In commercial multifamily real estate, there’s a language that is spoken when you are connecting with brokers, property managers and other investors in the profession. To avoid sounding like a novice, an investor must be fluent with the real estate terminology to be taken seriously. Let’s take a minute to breakdown one of those terms.
When a new investor and a new sponsor are starting to get familiar with one another. The question frequently asked or that should be asked is, what is the minimum investment in any upcoming opportunity?
- Most general partners have a minimum investment.
- The more experience the GP has and the larger the project, the higher the minimum.
Why do I need to know?
- You want to know what the minimum investment is so that you can determine if you are financially capable of investing in the deal.
- The maximum amount of capital the general partners will likely allow you to invest is typically 19% of the total equity investment.
- Anything greater than 20% and the passive investor is underwritten by the lender.
- Usually the limited partners do not want this to happen to remain a private investor.
Example:
- Total capital needed to raise: $1.5MM
- Minimum investment: $50,000 for first time investors, $25,000 for returning investors.
- Maximum Investment: $285,000
In summary, investors need to know if we have the capacity to invest in these types opportunities. Also, they should know what the maximum investment is to remain a private limited partner as investors often invest more as they get comfortable with the process. Each investment opportunity is different which is why you may invest more in one deal and the minimum in another deal.
By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.