What is the Preferred Return in Multifamily Investing?

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.

The preferred return, also known as “pref” for short, is the return that limited partners (LP’s) are offered prior to the general partners (GP’s) receiving payment. It is also known as the hurdle rate and usually expressed as the percentage return per year.

Example: if the preferred return is 8%. That means they will receive 8% per year on their initial investment of $100,000. The preferred return would be $8,000 per year in returns to the investor which breaks down to $666.67 per month or $2,000 per quarter. 

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.