We have limited investment partners in many of our straight acquisition projects and have very high standards and proven methods for managing investment capital. We carefully structure each project to minimize risk exposure and to assure that it is appropriately capitalized with the most efficient and prudent stack of capital for the unique financial properties of the individual project. We emphasize strategic flexibility in targeting investments so that each project has multiple contingency business plans and exit strategies covering a wide range of scenario planning and market shifts.
- We have historically returned a pre-tax rate cash-on-cash return between 8%-20% on invested capital to our partners. The nature of multifamily investments allows us to reasonably predict what an investment will return, with no improvements, through close analysis of its historical financials.
- A large share of the annual operating income may be shielded by depreciation. If it is in our partner’s best interests we will commission a cost segregation study to front-loan depreciation with the intent of generating large taxable losses in early years.
- Dividends are paid quarterly or bi-annually and operational update reports are issued monthly.
- Typical investment durations range from 7-10 years (acquisition to disposition).
- We structure our entity structures and operating agreements to be flexible to our partner’s individual needs.
- Distributions are often tiered to IRR or cash-on-cash benchmarks, effectively aligning incentives between us and our partners.
- As a general rule, we don’t believe large fee-loads effectively align interests and as a result we charge minimal closing or annual asset management fees. We prefer to succeed when our partners succeed, obtaining our compensation from cash flows.
- RMDG typically ownes a 20% ownership interest in most projects, though the structuring and methodology of this is unique to every project.
Limiting Risk Factors
- The debt secured for our projects is non-recourse and our investor’s financial risk is generally limited to their capital contribution.
- As the managing partner, we take responsibility for all aspects of the project, yet our investing partners retain ultimate control as per the operating agreement.
- Investing partners do not contribute their capital until rate-lock or closing, when there is no possibility the deal will not close. RMDG pays for all of the costs prior to closing and takes on the associated risk of losing its working capital if the deal should not go forward.
- Most straight acquisition projects are 100-500 units in size and range from $5MM to $25MM in total cost, although we prefer deals over $10MM in total cost.
- Depending upon the debt product utilized, a first-position loan will account for 78% to 85% of the total project costs and the remainder will be paid in cash at closing.
- The typical loan products we utilize include Fannie Mae, HUD or Freddie Mac. Rates are fixed throughout the term, terms range from 10-30 years, amortization from 30-40 years and many have special incentives such as interest-only in year one, etc.