Where Is My Money? The Movement Of Your Investment Money From Start To Finish In A Real Estate Syndication
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    When you think of astronauts, you may imagine them floating inside a rocket ship in space, doing endless flips with no threat of gravity slamming them back to the ground. Or perhaps you picture them walking on a new planet, ready to plant our nation’s flag. 

    We probably don’t immediately think of the decades of rigorous training and education required to become an astronaut, or the difficult decisions leading to a safe launch into space or reentry back to earth. These activities remain behind the scenes for the average person.

    When you join a real estate syndication, knowing where your capital is located at every step of the deal can also feel confusing. You wire your funds, and then someone else handles all the rest. While this is one of the benefits of passive real estate investing, it requires a level of trust and transparency.

    The difference here is that you are an integral member of the team, unlike the observers of the latest space mission.

    To add to the confusion, many syndicators don’t disclose where an investor’s capital is sitting, leaving everyone wondering what is happening behind the curtain.  Unfortunately, news stories about fund managers embezzling investor’s hard-earned capital can induce even more anxiety for new investors.

    Complete Visibility Of Your Capital: A Commitment

    We want you to have complete visibility into how your capital is utilized as we join together to invest in multifamily properties, hotels, preferred equity investments, and more. 

    That’s why we’ve created this guide to knowing where your capital is located at every step of the closing process so that you have full transparency. We aim to show you how everything works – a look “behind the scenes” into each stage of the investment process.

    • Step #1: Your Funds Are In The Primary Investment Account
    • Step #2: Your Funds Transfer to a High-Yield Money Market Account To Start Growing
    • Step #3: Your Funds Move into Escrow: Closing Is In Sight 
    • Step #4: Your Funds Are Deployed Into The Asset
    • The Preferred Equity Investment Timing – Fast-Track In The Carpool Lane

    Our mission is to give you a transparent view of the investment process, from closing on an asset to distributing funds upon sale. Buckle up as we prepare for the launch! 

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    Preparing To Open An Investment To Passive Investors

    Every deal we offer to investors starts months, even years before it hits your inbox.

    Just like astronauts who dedicate decades of their careers and apply to join the space program multiple times, we’re also continually looking at investment opportunities to prepare for the opening of a new investment offering to our investors. 

    As potential deals come across our desk, we evaluate them against our current and upcoming funds. Each fund has criteria, or an investing thesis, that we fit assets into. 

    We typically open up a fund before we have deals under contract because we also need to have funds ready and in the bank to be able to swiftly close on those deals. However, since we are evaluating deals daily, we typically have multiple properties under negotiations at this point. 

    Sometimes the closing turn-around is quick. Our fund model allows us to have funds ready to deploy to purchase assets quickly. This gives us an advantage over other buyers and gets distributions to our investors with a faster closing process. Win-win.   

    Once we sign a purchase and sales agreement, we’re able to officially announce that we have a specific asset under contract and present details to our investors. From here, our team gears up for the mighty due diligence process required for this level of commercial real estate investment. 

    This is like an astronaut getting the letter from NASA that they’ve been selected to join the illustrious space program, opening the door to further training and the potential to join a mission into space.

    Related Blog: 7 Things to Look for in a Real Estate Syndication Investment Summary: How to Tell if It’s a Good Opportunity

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    Step #1: Your Funds Are In The Primary Investment Account

    You’ve done your own due diligence on the track record of our team and are ready to get your money working. Congrats! You select a fund investment offering that will help you reach your investing goals, you sign your paperwork, and you wire your funds into the primary investment account.

    Your capital’s first stop on the journey is to join other investors’ capital inside the entity’s bank account. This is where our astronaut has officially accepted the offer to join the space program and begin the rigorous training to be placed on a team to go to space.

    This primary investment account remains active through the entire closing process. Depending on the amount of capital in the account and the timing required to close, your capital may be moved into an alternate account, as described in Step 2. 

