Prospective Investor Questions (A series)
This series is emcompassing some of the questions we often get asked or questions that we rarely get asked but are key to answer. We’re outlining questions we’ve both received in the past and are receiving as we actively raise money for our projects. Here are the first few questions,
Q: When are the funds required?
A: Funds are requested upon financing approval. As soon as we’ve got financing confirmation, we are able to provide a finalized breakdown of required costs to close & can move forward accordingly. The funds would be moved to our trust account and utilized for the specific property.
Q: Should I be using a corporation, or personal?
A: That question is not for us, we recommend you speak to your own accountant or you can speak with our accountant as well. The reason we don’t answer this question, is each person is different and there are a lot of tax strategies and set-ups which may only be applicable on an individuals personal situation.
Q: Do you guys charge any fees and why would be responsible?
A: Arete charges certain MGMT and acquisition fees, yes. These are broken down in the numbers provided to you. These fees go towards the work required to acquire the asset and manage the asset through to completion. Afterwards, it is managed by a property manager.
Q: Why invest with Arete when we could invest in our own properties?
A: The question should be posed, are you considering investing with Arete because you want to be passive or active. If you’re looking to invest passively - meaning being hands off - then you would certainly want to consider investing with Arete as we complete all active responsibilities of a partner. However, if you’re able to execute a purchase, manage a renovation, and want to be more active - then I’d recommend investing on your own. Our joint ventures or debt investors are investing passively, because they recognize acquiring and completing successful real estate projects is not an easy feat and requires experience, systems and a team of professionals - which is the active roll & that is what we provide as a partner.
Q: Cash calls - are we responsible?
A: Cash calls are what’s considered an unexpected or unforeseen call for cash after a project is completed. These do happen from time to time, yes. The amount required to cover the cash calls is the responsibility of all partners and is required as set-out based on ownership, meaning, if a cash call was $1,000 and you held 50% ownership, you’d be responsible to bring $500. Bear in mind, we account for vacancy, repairs, maintenance and capital expenses in our revenue - therefore, minimizing the likelihood of a cash call.
In the event one of the partners does not have sufficient funds to cover a cash call, the other partners would be asked to cover the difference and the one not able to come up with the funds would forfeit their cashflow to the investor who provided funds until such a time that it was repaid. In the event that no partners are able to cover the cash call, we’d look at alternatives depending on the size, such as loans, 2nd position mortgages (depending on the size) and, or, consider selling certain shares. At the end of day, this is a reality, but there is often a solution & it is not something to be fearful of.
