What is a Full Cycle Real Estate Deal
by Omar Ruiz
What does it mean to have a full cycle real estate deal and why is it important? Taking a real estate deal full cycle is an important milestone and accomplishment for real estate syndicators. It means the real estate promoter or operator has competently operated a real estate investment deal and reached the investment goals. They have now sold the property, exited the deal and provided investment returns to their investors and themselves.
The following is a simple general explanation of the full cycle progression that a multifamily real estate deal goes through.
The 4 Phases of a Full Cycle Deal:
1. Finding a Deal and Creating a Plan
In this phase of the deal cycle, the operator manages to find a deal with value potential. Finding good deals is an involved process in itself, which requires the talents, network, experience and creative capabilities of the operator. Deal analysis is conducted that involves thorough review of financials and the local market to determine its value potential and what can be done to improve its operations.
A plan is created from the deal analysis with the intent to increase the property’s value so that it’s a good investment. Plans will involve actions, budgets and coordination that serve as the guide for reaching the desired investment goals.
If the operator successfully negotiates purchase price and terms they will get the property under contract. This begins a time sensitive period where the operator must handle due-diligence, financing, raising capital and providing all required documentation to close-out the transaction.
The operator will typically have money deposited and risks losing that money if they don’t act within the contract’s specified timelines. They have time during due diligence to back out of the deal if they discover adverse conditions that may work against their original plan. They can also renegotiate the contract and still move forward to closing out the deal.
After the deal is acquired, then the operations begin. Now work starts towards achieving the investment goals. The operator(s) will move forward with their plan and coordinate with management, contractors and any other necessary parties that will help bring the desired plan results.
Supervision of all parties involved is required and constant follow-up on scheduled tasks to ensure timelines are met. There’s also overseeing of the financials and budgeting for costs associated with rehab, materials, labor, etc. Sometimes plans need to be adjusted or even completely modified to compensate for changes that may occur. This is where the experience of the operator is relied on – making sure good decisions are made and the project continues in the right direction towards reaching the investment goals is the job of the operator(s).
Once determining that the goals for investment have been reached, it’s a good time to decide to sell the property. Attention should be given to current market conditions. It may be wiser to postpone the sale if market values are not desirable and operations are producing healthy cashflow.
The operator will need to find a suitable broker and negotiate with buyers. Sellers need to do their part to make sure the transaction goes as smooth as possible. They must provide the necessary financials and other documentation to facilitate the buyers financing and due diligence needs.
After the sale closes, proceeds and profits are accounted for. Any remaining expenses should be paid off and proper distributions of investors principal and investment returns should be paid. The business operations will be closed-out and entity may be dissolved by the operator.
Taking a real estate deal full cycle is an accomplishment that requires skills, experience and talents of many individuals coordinating together over a period of time. The effort is led by the real estate operator. If the operator achieved good results, they will continue having good business relationships with their investors and continue to work together on future investments.
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