Informative Center

Frequently Asked Questions

We understand that many of you probably have questions about how we operate. These frequently asked questions should assist your understanding:

Absolutely! We welcome both Sophisticated and Accredited Investors to explore investment opportunities with us. We encourage you to arrange a discussion with our investment specialists to gain deeper insights into our forthcoming projects and understand the minimum investment requirements.

Initiate your investment journey by joining our investor network or contacting us through the Contact Us page (link). Please be prepared to share some basic information about yourself to pave the way for a productive member of the CEP team.

A variety of account types are suitable for investment with us. These include personal investment accounts, joint accounts, specific types of entity accounts, and self-directed IRAs. Each of these accounts offers a different approach to funding your investment, catering to your individual financial needs and circumstances.

Yes, investing through retirement accounts like a self-directed IRA or a solo 401(k) is entirely feasible. However, it’s important to consult with your IRA custodian first to ensure they permit such investments.

For any assistance or guidance, feel free to reach out through the Contact Us page (Contact Us link). Additionally, if you require support in transferring your IRA, we are here to recommend trusted custodians to facilitate the process.

The funds from investors are crucial for acquiring and enhancing properties. These investments cover a range of expenses, including but not limited to the purchase price, acquisition fees, legal and transaction costs, capital improvement projects, insurance, and reserves for unexpected expenses.
The frequency and amount of distributions you can expect will vary depending on the specific property. While distributions are typically made quarterly, certain properties may offer monthly payments. Each property’s anticipated distribution schedule is detailed during the introductory webinar for every investment.
Upon completing your subscription documents, you will be asked to provide your bank details for Automated Clearing House (ACH) transfers. Distributions are then electronically transferred to the account specified in these documents, ensuring a seamless and secure process for receiving your returns.
The minimum amount required for investment can differ based on the specific opportunity. For some investment options, the minimum threshold is set at $50,000. However, this amount can vary, and we encourage prospective investors to review the details of each opportunity for specific minimum investment requirements.

Our approach to protecting your investments involves taking on the role of the principal decision-maker. We oversee and manage the operational aspects of the investment, ensuring that your interests are consistently prioritized. Your investment is securely held within a Single Purpose Limited Liability Company (LLC). As an investor, you hold Member Interests in this LLC, providing a structured and secure way to manage your investment.

Glossary of Terms Used In Multi-Family Investing

1031 Exchange: This tax strategy allows investors to defer capital gains taxes by reinvesting the proceeds from a property sale into a new investment property.

Rule 506(b): An exemption under the Securities Act’s Regulation D, allowing companies to offer investment opportunities to both accredited and a limited number of non-accredited investors, without public advertisement.

Rule 506(c): This rule permits general advertising of offerings to accredited investors, with the condition of verifying their accredited status under Regulation D requirements.

Abatement: Typically refers to a reduction in taxes or rent, signifying a decrease in the amount or intensity.

Absorption Rate: Measures the rate at which available properties in a specific area are sold or rented, often expressed as a percentage.

Accredited Investor: An individual qualifies as an accredited investor with an annual income of $200,000 (or $300,000 jointly) for the past two years, or a net worth exceeding $1 million, individually or with a spouse.

Acquisition Fee: A fee paid upfront to the general partner for services related to finding, analyzing, and closing an investment. The fee varies based on the deal’s size.

Ad Valorem Tax: A transaction-based tax imposed based on the transaction’s value.

Annual Percentage Rate (APR): Reflects the total cost of borrowing, including interest rates, loan points, and other lender fees.

Apartment Syndication: A partnership model for acquiring and managing apartment communities, sharing profits among general and limited partners.

Appreciation: The increase in an asset’s value over time, occurring naturally or through strategic enhancements to increase net operating income.

Asset Management Fee: An annual fee paid to the general partner for overseeing property management.

Average Annual Effective Rent: The total effective rent divided by the lease term, representing the average rent paid by a tenant annually.

Bad Debt: Money owed by a tenant that remains unpaid after vacating the property.

Balance: The remaining amount in an account or the remaining loan amount after payments.

Base Rent: The minimum rent set in a lease agreement.

Base Year: Refers to the initial year’s expenses and taxes used as a benchmark for

Breakeven Occupancy: The occupancy rate needed to cover all operating expenses and debt service of a property.

Bridge Loan: Short-term financing used until permanent funding is secured, typically with higher interest rates.

Broker: A real estate agent facilitating commercial property transactions.

Building Classifications: Categories like Class A, B, C, D, rating buildings based on age, location, amenities, and construction quality.

Cap Rate: A ratio used to estimate property value based on net operating income.

Capital Expenditures (CapEx): Funds allocated for significant property improvements and maintenance spread over the asset’s life.

Capital Gain: The profit from a property sale, calculated after deducting expenses and the adjusted basis of the sold property.