    Typically, the sooner everyone wires their funds, the sooner we can close on an asset and begin making regular distributions. In other words, waiting to invest until the last minute can sometimes delay the closing of an asset. 

    Types of Accounts We Use

    For every account along this journey, we leverage Insured Cash Sweep (IC) accounts. This means that all your capital is protected by the FDIC. Sweep accounts are separate digital versions of the same account. A new digital account is opened once one account reaches the $250k threshold that is protected by the FDIC.  

    Simultaneous Goodegg General Partnership Funds Deployed

    Investors’ money does not get deployed until we close on the deals, but there are many expenses required before then, such as due diligence service providers and earnest money down (EMD). None of these fees are paid by our investors, which is one way we believe investor’s capital should be protected

    At Goodegg, we consider putting up all the funds necessary to evaluate a deal (including earnest money down (EMD), due diligence fees, legal fees, etc.) to be the cost of doing business for the general partnership team. 

    This is our risk and our competency. We do this for our investors. This can be hundreds of thousands of dollars that could be lost if the deal does not close.

    Related Article: Multifamily Syndication In Today’s Market And Beyond

    Check Out Our Track Record Of Success

    Curious whether we can actually do what we say we're going to do? Compare projected versus actual returns in all the deals we've exited to date.

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    Step #2: Your Funds Transfer to a High-Yield Money Market Account To Start Growing

    Some astronauts are selected for very specialized training in the space program. This may mean that they need to extra time to learn and develop skills critical to the space mission. 

    Similarly, we may be embarking upon a special mission of our own in the form of a longer-than-usual closing process (such as in the assumption of a government loan). In this case, we still want to get your capital working as soon as possible.

    When the closing process is going to take between 1-6 months, we move your funds into a high-yield money market account to begin earning interest as soon as possible.

    We know that having funds sit idle in an account gets frustrating. We know this because we’re in the same boat. We want that money working, not waiting for months. 

    These money market accounts are only available for investment groups and bankers. The everyday investor doesn’t have access to these accounts. These money market accounts are federally backed securities that buy positions in US treasury bonds, which are federally insured for their full capital value. These are some of the safest high-yield money market options available. 

    You may be familiar with high-yield savings accounts. Most savvy financial nerds (like us) will have their long-term savings inside one of these accounts. The difference with a high-yield savings account is that it’s amortized over a year. The high-yield money market accounts accrue interest monthly.

    Criteria to Open A High-Yield Money Market Account

    We can only open one of these accounts if certain conditions are met. 

    1. First, we have to deposit a minimum of $5 million
    2. Next, we need funds to be in those accounts for at least a full month

    The transactional costs to open up one of these money market accounts don’t make sense with smaller deposit amounts or shorter time frames.

    The interest you earn, while your money is waiting inside this high-yield account, will be distributed back to you within 30 days of closing. 

    Mission Training:

    What Is Happening In The Closing Process While Investor Funds Await Closing?

    Get ready for a little peek into the nitty-gritty of what happens behind the scenes as we work toward closing on a new asset. Keep in mind, that these are the things you don’t have to do as a passive investor, unlike a landlord trying to invest in rental properties without a team. 

    If you don’t want the deep dive, skip ahead to the next section to see where your money goes next.

    After our astronaut enters the space program, they get to work. They’re learning about spacecraft systems, survival skills, and simulating various space scenarios to ensure they’re well-equipped for the journey ahead. It can feel like a long and grueling process as they devote time and resources without any guarantee that they’ll ever be selected to join a space mission.

    It’s helpful to remember that both the astronaut (we believe) and the Goodegg sponsorship team love this type of work and are fully committed to successfully launching into space…err…I mean facilitating the next investment opportunity for our investors.

    Two Types Of Commercial Real Estate Due Diligence

    Our team is working on two separate types of due diligence activities during the closing process. Remember, your funds are waiting to be deployed but have an essential role in showing the lenders and the sellers that we’re ready to close as soon as possible.

