doing the heavy lifting to earn their share of the deal. This lift typically includes:
- Deal sourcing / underwriting
- Negotiating deals
- Establishing relationships with brokers / sellers
- Conduct due diligence and negotiate a purchase & sale agreement
- Secure financing
- Act as the guarantor of debt (typically personally with some degree of recourse)
- Act as the property manager (leasing, maintenance, etc).
- Conduct regular assets management (e.g. tracking property performance, etc)
- Execute the business plan (e.g. value-add redevelopment)
- Focus on delivering superior investment returns.
With the GP doing “all” of the work to improve/manage the investment property, it is reasonable to expect the GP to earn a disproportionate rate of return than their pro-rata equity contribution would calculate. Remember, a GP is putting in just 10% of the required equity – so why would they do all the work if they don’t stand to benefit? What’s more, the LP wants the GP to remain focused on creating value – keeping costs down, growing revenues, etc.
The disproportionate share of returns is typically calculated using an Equity Waterfall, which may be as simple as a cash flow split above a certain preferred rate of return, or as complex as several IRR hurdle rates. We typically prefer a simple split of 80/20 above the preferred rate of return.
The split defines the investment returns that go to the investors after the Preferred Return (typically 8%-10%) is first paid. Also known as a Waterfall, splits are generally structured according to uniform standards practiced in the industry.
The split structure is intended to create a hurdle rate which is a percentage of the invested amount that LPs must receive before performance fees can be received by the general partner. Performance fees motivate the private equity firms to generate superior realized returns and are intended to align the interests of the General Partner and its LPs.
A preferred return – often referred to as a ‘Pref’ – is a sophisticated strategy to protect capital and incentivize general partners to produce a quality investment. Sometimes called an investment hurdle or first money out, a preferred return is a way to protect the capital of limited partners by letting them get paid first. The pref is a distribution from cash flow or capital events such as refi proceeds or a sale that are given to preferred investors in a project. The preferred investors will be the first to receive returns up to a certain percentage, generally 8% to 10% and once this percentage is reached, the excess profits are split among the rest of the investors as agreed upon in negotiations.
Purchased, financed, and managed correctly, your risk exposure is greatly limited. In most investments, risk exposure is less than equity and bond markets. SGRE takes significant steps to mitigate risk in our projects. Even then, when something unexpected happens, we let you know immediately and work closely with our team to resolve the issues as quickly as possible.
Although multifamily properties are among the safest commercial real estate investments available, there is always risk in any investment. To mitigate risk, we purchase our assets “below market” and use our own property management team to increase income and reduce expenses. Since strategies are straightforward, success is often determined by the competence of the team executing the plan. Our in-house team of over 100 members manages every property we purchase, making sure costs are contained and execution is performed as we intend.
Since the goal of real estate investing is to realize a profit, no one is motivated to sell in a down market. Our strategy in this scenario is to continue to pay our investors a preferred return and hold on until the market is healthier to achieve a better sale price. Since we only invest in Class B/C value-add properties, our opportunities tend to hold their value in downturns as our workforce demographic profile is always in need of a place to live. Our investment thesis is that down markets, renters move from A Class to B Class and B Class to Class. As a result, the entire available renter pool is fleeing our way and our properties remain fully leased. This thesis has held true throughout the pandemic – arguably the worst economic event of the last 150 years.
Absolutely but that is why it is so rewarding! Investing with an experienced team like SGRE is a LOT easier, safer and financially more profitable!
Absolutely. You will be a partial owner of a tangible asset with a street address. You can drive up to and see the property. As a Limited Partner, you will receive the benefits of owning real estate including shared cashflow, tax advantages, and appreciation.
The cap rate is a ratio of the annual net operating income (NOl), which is simply gross rents received less expenses, and the current market value. The cap rate is based on factors such as type of property, macro influences (market location) and micro (based on submarket and asset condition). Once the NOI and cap rate multiple of a specific area and asset class is known, then it is simple exercise to estimate the value of an asset.