Capitalization: A method to determine real property value using net operating income and a predetermined return rate.

Carrying Charges: Costs associated with property ownership, excluding interest, like taxes, insurance, and maintenance.

Cash Flow: Revenue remaining after paying all operating expenses and debt service.

Cash-On-Cash Return: The rate at which cash returns in relation to the initial investment, calculated as a percentage.

CBD (Central Business District): The primary commercial and business center of a city.

Certificate of Insurance: A document issued to verify an active insurance policy for specified amounts and coverages.

Closing Costs: Additional expenses incurred in completing a real estate transaction.

Commencement Date: The date when a lease becomes effective.

Common Area: Shared spaces in a building, like lobbies and parking lots.

Concessions: Incentives offered to tenants to encourage lease agreements.

Consumer Price Index (CPI): An economic indicator measuring inflation, affecting rental rate adjustments.

Debt Service: Regular payments to cover a loan’s interest and principal.

Debt Service Coverage Ratio (DSCR): Measures the income available to cover debt obligations.

Depreciation: Allocating an asset’s cost over its useful life for taxation purposes.

Distributions: Profit sharing from property cash flow, refinancing, or sale to limited partners.

Earnest Money: An advance indicating a buyer’s commitment to a property purchase.

Effective Gross Income (EGI): Total income from a property, accounting for vacancies and other income losses.

Effective Rent: This is the real rental rate a landlord earns after accounting for any concessions from the standard rent, averaged over the lease duration.

Employee Unit: Refers to a housing unit offered to employees at a reduced rental rate.

Encumbrance: Any legal right or interest in a property that may affect its value, such as mortgages, tax liens, easements, or restrictions.

Equity Investment: The initial capital used to purchase a multifamily property, encompassing down payment, closing costs, and related fees.

Equity Multiple (EM): Represents the return rate on an investment, calculated by summing the total net profit and gross cash flow, then dividing by the equity investment.

Escalation Clause: A lease term that stipulates periodic rent increases.

Exit Strategy: The planned method for exiting an investment, typically through selling or refinancing the property.

Fair Market Value: The likely sale price of a property under normal conditions, assuming a willing buyer and seller, with neither under undue pressure.

Financing Fees: Charges levied by lenders at the start of a loan, also known as finance charges.

Fixed Costs: Expenses that remain constant over time, like loan payments, that do not fluctuate with the level of business activity.

General Partner (GP): A member in a partnership who has unlimited personal liability and takes part in managing the business.

Gross Potential Income (GPI): The maximum possible income from a multifamily property, assuming full occupancy and no payment issues, based on the average market rent.

Gross Rent Multiplier (GRM): A metric that compares the price of a real estate investment to its annual rental income before expenses. A lower GRM indicates a potentially more lucrative investment.

Improvements: Enhancements made to a property, either internally or externally, to boost its appeal and value. Examples include landscaping, new fixtures, or building additions.

Indirect Costs: Expenses related to development that do not include direct material and labor costs, also known as soft costs.

Interest Rate: The proportion of a loan charged as interest, dependent on the principal amount, the rate itself, frequency of compounding, and duration of the loan.

Interest-Only Loan: A loan structure where only interest payments are made for a set period, with the principal amount remaining unchanged.

Internal Rate of Return (IRR): An annualized rate of return that considers the timing of cash flows. It factors in the value of money received at different times during the investment period.

Lease: A contractual agreement granting a tenant the right to use a property for a specific period in exchange for rent.

Lease Agreement: A formal contract between a landlord and tenant outlining the terms and conditions of property rental.

Lease Commencement Date: The date when the lease term officially begins, which may be different from when the tenant actually occupies the space.

Letter of Intent (LOI): A non-binding document outlining the intentions of both parties before entering into a formal agreement.

Limited Liability Company (LLC): A business structure that provides its owners with limited liability, with profits and losses passed through to their individual tax returns.

Loss To Lease (LtL): The difference between the actual rent received and the potential market rent for a unit.

Market Rent: The rent amount a property would likely command in the open market.

Market Value: A property’s most probable price in a competitive and open market.

Metropolitan Statistical Area (MSA): A geographical region with a relatively high population density at its core and close economic ties throughout the area.

Mid-Rise: A building typically having 4 to 8 stories, though in urban areas, it may include buildings up to 25 stories.

Model Unit: A representative apartment used to showcase the layout and features to potential tenants.

Multifamily Dwelling: A residential building with multiple separate housing units, such as an apartment complex.

Net Absorption: The net change in occupied space in a specific market over a given period, accounting for space vacated.

Net Operating Income (NOI): The total income from a property minus operating expenses, excluding capital expenditures and debt service.

Normal Wear and Tear: The expected deterioration of a property from regular use, for which a tenant is not typically responsible upon moving out.

