Pooled Fund Real Estate Investments
A Pooled Fund is the combined funds of multiple investors which, when added together, create greater purchasing power (and thus more diverse and rewarding investment opportunities), through simple economy of scale. By pooling resources with other investors we are all able to achieve something greater than what we could achieve on our own.
I’m sure we’ve all heard the expression, “The rich keeping getting richer”. This is often because high net worth individuals and institutional investors pool their resources, and are able to invest in America’s best performing, most stable real estate assets. In fact, the wealthiest already own most of America’s “High Ground”, of large and expensive assets.
Few people in Portland, Oregon can afford to buy these kinds of investment properties.
As a result the prices of these buildings are relatively low, while their returns are relatively high, compared to similar, but smaller, investments, which local investors are able to compete for. This means this type of investment will yield higher returns without assuming higher risk.
The opposite happens with smaller real estate investment properties. Smaller investment properties generate greater competition, which drives up the price and reduces potential returns. Therefore, in order to make the most of investment funds, seize the best investment opportunities, and assume the least amount of risk, intelligent investors should adopt the same principles of the high net worth and institutional investors, and pool resources. This will enable you to invest in those well-positioned, quality buildings, which offer stable cash flow and high returns. By pooling resources with other investors you will be able to invest in the higher ground too.
Realty Yield’s Pooled Fund Investment Groups
Mike Carlson has been assembling small groups of investors for Pooled Funds, for years.
The group is comprised of a few other (typically 2 to 5) investors, with similar investment goals. As a group you will invest directly in a piece of real estate. Each member of the group will hold title to the real estate as a Tenant-In-Common. Realty Yield's Tenant-In-Common investment opportunities are not securities. They do qualify for 1031 exchanges.
These groups typically have a 5-8 year life span, with an initial 12 to 18 month period in which a property is fixed up, rents (income) raised (maximized), and operating expenses trimmed where possible. Next, there is a holding period, during which the property is managed for maximum cash flow, until each of the 4-engines that drive apartment investment returns reaches its peak level. At this point, the investment is producing the highest achievable rate of return to the Pooled Fund investors. It is at this point that the property is prepared for sale.
Mike Carlson is particularly well positioned to facilitate these pooled-fund investments for private investors. Mike has considerable experience working with owners as an asset manager, to strategically maximize returns and accelerate capital/equity growth at the highest possible rate.
Asset management is different than property management; this is a key point all real estate investors should clearly understand. Real estate investments should be proactively managed on an ongoing basis. Every real estate investment needs an operating plan tailored around the owner’s specific investment objectives. This plan should articulate specific strategies and tactics aimed at tracking and influencing the moving parts of your real estate investment. An effective operator must understand whether a property is stable, in transition, or in need of repositioning and have a plan that anticipates and responds to the unique opportunities and pitfalls associated with that particular opportunity.
Our knowledge of real estate economics and our proven process for applying that knowledge to specific real estate investments are the keys to our success.
Additional information about these Pooled Fund groups is listed below. Alternatively, you can contact Mike Carlson directly for more detailed information, or to schedule a time to meet in person.
The Tenant-In-Common entities are each named on the deed, as well as the Tenant-In-Common entities percentage of individual ownership. A signed agreement between Tenant-In-Common owners details respective rights and responsibilities.
One owner is designated the manager. This is an unpaid position, which can be passed among owners. This manager is responsible for contracting with a professional property management company, to handle the day-to-day operations, as decided and directed by the group. The managing member serves as the conduit through which information, news, and correspondence, can flow between the individual owners, the property management company, and Mike Carlson. The managing member is responsible for insuring all members receive their monthly income and expense reports from the management company. The managing member will typically visit the property at least twice each year and encourages all other members to join him or her.
Each year the managing member of the investment group revisits the management strategy, with both the property management company and Mike Carlson. After consultation with the group and reviewing reports, the property’s annual operating budget is discussed and prepared by the property management company.
In the event that one or more owners wants to buy or sell their percentage of ownership before the entire property is sold, the managing member works to insure the activities of the Tenants-In-Common conform to the procedures spelled out in the operating agreement.
The property management contract is typically for a period of one year and can usually be cancelled with 30 days notice. Contracts typically require the management company to get approval for all non-reoccurring expenses over $1,000.
Additionally, all services the owners, as a group, contract for, should have separate contracts, with payments based on specific services rendered. For example real estate commissions earned from buying and selling a specific piece of real estate, professional property management fees, legal and accounting fees and fees associated with refinancing of existing debt. The group may contract for specific products or services from an individual member of the group if that member is affiliated with a business that can offer value to the group. The contract needs to stand on its own merits and be open for review and separate from the ownership agreement.
Some of this may sound complicated but it’s not. The idea is that we’re all in this together. Realty Yield often partakes in the chosen investment. Each owner is paid a return that is directly correlated to their percentage ownership in the property. No owner will be paid a return in any way other than as a percentage of their ownership in the property.
Why do the investments last 5-8 years?
There are four engines that drive investment real estate returns; Cash flow, appreciation, mortgage pay down and tax benefits. The rate of return of all these combined is often called the Internal Rate of Return or IRR. Over time the tenants pay off your loan, rents go up and your building becomes worth more. Much of your new wealth, however, is in the building and can only be accessed by selling or refinancing. The rate of return on all your equity, your IRR, actually peaks somewhere around 5-7 years into an investment. Over time you build up what is often called dead equity or money that’s not working for you. To produce the highest returns while assuming the least risk, you have to turn over projects at least every ten years.
What is the minimum investment?
Typically, it takes at least $350,000 in investment capital to buy a large enough property to start seeing a higher rate of return and to realize some economies of scale. The minimum investment is really a function of how many partners you want. We’ve found that 2 to 5 are typically best. Most participating investors usually have at least $50,000 to invest. This is not a hard rule by any means and there are plenty of exceptions.