Question 1

Equity Multiplier (EM)

Accepted Answer

Equity Multiplier (EM) is the rate of return based on the total net profit (cash flow plus sales proceeds) and the equity investment. EM is calculated by adding the sum of the total net profit and the gross cash flow and dividing it by the equity investment.

Question 2

Exit Strategy

Accepted Answer

The exit strategy is the plan of action for selling the apartment community at the end of the business plan.

Question 3

Financing Fees

Accepted Answer

Financing fees are the one-time, upfront fees charged by the lender for providing the debt service. Also referred to as loan points or loan point cost. Typically, the financing fees are 1% to 2% of the loan amount

Question 4

General Partner (GP)

Accepted Answer

The general partner (GP) is an owner of a partnership who has unlimited liability. A general partner is also usually a managing partner and active in the day-to-day operations of the business. In apartment syndications, the GP is also referred to as the sponsor, syndicator, or operator. The GP is usually responsible for managing the entire apartment project.

Question 5

Gross Potential Income

Accepted Answer

The gross potential income is the hypothetical amount of revenue if the apartment community was 100% leased year-round at market rates plus all other income.

Question 6

Gross Potential Rent (GPR)

Accepted Answer

The gross potential rent (GPR) is the hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates.

Question 7

Gross Rent Multiplier (GRM)

Accepted Answer

The gross rent multiplier (GRM) is the number of years the apartment would take to pay for itself based on the gross potential rent (GPR). The GRM is calculated by dividing the purchase price by the annual GPR.

Question 8

Guaranty Fee

Accepted Answer

The guaranty fee is a fee paid to a loan guarantor at closing. The loan guarantor guarantees the loan. At closing of the loan, a fee of 0.25% to 1% of the principal balance of the mortgage loan is paid to the loan guarantor.

Question 9

Interest Rate

Accepted Answer

The interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of their funds.

Question 10

Interest-Only Payment

Accepted Answer

An interest-only payment is the monthly payment on a loan where the lender only requires the borrower to pay the interest on the principal as opposed to the typical debt service, which requires the borrower to pay principal plus interest.

Question 11

Internal Rate Of Return (IRR)

Accepted Answer

The internal rate of return (IRR) is the rate, expressed as a percentage, needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal pay down) to equal the equity investment. IRR is one of the main factors the passive investor should focus on when qualifying a deal.

A very simple example is let’s say that you invest $100. The investment has cash flow of $10 in year 1, and $40 in year 2. At the end of year 2, the investment is liquidated and the $100 is returned.

The total profit is $50 ($10 year 1 + $40 year 2).

Simple division would say that the return is 50% ($50/100). But since time value of money (two years in this example) impacts return, the IRR is actually only 23.43%.

If we had received the $50 cash flow and $100 investment returned all in year 1, then yes, the IRR would be 50%. But because we had to “spread” the cash flow over two years, the return percentage is negatively impacted.

The timing of when cash flow is received has a significant and direct impact on the calculated return. In other words, the sooner you receive the cash, the higher the IRR will be.

Question 12

Limited Partner (LP)

Accepted Answer

The limited partner (LP) is a partner whose liability is limited to the extent of the partner’s share of ownership. In apartment syndications, the LP is the passive investor and funds a portion of the equity investment.

Question 13

Loss To Lease (LtL)

Accepted Answer

Loss to lease (LtL) is the revenue lost based on the market rent and the actual rent. LtL is calculated by taking the gross potential market rent and subtracting the gross scheduled rents.

Question 14

Market Rent

Accepted Answer

The market rent is the rent amount a willing landlord might reasonably expect to receive, and a willing tenant might reasonably expect to pay for a tenancy, which is based on the rent charged at similar apartment communities in the area. Market rent is typically calculated by performing a rent comparable analysis.

Question 15

Metropolitan Statistical Area (MSA)

Accepted Answer

A metropolitan statistical area (MSA) is a geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core, which are determined by the United States Office of Management and Budget (OMB).

Question 16

Net Operating Income (NOI)

Accepted Answer

Net operating income (NOI) is all revenue from the property minus operating expenses, excluding capital expenditures and debt service

Question 17

Operating Expenses

Accepted Answer

Operating expenses are the costs of running and maintaining the property and its grounds.

Typical Operating expenses include:

Taxes	
Insurance	
Repairs & Maintenance	
General / Admin	
Management	
Utilities	
Marketing	
Contract Services	
Payroll	
Reserves	
Asset Management

Question 18

Permanent Agency Loan

Accepted Answer

A permanent agency loan is a long-term mortgage loan secured from Fannie Mae or Freddie Mac and is longer-term with lower interest rates compared to bridge loans. Typical loan term lengths are 5, 7 or 10 years amortized over 20 to 30 years.

Question 19

Physical Occupancy Rate

Accepted Answer

The physical occupancy rate is the rate of occupied units. The physical occupancy rate is calculated by dividing the total number of occupied units by the total number of units.

Question 20

Preferred Return

Accepted Answer

Preferred Return: the threshold return that limited partners are offered prior to the general partners receiving payment.

Question 21

Prepayment Penalty

Accepted Answer

A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain period.

FAQs

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What are my responsibilities as an investor?

What is a Syndication?

What is a PPM?

Early Exit?

Tax Impact?

What is the minimum investment?

What are the financial risks?

What is my liability as an Limited Partner/Investor in an apartment syndication?

What are General Partners and Limited Partners?

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How do you make money as the General Partner or Sponsor?

General Partner's fees?

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Key Terms

Accredited Investor

Acquisition Fee

Apartment Syndication

Appreciation

Asset Management Fee

Bad Debt

Breakeven Occupancy

Bridge Loan

Capital Expenditures (CapEx)

Capital Reserves Account

Capitalization Rate (Cap Rate)

Cash Flow

Cash-On-Cash (COC)

Closing Costs

Concessions

Debt Service

Debt Service Coverage Ratio (DSCR)

Distributions

Economic Vacancy

Effective Gross Income (EGI)

Effective Rent

Equity Investment

Equity Multiplier (EM)

Exit Strategy

Financing Fees

General Partner (GP)

Gross Potential Income

Gross Potential Rent (GPR)

Gross Rent Multiplier (GRM)

Guaranty Fee

Interest Rate

Interest-Only Payment

Internal Rate Of Return (IRR)

Limited Partner (LP)

Loss To Lease (LtL)

Market Rent

Metropolitan Statistical Area (MSA)

Net Operating Income (NOI)

Operating Expenses

Permanent Agency Loan

Physical Occupancy Rate

Preferred Return

Prepayment Penalty

Price Per Unit

Private Placement Memorandum (PPM)

Pro-Forma

Profit And Loss Statement

Property And Neighborhood Classes

Property Management Fee

Refinance

Refinancing Fee

Rent Comparable Analysis

Rent Premium

Rent Roll

Residential Utility Billing System (RUBS)

Sales Proceeds

Sophisticated Investor

Subject Property

Submarket

Subscription Agreement

Underwriting

Vacancy Loss

Vacancy Rate

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