    Third-Party Due Diligence

    First, we perform due diligence with third-party professional services. This can include title searches and obtaining the latest title policy or title commitment from the seller. This essentially confirms the property’s legal ownership and any existing claims or issues related to it. We work with land and site surveyors, including obtaining copies of construction blueprints, engineering plans, and as-built drawings from the seller. 

    Other third-party services include hazardous material and environmental reports, which could include mold abatement reports, underground storage tank testing, termite or radon studies, and more. In other words, really fun stuff.

    We pay for these services using the General Partnership funds, as described above. At any point during the due diligence process, we may discover something that makes this deal no longer acceptable and we’ll walk away. For instance, if we find contamination on the grounds, which would necessitate a costly reclamation project, we’re out. In this case, no investor dollars are lost.

    We may also find out that certain assumptions listed in the purchase and sales agreement (the PSA) are not true. For instance, our offer price may be based on a 30-year roof in place. If we find that the roof only has 10 years left, we’ll adjust our offer price to account for this difference.

    Our Acquisitions Team’s Internal Due Diligence

    The second type of due diligence is performed by our acquisitions team. This involves a full financial analysis, incorporating all the information gathered from third parties and our own assessments. An example of one element in this process is comparing leases to the accounts payable and accounts receivable (APAR) activities.

    We also physically inspect every single unit and common area for every asset. There is no shortcut here. Walking one unit does not mean that it takes less time to walk the next unit. Every apartment or hotel room can take one or two hours to inspect, which sometimes means 250+ hours of inspection.

    Our team has become intimately familiar with local taco trucks during these long days, as well as deeply felt the need for a vending machine on the grounds, likely more than any tenant has ever felt. Perhaps our astronaut has a similarly frequented take-out spot for the countless long days spent training underwater in the Neutral Buoyancy Laboratory (a large pool).

    All our due diligence processes serve to gather data and create a fine-tuned underwriting model that supports this purchase. Initial assumptions in the PSA are validated at this stage. 

    We summarize all findings in a formal due diligence report that is the foundation for the discounts we’ll negotiate off our original offer price.

    Related Article: 10 Reasons To Invest in Hotels: Why Hotels Are An Excellent Real Estate Investment Right Now

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    Legal Contracts and Commercial Lending Activities Happening Behind The Scenes

    If you haven’t already reaffirmed your decision to be a passive real estate investor rather than an active investor (or an astronaut), let’s dive deeper into the joys of working with legal contract revisions and loan processing!

    Parallel to all the due diligence is the legal formation of the deal. We’re busy working with our legal team to develop all the contracts required to close the deal. This includes many reviews from all parties involved (that’s lots of emails about the minutia of legal language edits requested). 

    We’re also working on loan processing steps during this time. 

    Most often, we’re seeking brand new debt or a new loan. The lender wants to deploy capital and the buyer has identified a property that can use the loan to purchase. We, the buyers, and our lender are in lock-step to achieve the same goal. For instance, we may use the lender’s required third-party due diligence services so that they have full confidence in the results rather than having to repeat the same work.  

    In the case of inheriting the loan from the seller (an assumable loan), the seller is also involved in loan processing. With another party joining into negotiations, the process often gets more complicated and time-consuming. Lenders also aren’t as motivated to process this type of loan since they aren’t making as much money on the origination fees. We’ve found that they take their time and make the process easier for themselves.

    All loan processing requires complex relationship management as we facilitate the closing. There are many parties involved, each with unique needs. 

    Astronauts, too, deal with legal contracts and paperwork involving extensive liability waivers, intellectual property and data-sharing agreements, and confidentiality contracts.

    Related Article: The Advantages (and Disadvantages) of Real Estate Investing

    Remember, We Love This Stuff

    We know that reviewing mold abatement reports or walking the 215th apartment in a 240-unit building may not sound like fun to you. But, most of the time, we love what we do. In fact, we’ve assembled a team of individuals at Goodegg who specifically love doing this kind of work. We are the spreadsheet enthusiasts, the legal contract proofreading buffs, and the relationship management connoisseurs.

