When it comes to multifamily deals and working with your sponsor, you may have some questions about common fees you encounter. That’s good, because we have answers! BAM founder and CEO, Ivan Barratt, explained some of the most common fees in a multifamily deal, as well as why you might see them. We share some of the basics of these common fees in today’s edition of the BAM Blog…
Common Fees:
Preferred Return/Equity Split
What is It? A preferred return is the percentage paid to the investor first, before any splits are taken. It’s typically within a range. Ivan has seen it at 5% but also as high as 12%.
The equity split can be done differently as well, anywhere from 50/50 up to 90/10. Ivan notes that with more experienced sponsors, you can often expect a 70/30 or 80/20 split, with the 70 or 80% going to the investor.
Acquisition Fee
What is it? This is what gets paid to the sponsor and team for the work that went into the investment. As Ivan puts it, they’re being compensated for looking and working through those 199 deals that ended up not making the cut before finding the one that did. Ivan notes that it can be taken out at closing, rolled into the deal for equity, or a combination.
Asset Management Fee
What is it? Ivan says this fee is paid to the sponsor to execute the business plan. He points out that it’s only after closing that the real work begins! From managing mangers, to managing asset value-add, the budget and more, your sponsor will be putting the plan in motion. This will typically be handled by the sponsor’s team and this fee helps ensure “operational bandwidth.”
Property Management Fee
What is it? Ivan notes that this fee relates to the property management team, which is your on-site team. These are the individuals like the manager, assistant manager, and maintenance staff who are responsible for the successful daily running of the property.
Disposition Fee
What is it? This is another example of a common fee Ivan sees when there is a sale. As Ivan says himself, “When victory is achieved, there’s a fee that’s charged.”
Refinance Fee
What is it? This is a fee that is becoming common, as sponsors like Ivan manage assets by holding long-term and refinancing. This fee is paid to the sponsor to offset the costs of all the work that goes into refinancing a deal. As Ivan notes, although tax-free cash gets pulled out, and the golden goose can lay some more eggs, it’s a lot of work to refinance these projects!
One thing Ivan makes clear is that there is a lot of ground to cover when it comes to fees, and that’s one reason that he and BAM are so accessible. Ivan encourages interested investors to review BAM‘s website, ivanbarratteducation.com (as listed below) for more information, or to call 317-550-0214 and ask questions directly. You can also reach us via our connect page.
Do you want to learn more about multifamily investing? Head over to ivanbarratteducation.com! You’ll find a free library stocked with videos and articles featuring Ivan and his industry expertise.
