Frequently Asked Questions
What are the risks?
No investment is without risk. That being said, we deploy numerous strategies to hedge against risk. Whether you are investing in a cryptocurrency, a rental property or a U.S. Government Treasury Bill, it is important to understand what the risks are and the strategies used to mitigate them. Private equity and investing in general are regulated by the Securities and Exchange Commission, every deal we do follows a strict procedural filing requirement as outlined in Regulation A and/or D which governs private placement offerings. Beyond the regulatory structure we adhere to designed to protect you, the limited partner, we employ strategies & tactics to hedge against risk.
The good news is that commercial multifamily has a unique risk profile when compared to single family homes (SFH) and the real estate market in general. Yet at the same time, an investment in a fyre CAPITAL asset can be compared to any investment in real estate. All real estate properties require buyers and sellers for transactions to occur. Buyers and sellers together form a market, and when they agree on price, a deal is made and the property exchanges hands. If there are more sellers than buyers, the price of the property is driven downwards. If there are more buyers than sellers however, the price of the property is driven upwards. These are the basic tenets of any market.
As an investor, this is crucial to understand. The sucess or failure of your investment depends on cash flow and pricing. As a general partner, fyre CAPITAL has a direct impact on Net Operating Income through the implementation of our business plan. In that way, we can impact the valuation of our properties during the hold period as we renovate the physical structure and improve the property’s operational efficiency. We identify solid investments based not on an anticipated rally in a market, but in a value-add centric business model which we systematically deploy on every property to increase NOI. Put simply, we aren’t rolling the dice...we’re leveraging education, training & experience to accomplish a goal upon which our business depends: Safely multiplying the equity of our investors.
What are the returns?
16-21% Internal Rate of Return (IRR) is typically what we project per deal. Returns vary depending on the deal and market conditions and is not guaranteed. For projected returns information on a particular deal, please refer to that deal’s Confidential Investment Summary (CIS). For actual returns on past deals, please refer to the fyre CAPITAL prospectus.
How do I send funding?
Wire transfer or check. Please note that there is a date by which funding must be received, funding your investment by check could take up to a week to process.
Is there a contract to sign?
Yes. The contract which governs all aspects of the deal is the Private Placement Memorandum (PPM). It is designed to protect you as the limited partner and outlines your relationship to the general partnership and the deal. The PPM is sent out following your verbal commitment to invest in a deal.
What is the payout structure?
A preferred return with a profit split beyond the preferred return. For example: 8% + 70/30. 8% is the preferred return and indicates the yearly return you will receive during the hold period. The preferred return takes priority and is paid prior to the general partnership receiving any profit. Once the 8% is met, any additional profits are split 70/30. 70% going to you, the limited partner, and 30% going to the general partnership. The preferred return and profit split are already reflected in the return numbers you see in the CIS. Both the preferred return and profit split are deal specific.
What happens after I send funding?
If you haven’t already done so, sign and return the PPM. Following the last day of the funding period, the deal closes typically within a month. Day 1 marks the first day of the holding period following the close. Day 1 also marks the beginning of the value-add business plan implementation unique to each deal. You will receive monthly updates on the progress of the business plan.
How long is the investment?
The hold period for our investments is estimated at 2-5 years. In reality, some deals can be as short as 18 months or depending on market conditions, 6-7 years. Real estate investments are non-liquid investments and should be viewed as a long term vehicle to grow your wealth. Our properties are constantly receiving offers throughout the hold period. Because our goal is to return as much capital as possible as quickly as possible to our investors, we consider offers that meet that goal. If a buyer such as a hedge fund or other institutional investor approaches us with an excellent price, it would be unwise to turn away that buyer and the offer may be accepted for the benefit of our investors.
When do distributions begin?
Typically 60 days following closing and is payable every month. However this changes depending on the deal. Please refer to the CIS or contact the general partnership for details on your specific deal. Our goal is to begin the preferred return as fast as possible for the benefit of our investors. Heavy value-add projects have significant capital needs, for these projects preferred returns commonly come later. That being said, 60 days is our goal.
How is fyre CAPITAL incentivized?
fyre CAPITAL is compensated as a general partner in the deal. The general partnership receives an acquisition fee, asset management fee, and a portion of the profit split beyond the preferred return. This way of compensating the general partnership is the industry standard & introduces a very important concept called alignment of interest. Which means that the better the property does, and the higher the returns are to our limited partners, the more is earned by both the limited partners and general partnership. In a sense, all boats rise and fall together. The acquisition fee compensates the general partnership for sourcing and securing the deal, underwriting, due diligence, legal fees, filing requirements and other expenses prior to the closing date. The asset management fee compensates the general partnership for ongoing management of the business plan. All actual and projected returns published in the prospectus and CIS are net of these fees.
