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Frequently Asked Questions

Do I qualify as an accredited investor?

An accredited investor, in the context of a natural person, includes anyone who:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
  • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)

In addition, entities such as banks, partnerships, corporations, nonprofits and trusts may be accredited investors. Of the entities that would be considered accredited investors and depending on your circumstances, the following may be relevant to you:

  • any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person, or
  • any entity in which all of the equity owners are accredited investors.

In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.

How do I get started as an investor with Back Bay Investment Group

You can get started as an investor with Back Bay Investment Group here: https://backbay.capital/invest. The entire account creation and investment process is completed online via the Back Bay Investment Group website. You will be prompted to provide or verify any required information, as well as make the necessary acknowledgments electronically.

What type of accounts can I invest through?

You can hold real estate in your IRA, but you’ll need a self-directed IRA.

Can I invest through my IRA?

Real estate syndications allow investors with a Self Directed IRA to pool their financial resources to invest in properties and projects much bigger than they could afford or manage on their own. All expenses associated with the investment must be paid using the funds in your IRA account.

What is a K-1?

As a partner in the LLC that purchases the properties, you will receive a K-1. A K-1 is a tax form used by partnerships to provide investors with detailed information on their share of a partnership’s taxable income. Partnerships are generally not subject to federal or state income tax, but instead issue a K-1 to each investor to report his or her share of the partnership’s income, gains, losses, deductions and credits. The K-1s are provided to investors on an annual basis so that each investor can include K-1 amounts on his or her tax return.

When will the K-1 be available to investors?

Our goal is to finalize all K-1s by March 31st, however, we do rely on outside reporting and may require additional time to furnish the forms in a way that is to the investor’s best advantage. Accordingly, you may be required to obtain one or more extensions for filing federal, state and local tax returns.

Do I have to be an accredited investor to invest?

Yes. Our offerings under Regulation D Rule 506(b) are offered to accredited investors only.

Can I add funds after my initial investment?

Once the initial capital for a Property is fully committed, we can no longer accept additional funds for that investment offering. If you have additional funds you would like to invest, you can inquire about our upcoming deals.

Can I invest if I live in another state, outside the investment of the property?

Yes you can. Investments are for everyone who lives in the USA and even outside the USA. The largest benefit of investing in properties out of state is access to more affordable real estate.  There are some places where the cost of real estate is expensive, that is why Back Bay Investment Group makes it easy for you to invest in growing marketings for the best returns in the states with the best deals for our investors.

When will I get my original investment back and what is the holding period, or term?

On average Back Bay Investment Group’s investment holding period is 3-5 years. For our deals, we typically target a 5 year holding period. However, we will identify the ideal holding period for the asset and communicate any potential sale with investors.

What is IRR, and what's a good IRR?

The internal rate of return (IRR) is a financial metric used to assess the attractiveness of a particular investment opportunity. When you calculate the IRR for an investment, you are effectively estimating the rate of return of that investment after accounting for all its projected cashflows together with the time value of money. Typically investors will seek higher IRRs for riskier investments while lower risk investments will return a lower IRR. The main drawback of IRR is that it is heavily reliant on projections of future cashflows, which are notoriously difficult to predict. We typically target a minimum of 15% IRR for investors on our deals.

Is IRR the same as ROI?

Although IRR is sometimes referred to informally as a project’s “return on investment”, it is different from the way most people use that phrase. Often, when people refer to ROI they are simply referring to the percentage return generated from an investment in a given year, or across a stretch of time. But that type of ROI does not capture the same nuances as IRR, and for that reason IRR is generally preferred by investment professionals. Another advantage of IRR is that its definition is mathematically precise, whereas the term ROI can mean different things depending on the context or the speaker.

Whats the difference with investing in Back Bay Investment Group and a REIT?

Both Back Bay Investment Group and private 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 Back Bay Investment Group is in the business of generating investment returns for both us and our investment partners.

Our Investments 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.

Private REITs typically 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 derive the majority of their fees through transactions, while the majority of ours come after the investor makes money.

Back Bay Investment Group’s principals invest significantly in our own deals, whereas very few private REIT managers invest significant capital into their vehicles.

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.

What are the Risks Involved?

All major investment risks are outlined in the investor subscription agreement. However, we like to think that we eliminate the vast majority of external risks through basic real estate investment fundamentals:

  • We buy big Multifamily assets from $10M-$50M, which requires professional management and makes them harder to fail. Multifamily assets have also proven to be the most scalable and least risky assets compared to their return performance.
  • We buy in the best locations. Location, Location, Location! We primarily investment in California markets which are notorious for high rental growth and appreciation. California is one of the top markets for investors to buy assets when looking to preserve their legacy wealth. We also have a physical presence in the market, which is extremely important in a place like California where neighborhood desirability is block to block.

What is syndication?

In its simplest form, syndication is the pooling of investor money where the investor is typically a passive, limited partner. The other partner to the deal is the general partner, or active partner that puts the deal together and implements the business plan to provide a return for the benefit of all investors. You will hear General Partner (GP), Syndicate and Sponsor often used interchangeably.

What are your return projections?

Our target internal rate of return (IRR) is 15-20% on most investments, however we have historically always beaten our own target IRR.

What is a limited partner?

A passive investor in the deal. They have limited liability. Their risk is limited to the amount they invest in the deal, no more. Their other assets are protected. They cannot be sued, they are not on the loan and are not responsible for the active performance of the property.

What is the minimum investment?

We set it at $50K and increments of $5K.

When will I get paid, or my first distribution?

Once an asset is stabilized we do quarterly distributions that are deposited directly into the investors account. It typically takes 6-12 months before a Property becomes stabilized.

How will you communicate with me?