All commercial real estate valuation is based on NOI. As such, properties with higher NOI are more valuable than equivalent properties with lower income. Value-add investing seeks to capitalize on this concept by uncovering untapped revenue potential and creating additional cash flow through property upgrades and renovations and then locking in gains by selling the property at a pre-determined point in the future. This is a classic ‘Upgrade and Trade’ strategy.
Cost Segregation is a commonly used strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure. A Cost Segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation study is to identify all property-related costs that can be depreciated over 5, 7 and 15 years. For example, certain electrical outlets that are dedicated to equipment such as appliances or computers should be depreciated over 5 years.
Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, rather than write them off over the “useful life” of that asset. Bonus depreciation is also known as the additional first year depreciation deduction. The Tax Cuts and Jobs Act, passed in 2017, made major changes to the rules on bonus depreciation. Most significantly, it doubled the bonus depreciation deduction for qualified property, as defined by the IRS, from 50% to 100%. Formerly it applied only to property bought new but the 2017 law also extended the bonus to cover used property under certain conditions. The new bonus depreciation rules apply to property acquired and placed in service after September 27, 2017, and before January 1, 2023, at which time the provision expires unless Congress renews it.
SGRE Investments is an experienced private real estate equity firm that sponsors syndicated multi-family investments assets primarily in the Houston metro area. SGRE Investments mission is to help investors learn about the commercial real estate investing and how this unique asset class can help them reach financial freedom and create generational wealth. Our goals are to help our clients achieve and invest with confidence to improve communities by giving tenants a safe, great place to live.
We make it easy for investors to participate in our carefully vetted investment opportunities in markets that are experiencing strong economic growth. We utilize a disciplined approach to real estate investing within a strictly analytical framework for acquiring and improving the financial performance of our opportunities resulting in strong returns to our investors. Our track record with this investment model developed through years of experience ensures we have know-how and deal-flow to provide our investors with some of the best risk-adjusted returns of any available asset class.
We are committed to giving you the tools you need to learn about real estate investment while providing opportunities that help you reach financial freedom and create generational wealth. Our value-add strategy starts by locating properties through our network of broker and seller relationships that allow us to acquire assets in off-market transactions at below retail cost with in-place cash flow that is well below comparable assets in the marketplace. We then implement our proven strategy of increasing cash flow through targeted improvements, correcting deferred maintenance, improving management, raising rents, and decreasing vacancy. All of these strategies combined create a favorable risk-return profile our investors find compelling.
Yes. While most sponsors use third party managers and contractors, SGRE along with its partners utilizes a vertically integrated business model that places our our own asset management and construction teams. Utilizing our own management and construction teams, we keep our labor rates and material costs low and pass these savings along to our investors. Our vertical integration model creates a cost savings that allows us to pay an additional 5%-6% in IRR compared to other deal sponsors.
Actual returns vary on a property-by-property basis, but our typical offering pays annual dividends of 8-10% (2%-2.5% quarterly), annual IRR is 18%-20% with an equity multiple of 2X over the life of the deal (typically 5 years). We typically return a large part of investor principle at a refinance event at month 24 and at the sale of the asset. See the private placement memorandum (PPM) for specific investment risks for each offering.
We are not a broker-dealer but a private equity real estate firm that creates unique investment opportunities that yield favorable risk-adjusted returns for investors. Broker-dealers sell securities for a commission and/or equity interest in the deal.
We are not a Blind Pool Fund, REIT or a Stock Market Derivative.
Yes, we invest alongside our clients in every deal to make sure we have our own skin in the game. We operate on a core value of treating investors’ money as if it were our own.
Fees are outlined in the Offering Memorandum (OM) in the ‘Sources and Uses’ table and in the Private Placement Memorandum (PPM). Fees vary from deal to deal but the most common fees are Closing Costs, an Acquisition fee, a lender Origination fee, Real Estate and Mortgage Broker fees, Due Diligence costs, an Interest Rate Cap fee, Interest Reserves, Capital Improvement costs, and working capital required to fund and run the deal as we perform our value-add exercise.