     

    Step #3: Your Funds Move into Escrow: Closing Is In Sight 

    We’re nearly there! Once we have a Closing Statement in hand, we move into escrow and have 30 days to complete the remaining activities to purchase the asset.

    Our astronaut has completed all the preparations and has been invited to join a space mission, scheduled just 30 days from now. They enter the final preparation phase to launch into space as we enter the final stage to close on our asset.

    Check Out Our Track Record Of Success

    Curious whether we can actually do what we say we're going to do? Compare projected versus actual returns in all the deals we've exited to date.

    download track record

    Technically, the closing escrow account is the same special purpose entity (SPE) account your funds were wired into originally. However, we now have a timer on the final activities required to close.

    The General Partnership account also becomes an escrow account in this phase that functions as the transactional account. For instance, all third-party contracts are paid from this account once they complete their work. When we meet the conditions of closing and the loan is approved, these funds are returned to Goodegg as a part of the closing costs. 

    In escrow, the last pieces of the Settlement agreement documents come together. Both buyers and sellers have legal representation in this process and there are frequently negotiations until the end. 

    It is also important to note that within a fund, not all investment dollars are moved into escrow. Multiple deals are happening within a fund simultaneously and we only move the funds required to close on the asset in escrow. All investor’s dollars are pro rata, which means proportional. Once all deals are in a fund and the fund closes, investor shares in the fund are recalculated pro rata for their ownership stake. 

    This is the benefit of diversification within a fund described in accounting terms.

    To be able to move out of escrow, the settlement documents and consent documents are required. That sounds simple, but the consent documents can include anywhere from 30 – 40 individual documents, all needing reviews by buyers, sellers, and third parties.

    Did we mention there are a lot of documents to review here?

    Our astronauts are primed because the day of the space launch finally arrived. She boards the spacecraft with a mix of excitement and nerves. As the engines roars to life, she feels a surge of exhilaration – the same exhilaration you likely feel as we announce the official close your investment. It is a momentous occasion for both an astronaut and a passive investor, with a lot of hard work in the rearview mirror. 

    Related Video: Cash Flow & Diversification

     

    Step #4: Your Funds Are Deployed Into The Asset

    Once all forms are released and signed, we get the title that says we own the property. Receiving the title is like the moment our astronaut’s spaceship makes it successfully into orbit, exiting our Earth’s atmosphere without any complications. 

    Your capital is now deployed into the asset. This means that funds are transferred to all parties, including the lender, the sellers, third parties, and the buyers (in the form of acquisition fees).

    Some funds also remain in place and become the operating account for the individual asset. This amount depends on the business plan and any reserves required. 

    As cash flow comes in, distributions to your personal bank account are made from the fund’s operating account. Each asset within the fund pays out distributions to the fund. Think of a family tree here, where the individual asset accounts are on branches from the primary fund account. That fund account is owned by the Single Purpose Entity (SPE) account, with the fund as the single member. Its sole purpose is the liability shield for our investors.

    As fund managers, we aggregate the cash that rolls up to the fund and distribute it to investors according to the fund’s waterfall structure (class A, B, C, etc).

    At this point our astronaut is experiencing zero-gravity up in space, dialing in on a routine of floating through hallways and dining on space food (or whatever it is that astronauts actually do up there). They have made it to space.

    Related Video: This Is Where The Cash Flow Distributions From A Real Estate Syndication Actually Come From

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    Step #5: Our Property Sells And Your Funds Are Heading Back To You

    Our astronauts have been steadily working away on their mission out in space, but now it’s time to come back home.  The journey home requires careful planning and precise execution. The mission has met its objectives, but more importantly, the orbital dynamics and weather conditions are optimal for a safe reentry to Earth. 