What is a Deferred Comp Asset Reposition (DCAR)?
A DCAR is a strategy our limited partners use to join a fyre CAPITAL deal. It involves
repositioning funds from your 457b or 401k plan into a fyre CAPITAL asset. The benefits of a DCAR are trading into a higher returning investment vehicle, diversifying your investment portfolio, and providing a means by which you can enter a fyre CAPITAL deal today. For more information, email firstname.lastname@example.org or contact us directly at 858-228-6588.
How does this compare to rental property investing?
Economies of scale, professional asset management, and superior markets are just some of the many reasons we believe commercial multifamily to be a far superior investment. This is one of our favorite questions we receive at fyre CAPITAL because it opens up an entire world of discussion and learning. It drives to the heart of what we do and we take pride in sharing our philosophy. If you are considering a fyre CAPITAL investment, chances are you understand the general advantages of an investment in real estate. To reiterate, those include:
• Ability to leverage a down payment into a higher valued asset
• Ability to add value through property improvements
• Value is secured by Real Property
• Simplicity & Stability of housing as a basic human need
• Consistent long term appreciation
• Equity built through cash flow, principal paydown & appreciation
Both residential real estate and commercial real estate share the above advantages. But there are some distinct advantages to commercial real estate not found in residential. Below is a partial list:
• Economies of scale - the ability to split common costs over hundreds of units
• Increased returns per dollar of equity
• Multiple profit centers such as laundry mats & parking fees
• Ability to diversify across multiple multifamily properties instead of one rental
• Commercial loans and their more favorable terms
• Passive income - as a limited partner, all property management is taken care of for you
• Pricing stability and diminished volatility
• Investment loss is limited to only your investment rather than the entire loan
• Frees up investor’s debt to income ratio
• Value creation on a massive scale and the buying power that comes with it
• Professional property management and asset management
• Less liability and more legal protections afforded to limited partners in the property’s LLC
• Tax savings via a K-1 statement
At fyre CAPITAL we strongly encourage our investors to learn about multifamily investing as much as possible. We are here as a resource to answer any and all questions you may have. We’re confident that those considering an investment in commercial multifamily will quickly learn how powerful fyre CAPITAL assets are in building your equity compared to a rental property. Time is our most valuable resource, investing in a fyre CAPITAL is a 100% passive investment.
How does this compare to the stock market?
Higher returns, less volatility, and backed by real property. For long term wealth creation, we believe there is no better investment than commercial multifamily. Investments in the stock market are characterized by volatility and low returns.
Is this a REIT (Real Estate Investment Trust)?
No, this is direct ownership in commercial multifamily real estate. REITs are a way to invest in real estate via the stock market. A corporation purchases real estate assets then issues stock for purchase by investors. There are some significant differences between investing in a REIT, and investing directly in a fyre CAPITAL asset. These differences include:
• REITs are liquid investments
• REIT returns are comparable to other stocks, not real estate
• REITs are subject to stock market volatility and risk
• Double taxation of revenue with REITs
• No direct tax deductions such as depreciation with REITs
• Inability to partake in a 1031 exchange with REITs
• Dividends are taxed as ordinary income with REITs
REITs have their advantages, namely their liquidity, simplicity and ease of access. Evaluating your personal goals and investment time horizon will provide clarity on how you would like to invest in real estate.
What is the minimum investment?
It depends on the deal, typically $50,000, but ranges between $25,000 and $100,000. Refer to the CIS for investment minimums. Investment maximums are dependent on the size of the overall capital raise, please contact us for detailed information regarding the maximum investment size for a particular deal at email@example.com or call us at (858) 228-6588.
What are the tax advantages?
Tax savings are one of the major benefits of commercial multifamily investments. Consult your CPA for detailed tax information regarding an investment into a fyre CAPITAL asset. The major tax benefits of investing in a deal are many and include:
• Issuance of a K-1 at years end. This tax statement is passed to your CPA to include in
your income tax return. K-1 statements can frequently show a significant paper loss to
offset capital gains and passive income to minimize your tax bill.
• When using a DCAR, returns are taxed at capital gains rates rather than ordinary income rates as with Deferred Compensation plan distributions.
• The tax savings afforded to limited partners are numerous and are one of the major reasons many of our investors choose to invest. Cost segregation studies, 1031 exchanges, bonus depreciation, deductible business expenses, loan interest deduction are a few examples.
Sample investment and timeline
What is the difference between Class A and Class B units?
When you go to invest, you will choose between Class A and Class B units. This choice is designed to provide you options on how to invest to better match your investment goals.