We go to great lengths to ensure the security and privacy of all of our investors and our data and use SSL. SSL (Secure Sockets Layer) is the standard security technology for establishing an encrypted link between a web server and a browser.
Only approved and accredited investors or sophisticated investors can take part our commercial real estate opportunities. We have strict standards on who invests along with us, the SEC does too. We need to get to know each other and ensure our values and goals align.
Keep in mind that the financial income is not the only factor that determines whether you are eligible for investing with. Commercial real estate investing might not be the best route for every investor. That is why we need to have a conversation and cover a few basic points before we can move further.
The SEC defines an Accredited Investor by one of two thresholds: either $200,000 or more of annual income as a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year OR a net worth individually or with the person’s spouse that exceeds $1 million at the time of the purchase, excluding the value of the primary residence. For a detailed explanation please Click Here for information directly from the Securities and Exchange Commission (SEC).
No, you do not need to be Accredited to invest with us. We often have deals that allow you to participate as a Sophisticated Investor if you have previous experience in similar investments. Consult your tax advisor to determine if you qualify for these investments and approve your participation.
You will be a Limited Partner (LP) of the property which affords you benefits like depreciation and cash flow, meaning the property is owned by a “Property LLC” for which that property is the only asset (reduces liability). You in turn will be a direct shareholder in this Property LLC so in essence you are part owner of the company that owns the property. This allows for a direct flow-through of cash flow, depreciation, and allows you upon sale of the asset to realize long term capital gains.
Prospective investors will receive a DocuSign document containing a Private Placement Memorandum (PPM), the Company Agreement, a Property Description, a summary of the loan terms, a Subscription Agreement, and a Purchaser Questionnaire to determine Accredited Investor status. Potential Investors will review the these offering documents and if they decide to invest, will electronically complete the signature pages in this DocuSign. Once completed, the document will automatically be emailed to the deal sponsors.
If an investment target is not met, you will receive 100% of your investment deposit back.
Apartment syndications are very tax efficient and as a Limited Partner, you will benefit from your portion of the investment’s deductions for property taxes, loan interest, and depreciation. We use a cost segregation strategy to accelerate depreciation and a portion of this tax loss is issued to each investor based on their level of participation in the deal. This loss can be used to offset other income depending upon your individual tax situation. At the time of sale, the partnership gains are treated as long-term capital gains. We strongly urge you to consult your tax consultant before investing.
As an investor, you become a fractional owner of the deal and receive a proportional share of tax benefits that are passed through in a year-end tax document called a Schedule K-1. K-1’s are commonly used in partnerships and real estate ownership.Like a 1099, a K-1 is an accounting of the deal’s income and expenses for the previous. Each investor receives one K-1 per investment.
No. By their nature, real estate investments have a longer-term time horizon than stocks or bonds. As such, we advise investors that these offerings are highly illiquid and that you should expect to hold these securities until they grow.
You are investing in a specific real estate project which may provide an opportunity to receive a portion of your capital back prior to the sale of property, typically through a refinance of the property. You can however invest more in the same property if the raise is not yet complete or invest in subsequent opportunities
No, you do not need to live in the state where the investment property is located.
The Sponsors are responsible for the preparation and filing of all tax documents for the entity holding title to the investment property. We will provide to you all related financial information and documentation in order to prepare your personal taxes.
Our typical investment term is five years. However, there are circumstances that may accelerate or delay our business plan which alter the term. For instance, we could be approached by a buyer with an unsolicited offer that allows us to meet our business objectives early. Or market conditions may not favor the asset sale at the end of the hold period causing to delay until market conditions change. Original timelines will be adhered to as much as is possible to protect our investors, but market realities can affect the term so investors should trust that the management team will make decisions that maximize investor returns.