Operating Expenses: The costs associated with maintaining and operating a property, including insurance, taxes, management fees, and utilities, but not including debt service or capital expenditures.

Pari-Passu Preferred Return: A profit distribution structure where both the sponsor and investors receive the same preferred return simultaneously.

Permanent Agency Loan: A long-term loan on commercial property, usually with a minimum term of five years and some level of amortization.

Physical Occupancy Rate: The percentage of a property’s rentable space that is currently occupied by tenants.

Preferred Return (Pref): A profit distribution method prioritizing one class of equity until a specified rate of return on the initial investment is achieved.

Prepayment Penalty: A fee charged by some lenders for paying off a loan earlier than the agreed term.

Price Per Unit: The cost of each individual unit within a multifamily investment property.

Pro Forma: A financial statement projecting future revenues and expenses based on specific assumptions.

Profit and Loss Statement: A report detailing a property’s revenues and expenses over a certain period, indicating its net income or profit.

Property Management Fee: A fee charged for professional management services related to a property.

Ratio Utility Billing System (RUBS): A method of allocating utility costs among residents based on criteria such as unit size or occupancy levels.

Recourse Loan: A loan where the lender can claim the borrower’s assets in case of default, beyond just the collateral.

Refinance (Refi): The process of replacing an existing loan with a new one, usually with more favorable terms.

Refinancing Fee: A charge associated with replacing an old loan with a new one, including legal and application fees.

Rehab: Comprehensive renovation of a property to enhance its value and appeal.

Rent Comparable Analysis: An evaluation of similar properties in the same market to determine competitive rental rates.

Rent Roll: A list of tenants in a property, including the rent amount paid by each.

Rental Concession: Incentives offered by landlords to attract tenants, such as reduced rent for a limited time.

Sale Proceeds: The net amount earned from selling a property, after deducting all related costs and expenses.

Soft Cost: Expenses indirectly related to the construction or development of a property, such as legal fees, marketing, and architectural services.

Sophisticated Investor: An investor with sufficient wealth and experience to understand and manage the risks of an investment.

Submarket: A specific segment of a larger market, defined by unique characteristics or geographic boundaries.

Tenant: An individual or entity that occupies a property under a lease agreement.

Term: The duration of a lease or loan agreement.

Time Value of Money (TVM): The principle that money available now is worth more than the same amount in the future due to its earning potential.

True Preferred Return: A distribution structure where investors receive a preferred return before the sponsor does.

Underwrite: In the realm of real estate, underwriting primarily involves evaluating the risks and potential rewards associated with a prospective investment or loan. This assessment is critical in determining the viability of a real estate project.

Underwriting Process: This process entails a thorough analysis and assessment by investors or businesses to understand and quantify the financial risks linked to a specific investment. It involves researching and evaluating various financial aspects of the potential investment.

Vacancy Loss: This term denotes the income that a property owner misses out on due to unoccupied units or failure to collect rent. It is also known as vacancy and credit loss and is a crucial factor in assessing a property’s financial performance.

Vacancy Rate: A critical metric in real estate, the vacancy rate indicates the proportion of unoccupied units in a property. Calculated as a percentage, it is derived by multiplying the number of vacant units by 100 and then dividing by the total number of units in the property.

Yield: Often used interchangeably with the Internal Rate of Return (IRR), yield is a comprehensive measure of an investment’s return rate. It uniquely accounts for the time value of money, reflecting the actual profitability of an investment over time.

General Tax Questions

Are there any tax benefits from investing in Multifamily?

One of the distinct benefits Multifamily Real Estate Investments provide over other investment opportunities are the tax advantages. Unlike stocks and mutual funds, investing in real estate tends to make your tax bill lower, not higher. This benefit is due to how the IRS views stock market gains and the way they view real estate gains. There are multiple ways this benefits investors. To learn more, please visit our blog section for articles on this exciting benefit.

You can expect to receive a Schedule K-1 for any REEP Equity property you are invested in

Your tax documents are available through the investor portal and are listed in the documents section of your dashboard.

Typically K-1s are delivered in mid-March for the prior year.  If you have further questions, please email [email protected]

The Schedule K-1 is a tax document that reports your share of a property’s income, gains, losses, deductions, and credits.

Tax documentation for retirement accounts will be mailed to you separately by our third-party IRA custodian.

You may receive a Form 1099-R and/or a Form 5498. Tax documentation for retirement accounts will be mailed to you separately by our third-party IRA custodian.

Form 1099-R is used to report rollovers and/or distributions from qualified retirement accounts and IRAs.

For IRA investors, we typically mail Form 1099-Rs to your mailing address on file by January 31 for the preceding tax year.

Form 5498 reports contributions, including rollovers, made to an IRA for the current tax year.

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