Quarterly updates (via email) on how the investment is progressing. Typically comprised of bullet points summarizing the major milestones of the last quarter and a list of major action items or milestones for the next quarter. By March 15th of each year you will receive a K-1 statement from us for your tax filings.

What kind of tax impact is there?

Apartment syndications are very tax efficient. As a partner in our limited partnership, you will benefit from your portion of the investment’s deductions for property taxes, loan interest and depreciation which are the big ones. We like to use a cost segregation strategy as well to accelerate depreciation. You will get a K-1 statement from the partnership in March for the prior calendar tax year. It’s not unusual to receive distributions while experiencing a paper loss on your annual K-1. Additionally, any refinances or supplemental loans are reviewed as a return of equity so no tax impacts. At time of sale, there may be an opportunity to 1031 exchange into another property that the sponsor wants to buy to continue to defer your long-term gains tax. If a 1031 exchange does not occur you may incur long term capital gains taxes which are significantly lower than most ordinary personal and business income taxes.

What is the process / timeline?

Once we have a property under contract, due diligence varies from 60-180 days depending on the deal. During that time we will officially accept investments into the property. Prior to having the property under contract we will typically secure most or all the projected equity requirement with non-binding commitments. We keep our investors apprised of current deal flow, allowing them to properly plan and budget their investment funds.

How do you renovate with people living there?

When we take over a property, even a 300-unit apartment will have 15 vacant units if occupancy is at 95%. We start there. Next month when 10-12 leases are up, we introduce the residents to their new renovated unit (move them in) and start renovating their vacated unit and keep repeating this process month after month. We expect that the improved unit will be so dramatic that retention / new lease signups will be high.

What is a supplemental loan?

It’s very common to create a lot of value once the renovations are complete and the forecasted rent is being achieved. That is when the value is optimized in a value add strategy. You go back to the bank with a higher assessed property value and either refinance the property (if you had a variable rate loan) or you obtain a second loan on the property (called a supplemental loan) if you have an attractive fixed rate in place that you want to keep. This second loan allows you to pull equity out for the investors benefit which increases the cash on cash returns and IRR on the project.

Can I use a 1031?

You cannot 1031 into our deals or out of our deals since you are technically purchasing units of our Limited Partnership and not actually the land itself. That said, there are mechanisms where we expect to be able to 1031 from one of our deals into another one of our deals, thus deferring the tax you would have normally paid on the sale of the first apartment.

Can I use a SD-IRA or solo 401K to fund the deal?

As this time, you can but there is a UBIT tax to understand on the SD-IRA as the IRS does not want to see you take advantage of the leveraged portion of the investment. Interestingly, the solo 401K does not have this problem.

What happens if we have a hardship and want to get out before we sell the property?

There is nothing in our prospectus for a workout or formula for such a scenario. The investment should be considered an illiquid investment. That said, as a partner with you, we will review your issue and see if there is something that can be done based on your circumstances.

What are your fees?

Our only fixed fee is an asset management fee of 2-3%, depending on the size of the deal. The asset management fee is for the sponsor to hold the various vendors and property manager accountable and to ensure execution of the business plan. We may also charge variable fees based on the Property and Business Plan such as Construction Management Fees, Acquisition and/or Disposition Fees and Development Fees. For more information about the Fees charged on each investment, please see the Partnership’s Operating Agreement or Subscription Agreement.

What is a PPM (Private Placement Memorandum)?

The Private Placement Memorandum is required by the SEC and describes the offering, risks, includes the partnership agreement, investment summary and subscription agreement. The subscription agreement is what investors will review, sign and includes basic information as to number of units and amounts being purchased, accredited investor’s declaration form, etc.

Are your forecasts conservative?

We have a reputation for under promising and over delivering. We make sure to run conservative financial models that show us making a profit even under the most unfavorable scenarios. Many of our models provide investors with a sensitivity analysis that allows investors to easily understand what their return would look like under conservative, baseline and optimistic scenarios.

What if we have a downturn in the economy?

Real Estate is cyclical in nature. With a long term investment period of approximately 3-5 years, there’s ample opportunity to wait out any periods of unfavorable market conditions. Multifamily properties tend to hold up much better in downturns because we all need a place to rest our heads at night.

What is a split and what is a waterfall?

A split refers to the allocation of profits and/or cash flow between the investors and the General Partner. For example a common starting split in the industry is 80% to investors and 20% to the General Partner. This would be called an 80/20 split. A waterfall is another common mechanism aimed to incentivize and reward the General Partner for achieving above market returns. A waterfall kicks in and adjusts the split once the hurdle rate has been achieved. For example, if the hurdle rate is set to 15% IRR and the split adjusts to 50/50, an investor will receive 80% of the proceeds until they achieve a 15% IRR. Then the split adjusts to 50/50 (50% to investors and 50% to the General Partner). One or multiple waterfalls may exist on an investment.

Do syndicates invest in their own deal?

You will typically see this being the case to align with investors. However, when the GP invests, that money goes with all other investors money into the LP investment bucket (80% split). In other words, the GP split of say 20% is what the GP wants to earn for doing all the work. If he puts money in the deal, he’s increasing his stake in the deal so it is going in on the LP side.

What type of projects does Back Bay Investment Group invest in?

Back Bay Investment Group looks for underperforming multi-family (Primary) and retail (Secondary) assets in primary metropolitan areas. We look to add value by buying right and enhancing revenue through active management. We also acquire a number of ground up development projects each year.

Where does Back Bay Investment Group Invest?

Back Bay Investment Group targets major U.S. metropolitan areas based on evaluation of demand drivers such as population growth, job growth, rent growth, access to multiple transportation modes and proximity to universities for access to a trained workforce. Our primary focus is the California market.

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