    Back to our real estate investment, we’re also evaluating delicate market timing and conditions to determine the optimal time to exit the investment property (sell the asset).

    Just like astronauts’ return to Earth, this phase involves careful execution and financial acumen. We project this to be about 5 years from the initial acquisition, but we’ll never sell just because those 5 years are up. We’ll sell when it makes the most sense for our investor’s capital. An astronaut would not risk reentry to Earth if their spaceship needed maintenance or they were in the wrong orbital location.

    The Closing Process From The Seller’s Seat

    Now, imagine the same selling process we described in detail earlier, except this time our team is in the seller’s seat instead of the buyer’s. 

    As the seller, we’re involved in every step of the process to promote a healthy valuation and excellent returns for our investors. At times, it may feel similar to the intense heat and pressure our astronauts experience as the spacecraft reenters Earth’s atmosphere (minus the terminal velocity). 

    As those closing documents are signed, the buyers release funds to our group. All sale proceeds from this equity event go through the equity waterfall of the fund. Each investor’s proportionate return of capital goes right back to their personal bank accounts

    First, all accrual accounts are settled. Then, we distribute preferred returns, original capital, then proceeds from the sale according to GP/LP splits.

    Just as astronauts celebrate the safe arrival home and a successful mission completed, we hope investors also raise a toast to a successful investment, helping them get closer to their retirement or financial independence goals and live their life by design

    Related Article: Real Estate Syndication Structures And What They Mean For Passive Investors

     

    The Preferred Equity Investment Timing: Fast-Track In The Carpool Lane

    Most passive real estate investments only vary slightly with the timeline outlined above. However, our Preferred Equity (Pref Equity) Investments progress toward a closing date a little differently – and often a lot faster. Here’s an overview of the differences.

    Differences Between Pref Equity Funds And Other Goodegg Funds

    1. You start by “pledging” the total amount you wish to invest. You’ll then fund a 25% deposit (ex: a $100k pledge would be funded with a $25k deposit.) 
    2. Once we get a deal under contract (meaning we’ve performed our extensive underwriting and physical due diligence process), we will close in as few as 7 days. This means that we need to be able to wire all funds almost immediately.
    3. You’ll have the opportunity to “opt in” to the investment, and wire any additional funds you’d like to invest. 
    4. A quicker closing process means investors start getting their monthly fixed distribution payments even quicker!

    Your original deposit will remain in the fund account (very similar to our other fund offerings) until you “opt-in” to an investment. Since these funds are typically smaller and move quickly, we won’t move any capital into a high-yield money market account.

    From there, your money will be deployed faster than you can say stable passive income!

    Conclusion

    At Goodegg, our goal is always to go above and beyond to make sure you’re fully informed, confident, and comfortable with your investment decisions. That means we want you to know where your capital is located at every stage of the investment journey. This type of transparency is at the core of our mission. 

    We want you to feel like you can understand every step of the process, no matter how technical or complicated. We strive for full transparency, helping investors see exactly how our deals come together and how their money is invested.

    Just as an astronaut may already be looking forward to their next space mission, we seek to inspire our investors to continue their mission to build wealth through passive real estate investing. Ideally, the process is much less complicated and time-intensive than the training required to complete a successful space mission.

     

    Next Steps

    If you’re looking to invest in real estate syndications with strong asset management practices, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on opportunities to invest alongside us.

    You can also check out our open deals page to learn more about our current or upcoming opportunities.

    Learn More

    If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101 – or to get a copy of our book – Investing For Good.

    To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.

    Connect With Us

    If there’s ever anything we can do to help you on your journey, feel free to email us at [email protected] or call / text us at (888) 830-1450

    Want To Invest With Us?

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    Susan Elliott

    Susan Elliott

    Susan is a real estate investor, intrapreneur, adventure athlete, mother, and Director of Investor Education at Goodegg Investments. Susan began her career in real estate investing by house-hacking her first home, managing a short-term rental business, and starting a non-performing notes investing business.

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