Multi family investing Glossary of terms
Capitalization rate
(Cap rate)
(Cap rate)
Each area (market) has a cap rate. If a cap rate is low at, say, 5%, it means that it is more expensive to is to buy multi family property. However, when selling, you can sell your property for more.
If a cap rate is high at, say, 8%, it means that it is less expensive to is to buy multi family property. However, when selling, your property value will be less
If a cap rate is high at, say, 8%, it means that it is less expensive to is to buy multi family property. However, when selling, your property value will be less
Subscription agreement
This document describes that the investor (you) is subscribes, or invests, into the entity that is going to own the property. This entity is an LLC that we set up for the specific purpose of owning the property.
Private Placement Memo (PPM)
This document includes a summary of the offering, a description of the property asset, profit sharing details, project costs, and risk factors.
Accredited investor
Option 1: At a minimum, must have earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and reasonably expect the same for the current year.
Option 2: Have a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
Reference the SEC guidelines at https://www.sec.gov/answers/rule506.htm for a more detailed description.
Investor qualifier form
This document is filled out by the investor to qualify them as an accredited or sophisticated investor. See below for a description of these terms.
Sophisticated investor
Sophisticated investors must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of an investment.
Operating agreement
This document describes that the ownership structure of the LLC that owns the property.