Frequently Asked Questions
Facts support our belief that the United States is expected to experience significant demand for rental units. The recession resulted in an unparalleled shift away from home ownership and toward a strong desire for rentals. Millennials want more flexibility and do not want to be tied to a house. Baby boomers are selling their homes and moving to apartments to have no maintenance. Additionally, the prior recession significantly hindered and reduced the supply of new housing. While construction financing has become more comfortable and new supply is on the rise, the pipeline for new construction is expected to lag U.S. population growth over the long term. Diversified Investors Group and its investors are poised to take advantage of these economic and demographic factors by acquiring premier B and C multi-family properties with stable cash flow and long-term appreciation.
- $1 - $20 Million
- Minimum 100+ Units
- B+ to C+ class multi-family properties; Prefer B class in A market and C+ class in B market opportunities. Will review distressed A class deals in markets with 1MM+ populations.
- Prefer stabilized properties. However, not a prerequisite. Minimum 85-90% occupancy is preferred, but D.I.G. will consider lower occupancy if the property is well located and has value-add upside.
- Preference is 1978 and newer, but will consider all age properties, providing there is minimal deferred maintenance.
- Generally speaking, D.I.G. searches nationally. However, we tend to focus on those geographic areas with high growth secondary markets among a diverse economic group. Markets that are outperforming the national averages for unemployment and surpassing the overall population growth have been our best targets. Furthermore, we tend to focus where there is a substantial gap between rental prices and home ownership.
- B+ to C+ trade areas with strong demographics and economic diversity.
- Min. 6% - 8% (based on current financials).
Target Return & Investment Period:
- 6% - 8% annual cash on cash return (based on current financials)
- 10% - 14% total annual return over the investment period
- 5 - 7 year hold period (medium to long-term)
- Potential high yield income streams
- 20% below replacement cost
- Cash Equity-"All Cash" or "Cash to Existing Debt"
- Value-add opportunities sought
- Utilities: Individually metered units preferred
- Roofs: Pitched roof construction preferred, but not required
To qualify as an accredited investor, a person must demonstrate an annual income of $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income. An individual must have earned income above the thresholds either alone or with a spouse over the last three years OR a person is also considered an accredited investor if he has a net worth exceeding $1 million, either individually or jointly with his spouse excluding personal home.
If the general partners are doing a 506(b), they are not required to verify the accredited investors' status – the passive investor can self-verify that they are accredited or sophisticated. Also, for the 506(b) offering, to prove that the general partners didn’t solicit the offering, they must be able to demonstrate that they had a relationship with the passive investor before their knowledge of the investment opportunity, which is determined by the duration and extent of the relationship. You can take no more than 35 sophisticated investors per offering.
We have relationships with many commercial brokers in the Central and Southwestern U. S., who often bring us deals before they go on the open market. This has been our most significant differential advantage versus other investment companies. We excel at finding off-market deals and purchasing the property at cap rates much higher than those same assets would sell once they reached the market. Typical off market cap rates are 6.5 - 8.0 cap rate versus the same asset after being marketed would sell at a 5.0 - 6.5 price.
Once presented with an opportunity, our team then underwrites every single property to the highest standards and eliminates those that do not qualify at our rigorous standards. As an example, last year our team studied and underwrote more than 500 properties with only about 20 qualifying with our stringent standards.
All of our investment and PPMs (private placement memorandums) are based on individual properties, and every property is different and will, therefore, offer separate returns. Our current investors are right now realizing between a 6% -8% preferred cash yield annually and are expected to double this return upon the sale or refinancing of the property for overall investment life cycle returns of 10% -16%.
Our returns consist of three parts:
Preferred Return from Cash Flow:
Each investment is selected such that it pays a minimum average annual favorite return of at least 6% -8%. Depending on the individual property deal, this return could be higher. Returns are paid out quarterly via direct deposit into an investor's bank account or by check. In other words, the investors get paid first before the sponsors get paid anything. This protects you as an investor and ensures D.I.G. will only choose projects that have stable cash flow outlooks.
Upon the sale or refinancing of the property, it is our goal at D.I.G. to return 100% of the initial invested amount to each investor, and then do a profit split between sponsors and investors up to the point where investors double their annual return from the cash flow. For example, if a preferred return from cash flow is 6%, the profit split is 50/50 until the "target return" total is reached of 12% per year return over the holding period.
Depreciation Shared Among Whole Investment:
After each new acquisition, D.I.G., LLC commissions a cost segregation study that will break out the depreciation, which can then be deducted each year throughout the hold of the property. These may have significant and beneficial tax consequences. Please ask your accountant or CPA how this might benefit you.
Over a typical five-year period, it is our goal at D.I.G. to have our properties not be more than 50-60% leveraged. While we start with a 75%-80% leverage based on the purchase price, we decrease that ratio rapidly by actively paying down the loan and by forcing appreciation of the property through value-add improvements, superior management, and rent increases, leading to a five-year loan to value ratio of no more than 60%. This conservative approach provides an additional buffer from the ups and downs of the real estate market.
You will be a limited liability owner of the property, which comes with all of the benefits like depreciation and cash flow. This means that the property is owned by a property LLC for which that property is the only asset, therefore reducing liability. You, in turn, will be a direct shareholder in this property LLC, so, in essence, you are part owner of the company that owns the property. This allows for a direct flow-through of cash flow and depreciation, and allows you upon the sale of the asset to realize long term capital gains. PLUS, you get to tell your friends you "own" an apartment complex, because you do!
Yes, investing in a multi-family structure like ours is perfect for retirement plan investing because your involvement is, by definition, passive. All you need to do, if you haven't already, is set up a self-directed IRA with an independent custodian, like www.SpecializedIRAServices.com or www.VantageIRAs.com. Once that is done, you just need to fund the account from one your IRA/ROTH-IRA or several other retirement vehicles.
If you have questions about how to complete the steps listed above, please contact us through the Contact Us form or call us at (480) 458-7342.