Terminology

A Preferred Return is a distribution preference whereby proceeds from operations, refinancing, and sale are first distributed exclusively to one class of equity (typically limited partners / passive investors) until they receive a specified rate of return on investment. This preference provides some comfort to investors because it subordinates the sponsor’s profits participation up to a certain return threshold.

A Private Placement Memorandum outlines the business plan, deal structure, fees, organizational chart, sponsor bios, and any known disclosures or risks of a deal.

A Sophisticated Investor is someone with sufficient knowledge and experience in financial and business matters such that the person is capable of evaluating the merits and risks of a prospective investment. Entities fundraising under the SEC's 506(b) exception may admit up to 35 non-accredited Sophisticated Investors.

See "General Partner."

A Subscription Package is the investing entity's Operating Agreement and the investor Subscription Agreement / Questionnaire. It is the set of legal documents that governs the deal.

A syndication is a way to raise capital from investors and jointly purchase real estate.

The value-add strategy in real estate investing means injecting expertise into the process of buying and upgrading a property with the intention of increasing its value by more than the cost of the upgrades. It is sometimes referred to as "forced appreciation."