Acquisition Fees

When a new property is purchased, an acquisition fee is typically charged by the fund manager or syndicator. This fee compensates them for the work involved in identifying, underwriting, and acquiring the property. Acquisition fees generally range from 1% to 3% of the property's purchase price.

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Asset Management Fees

Asset management fees cover the ongoing costs of managing the property and usually are charged annually. They pay for the time and effort the manager puts into strategic decisions, overseeing property managers, budgeting, financial reporting, and more. These fees typically range from 1% to 2% of the property's value or of the collected rents.

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Property Management Fees

While asset management is a top-level task, property management deals with day-to-day operations, such as collecting rent, maintaining the property, handling tenant issues, and filling vacancies. This fee is generally a percentage of the monthly rental income, often between 4% and 12%.

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Disposition Fees

When a property is sold, the manager may charge a disposition fee for their work in preparing the property for sale, marketing it, and managing the sale process. This fee usually ranges from 1% to 3% of the sale price.

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Performance Fees (Promote)

Promote, or performance fees, are a share of the profits that the fund manager earns upon the successful sale of a property or portfolio. They're typically structured to incentivize the manager to maximize the property's profitability. The exact structure varies, but a common arrangement is the "2 and 20" model where the manager earns a 2% annual asset management fee and 20% of the profits.

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Financing Fees

Financing fees or loan origination fees may apply if a mortgage is taken out to purchase the property. These costs cover the work involved in securing the loan and are often around 1% of the loan amount.

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Knowing what you're paying and why is crucial for calculating your net returns accurately. Although fees are a necessary part of investing, they can significantly impact your profits. Therefore, understanding each fee's purpose, when it applies, and its usual rate, can help you make more informed investment decisions and potentially negotiate better terms.