The hard part is over! Now that you have signed the PPM and wired your funds, this is where the magic begins and your money begins to work for you.
Here is what you can expect as a limited partner (LP):
1. Regular updates and newsletters
Depending on the team, you will receive monthly or quarterly communications. The sponsorship team may share financials, occupancy updates, photos of renovations and details about how they are adding value to the property. Sometimes you’ll receive updates about on-site events, such as food trucks, ice cream socials or pool parties which are a great way to show appreciation to the tenants.
2. Distributions will start
Depending on the deal, you will typically start to receive your first distributions within a few months or up to a year. Be sure to ask prior to investing when you might expect distribution payments. If it’s a deeper value-add business plan, payment may not start until much later due to the property having higher economic vacancies for renovations. Returns for the first year are often lower than subsequent years; however, if your deal has a cumulative preferred return, you will see those returns made up once the property is stabilized.
3. Refinance Returns
Sometimes, you may experience a refinance on the around years 2-3 once the asset is fully stabilized. When this happens, some or all of your original investment is returned back to you; The coolest part is for some deals, you may retain equity in perpetuity and continue to cash flow even when your money isn’t in the property anymore. And once the property sells, you still get a share of the upside from the profits. Not all deals are like this, and some are structured differently so be sure to read the PPM and ask questions. This should all be spelled out in advance.