Yes, investment minimums are generally $25,000 however we reserve the right to alter this amount. Maximum varies with each opportunity is only limited by SEC guidelines for that particular investment. We also reserve the right to limit the investment to amounts based on the specifics of each deal. Each share price is $1. To the extent that demand exceeds capacity, allocation preference will be given on a combination of first come first served, repeat investors and to those who invest greater amounts.
Once you decide to invest, you will receive a Private Placement Memorandum and Subscription Agreement. Thes documents will contain transfer instructions that allow you to electronically deposit your funds or you can send us a check for the amount of your subscription. The investment amount will be deposited into an escrow account in the name of the LLC created specifically for the deal. Once the closing is complete, SGRE you will receive a closing notification via email and the executed transaction documents
After registration users can immediately view investment opportunities and subscribe to invest.
One of the advantages of multifamily investing is that it allows for funding versatility. Investors can participate through trusts, cash investments, self-directed IRAs, and 1031 exchanges among other options.
Yes, but overseas accounts will only be considered on a case-by-case basis.
Yes, self-directed IRAs (SDIRA’s) may participate in a SGRE Investment, but these types of funds require custodian involvement and approval before the investment can be completed. This process creates delay and involves a process that extends the length of time it takes to fund the investment. A self-directed retirement account does, however, allow you to direct your retirement funds into real estate transactions while benefiting from the tax shelter of your plan. You can also use your existing IRA or 401k but you must first transfer these traditional retirement accounts into a self-directed IRA.
Self-directed IRA’s open up a new world of investments, and can not only improve your returns but provide you with wealth-building equity. Consult your tax or retirement specialist for more details.
Limited Partners are free from any other obligation. The General Partners, obtain the debt and are responsible for the execution of the business plan.
Click INVEST WITH SGRE and fill out the accreditation form on our website. Once received, your investment manager will follow up to approve your application and provide you access to our current opportunities where you can view our offerings and invest!
There are 4 simple steps to investing:
Browse and Conduct Due Diligence. Review the offering materials, including the real estate investment presentation and investment documents.
Commit. If you see a deal you like and want to make an investment, you can move to a secure a spot in the investment by clicking on the “Invest Now” button then simply fill in the amount and other investment information.
Send in Funds. Fund the investment and receive proceeds by wire transfer or send in a check.
Benefit. Sit back, relax, and receive quarterly dividends by direct deposit to your bank account.
We will provide you with a quarterly report through your investor portal that updates you on the investment’s operations, management, collections history, financial performance, balance sheet, key performance indicators, renovation progress, and current and cumulative distributions. Investors also will find tax forms and K-1 statements posted in the portal. Tax forms are posted in March of each year for your tax filing.
We provide cash distributions in the form of a Preferred Return (‘Pref’) on a QUARTERLY basis. They are typically released 30-days following the end of a three-month business cycle as cashflow allows. A Pref pays cashflow distributions to Limited Partners FIRST and the to the General Partners. GP’s will not receive any distributions until increased cashflow is available.
Investor distributions vary from deal to deal but typically occur on two occasions: 1) quarterly distributions and 2) when the property is sold or refinanced. We make every effort to pay these quarterly distributions but is important to note that Investor distributions accrue. If we are ever unable to make a distribution due to unanticipated economic circumstances, we have provisions in our PPM that allow us to catch-up with any distributions owed.
Distributions are transferred directly into the same bank account that was initially used by the investor for the making to contribution of principal. Please review the expected distributions for each investment before making an investment. Please note that while we make every effort to pay distributions, they are not guaranteed every quarter. Again, any shortfall in the distributions will be paid at the refinance or sale of the property.
No. We will attempt to accommodate as many investors as possible. However, if demand exceeds supply, SGRE will equitably adjudicate shares allocation within the investment. While it does not happen often, SGRE accepts or rejects subscriptions at their discretion.