A $50,000 Real Estate Fund Investment, One Year Update

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Almost exactly one year ago, I wrote a post detailing a $50,000 investment I made in a real estate fund. I gave my reasons why I was interested in investing in a real estate fund, my expectations for that type of investment, and why I ultimately decided to go with MLG Capital Fund III. (MLG is currently a sponsor of this site.)

There are countless real estate funds out there but I decided to go with them in large part because of their 30-year stellar history of consistently getting returns for their investors. It was comforting knowing that they had experienced multiple boom and bust real estate cycles.

I was concerned and still am of changing market conditions as well as a potential looming recession, and so I felt the need to stick with a company that had been tested in the past and had succeeded.

Well, since it’s been a year and many of you have asked for an update on how the investment is doing, I decided to share it with everyone. 

Physician Financial ServicesRecap of the Investment

When it comes to real estate, I invest through direct ownership (own my own properties) as well as invest passively (through syndications and funds).

A syndication is the pooling of funds to invest in a real estate opportunity. For example, a syndicator (group that runs a syndication) might find a great opportunity to invest in a large apartment building, then they’ll arrange financing to purchase it, come up with a plan on how to improve the financials of the building through better management, raise money from investors to help fund the purchase, manage rehab, then ultimately give distributions to the investors. That all takes place for one building.

Real estate funds can be thought of as mutual funds of syndications. A fund operator will raise capital from investors based on their track record of success. They use those funds to buy multiple properties, giving the investors diversification over a larger pool of properties.

Like many of you, I absolutely love diversification. It’s a huge part of my strategy and it gives me some peace of mind at the end of the day. It was the main driver in this case for why I decided to invest in a fund for this investment instead of a syndication. 

One of the major downsides, however, is that real estate funds are typically a little longer in duration than your typical syndication. So your funds are locked up for closer to 7-10 years. As an investor, you just have to be aware of that illiquidity and be comfortable with the returns that you get for that lack of liquidity.

So, on 8/17/18, I made the commitment to invest $50,000 in MLG Fund II and submitted a 10% deposit ($5,000) to hold my place. I then waited for the capital call.

MLG capital invest in private real estateFor those who aren’t familiar with the way some of these funds work, oftentimes you make a commitment, but the fund may not have use for your capital right away while they look for a building to purchase.

So instead of just having it sit in their account, they have you hold on to the funds and then let you know when they need it – this is what’s known as a “capital call.”

Once this capital call takes place, they typically give you a few days to a week to send them the funds.

After making my commitment, I knew the call could happen anytime in the next few months, so I  kept that money liquid in a high-yield savings account.

Well, I eventually got the capital call, a little less than 90 days later and on 11/5/18, I deposited the remaining $45,000.

Then I sat back and waited for updates and for distributions/returns.

How I Was Going To Get Paid

Whenever I look at a passive real estate investment, whether it’s a syndication or fund, I look for two major things regarding my returns: 1) The timing of returns – when they expect to pay distributions (monthly, quarterly, immediately, after some set amount of time), and 2)  The “waterfall structure” which is the way you know how cash in the deal gets distributed. 

In terms of timing, MLG stated they would be paying out quarterly immediately after your investment.

For this fund, the waterfall structure was pretty simple. With whatever cash flow the fund produced, the investors first would be paid a preferred return of 8% averaged yearly on their investment.

After that amount was satisfied, then the remaining cash would go back to returning the investors’ capital. Only after those two conditions would be met, then the remaining cash was split between the investors and the fund.

The Returns

So after making my full investment on 11/5/18, I received my first quarterly distribution on 1/16/19 in the amount of $754.16. That amounts to a 1.5% immediate return.

If I expected an 8% preferred annual return, that means that I should expect a return of ~2% every quarter.

I entered the part of the way through November so didn’t expect a full quarter distribution. It felt great getting a return along with a detailed update explaining what they had used my funds for and how things were performing with the fund overall.

I was and still am able to track everything through my own investor portal where all of my investments and distributions are tracked.

Communication and transparency have been great as updates every quarter give me an idea of how the fund is doing, as well as, how every single property in the fund is performing. I’m able to view updated financials easily.

Two more quarters have passed and I’ve received distributions of $957.89 on 4/15/19 and $968.64 on 7/15/19. Totaling all of my returns thus far, I’m on track to receive my full 8% preferred return as expected on this investment. 

The fund did state that the average preferred return is 8%, so if it’s lower one year, the next year they will catch up. But again, looks like I’ll be current on the 8%.

StrategySessionAdsSummary

So far, I’ve been happy with my investment with MLG Capital. I really don’t have anything to complain about. I’ve received timely updates and distributions as promised. Based on the financials I’ve seen, the fund is performing quite well and there’s every expectation that it will continue to do so. 

Again, who knows what will happen if there’s an economic downturn. However, I feel comfortable knowing that this investment is well-diversified across multiple properties in multiple markets/states and I’m investing with an experienced company.

I’ll keep the updates coming.

Interested in talking more about real estate funds or investing? Join our Facebook Group, Passive Income Docs. See you there?


9 COMMENTS

  1. Appreciate the update Peter.

    It was your posts on MLG that made me look into them and eventually invest my own money in their MLG IV fund.

    This was the first time I have dealt with the capital call scenario (in the past syndication deals I have done with single properties I essentially committed the money and deployed it within the month). I have found that this capital call can certainly test my patience (the 2nd commitment I made into the fund is more than 3 months now waiting for the capital call). Like you I put the money in a liquid vehicle (online savings account) but with interest rates so low and getting lower I can’t wait till it finally gets deployed.

  2. Yea, main negative is they reportedly have multiple K1 to file, which based on your tax/CPA situation this cost would cut into returns. As opposed to a combined K1 for the fund. Also funds add a layer of opaqness for how depreciation is divied up and when. Things to consider…

  3. Peter, thank you for the update. I am glad their fund is working out.I was a ‘late comer to the party’, so I did not invest.The company and the fund you chose was very attractive, but I chose to delay bc of the poor (often delayed responses) by the junior management who answered by questions, perhaps assuming the info in the syllabis was sufficient, and that it was not
    necessary to spend their time, late in the game, to answer those questions from an admittedly newcomer to the game. My question to you and other investors in funds or syndications is how to overcome the poor responses, to make a timely decision? (The lesson for me was to start as early as possible in vetting such an investment.)

  4. Thanks for the update Peter and your transparency in all your transactions and how the process works!! You really make it easier for those of us with no experience feel more comfortable taking the ‘next step.’

  5. A very minor point on MLG’S preferred return %. They pay quarterly and consider the cash distribution to be compounded quarterly, so really the actual annual % preferred return you receive if you don’t reinvest the quarterly distributed cash is 7.78%, not 8%.

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