Frequently Asked Questions
What is a real estate syndication?
A real estate syndication is the pooling of resources from multiple parties for the purpose of purchasing real estate.
A real estate syndication allows passive investors (known as “Limited Partners” or “LPs”) to invest in a project that is larger than they would be able to purchase as individuals.
Passive investors are not responsible for finding the deal or managing the day to day operations. The Deal sponsors (also known as the “General Partners” or “GPs”) are the ones putting the deal together and managing the day-to-day operations of the property. They are the boots on the ground. At 12 Oak, we leverage our curated network of top deal sponsors to bring our investors institutional quality passive real estate investments.
As a passive investor, you invest your money, then sit back and start receiving cash flow from the property. You reap the financial benefits of real estate investment without the time commitment and hard work. Our team handles all of the operational work and provides the investor with regular updates as the project progresses.
How is 12 Oak different from a REIT?
Both 12 Oak and REITs generate investment returns through real estate. However, we differ in the following ways:
REITs are typically designed to generate fees for the manager, while 12 Oak is in the business of generating investment returns for both us and our investors.
Our deals operate through an LLC structure, which means that all tax benefits (such as depreciation and interest expense) pass through to investors. In a REIT structure, the tax benefits are captured at the REIT-level and any income paid out is taxed at the ordinary income rate.
REITs often pay substantial fees to advisors to ‘sell’ their product. We don’t pay a middle man to ‘sell’ our investments, which means lower fees for the investor and more dollars invested into properties.
REITs take investor money upfront, even though they may not have properties to invest the capital. This creates pressure to invest money, which they either invest in cash or public securities. They can also pay investors a dividend with their own equity if they don’t have ample cash flow. 12 Oak operates under a direct-deal structure, which means that we ask for capital only after we’ve found a property. Capital is returned to our investors after a property sale or refinance or from operating cash flow.
REITs derive the majority of their fees through transactions, while a majority of ours come from generating profits from the investment.
At a minimum, we provide quarterly updates on our investments and provide full transparency into our investments and process. A Private REIT is not obligated to provide investors with similar transparency.
How long should I plan on having my money invested?
Most of our projects plan for a 5-10 year hold, but the actual hold period can vary based on a variety of factors. You should plan to have your money in the investment until the asset is sold. During this time, you will receive regular cashflow returns and potential refinance proceeds, but your initial investment cannot be withdrawn.
That being said, we know that life happens. If a major life event happens and you need out, we will do everything in our power to help you get out of the investment, including buying out your shares ourselves if need be.
What types of returns should I expect?
While the projected returns will vary from one investment to the next, we typically buy properties that have positive cash flow from Day One. Cash flow is paid out on a monthly or quarterly basis. Additionally, you will also receive your portion of the proceeds from the sale or refinance of the asset, boosting your total return from the investment.
Do I need to set up an LLC to invest?
Some investors choose to invest in their personal name while others choose to invest through an LLC. Since the property is always owned in an LLC and there is insurance in place, you do have multiple layers of protection in place at the property level. We always recommend consulting with a CPA or attorney when deciding how you should hold your investment.
Do I have to be accredited to invest?
Yes, most of our deals are 506(b) offerings which means that investors must be accredited to participate.
What is a K-1?
Similar to a 1099, a K-1 form is an accounting of the tax income for the year. Each investor receives one per investment. K-1 forms are most commonly used in partnerships and in real estate ownership. In the early years of a real estate investment, your K-1 will generally show a large loss because of depreciation losses. These losses can be used to offset other forms of income.
What is a cap rate?
The cap rate is calculated by taking the Net Operating Income (NOI), which is the property revenue, minus the necessary operating expenses, and dividing it by the purchase price. For example, if a property generated $500,000 of NOI in the trailing 12 months and it sold for $10 million, the initial cap rate is 5.00% ($500,000 divided by $10,000,000). Commercial properties are valued off of cap rates so anything that can be done to increase the NOI will increase the market value of the property.
Where does 12 Oak Invest?
We have narrowed down our target markets to a handful of U.S. metros that have strong fundamentals in areas such as population growth, job growth, rent growth, and where we have a competitive advantage in sourcing opportunities at attractive price points.
Do I have to be a U.S. citizen to invest with 12 Oak?
No. However, non-U.S. investors have certain U.S. federal income tax obligations that differ from those of a U.S. investor. Non-US investors are urged to consult with their tax advisor to review the tax implications.