A question we often get from investors is, “how long will my money be tied up?” While everyone’s investment goals are different, most people want the comfort of knowing they can get their money back quickly and easily if they need to. To address this point, we have developed a few ways to make it fairly easy for investors to get their capital back prior to the sale of the investment. First, we give all of the voting rights to to our limited partners (passive investors). This gives investors full control over the refinance and/or sale of the property. Refinancing can often return all of investors’ originally-invested capital without having to sell the cash-flowing and appreciating asset. Therefore, if investors desire to see a quick return of capital, they can vote to refinance or sell the property. This gives investors the power to determine how active they wish their capital to be (velocity of capital). For example, a more passive investor may prefer to see his or her money go into a stable property in an appreciating market that is producing solid cash flow every single month. On the other hand, more active investors may desire to see their money put to use on a more ambitious project where more money is spent on renovations, repositioning, and improvement management. These types of investments will produce more uneven cash flows but result in larger gains at refinance or sale due to the outsized value created through renovations, repositioning, and improved management. Additionally, after refinance, investors receive their initial investment back (possibly more) and then use this money to reinvest back into another property or any other investment vehicle to effectively double down on their returns. Prior to investing, we provide investors with a robust business plan for the property. This business plan gives investors a solid understanding of our intended exit strategy.
Another way we strive to help investors who need their money back early is to try to replace their equity from another investor. If for any reason, a limited partner needs their investment back immediately, we would first see if the general partnership is able to absorb the equity and effectively buy the investor out of their equity position (at fair market value of the investment). Also, we would reach out to our network of investors to see if another investor would be interested in replacing the equity.
We believe investors need to feel comfortable with all aspects of their investment and therefore must be able to see a clear path to getting their money back regardless of investment horizon. Unfortunately, most traditional funds in the private equity, hedge fund, and venture capitalist world are closed end funds, meaning investors often will not receive their initial investment back for 10 years. Furthermore, limited partners in these funds have no control over which investments within the fund their money goes towards. This means our structure of raising capital on a per deal basis offers more discretion to investors to invest only in assets that fit their investment goals.