It’s Distribution Time!
As a passive investor, my favorite time of the month is when the distributions start flowing into your bank account or your self-directed IRA (SDIRA) custodian account. It's kind of like payday for a W-2 or the first of the month as an active investor when your tenants pay their rent, but it's even better: YOU DON’T HAVE TO DO ANY WORK TO GET THESE DISTRIBUTIONS other than the due diligence on the front end before your initial investment. This month, I had four new distributions start hitting my accounts, and I can’t tell you the excitement my wife and I had when we saw the totals on the right of our tracker.
In this brief article, I’ll outline what my monthly tracking process looks like, and when you can expect to receive your distributions.
How I Keep Track of My Investment Distributions
First, it’s important to note that each of your operators will likely give you a portal to manage your specific investments with them, but I’ve not found a good online solution to capture all of this information for multiple operators so I’ve created my own manual tracking process.
Each time I make a new investment, I capture the investment details in a simple tracker in Excel. I list the operator name, investment amount, anticipated returns, hold time, estimated first distribution date, last distribution date and amount, and total returns. I also have a notes section to capture specifics that could be important later.
As I receive monthly or quarterly email communications from my operators, I update the tracker with anticipated payment dates and amounts, and then I verify when those deposits hit my checking account or my SDIRA custodian account.
That’s it! A few simple tasks each month to verify everything is going as planned, and you can leave the rest to the operators.
When Should You Expect to Receive Distributions?
It’s important to ask the right questions on the front end of the investment. Transparently, I didn’t even know to ask these questions early on, and I’ve learned a few lessons from those errors.
In my experience, most operators pay either monthly or quarterly distributions. Personally, I prefer monthly distributions because it is easier to manage cashflow now that I’ve left my W-2 employment. What seems to vary the most is how quickly you will start to receive distributions. I have some investments that I’ve not received a distribution in in over eight months and others where I received the first distribution within six weeks of my wired funds.
There is not a right or wrong way for operators to schedule their distributions, but it is important to know what the planned distribution schedule will look like for each investment. It's also important to note that the timeliness of your distributions will also impact your internal rate of return (IRR).
Whether you choose to use a tracker like mine or not is up to you, but I suggest that you have some type of strategy in place and use it regularly. Over time, distribution time will become more and more exciting as you continue to decrease your dependence on your W-2 and shift a larger portion of your traditional investments over to this space.
Who doesn't love payday!! And great breakdown of how you track multiple deals from different operators.
I'm definitely recommending this approach to my LPs! Thanks Randy.
@Randy Smith good summary on tracking the distributions. If you could share that spreadsheet template, I am sure some of the LP investors would appreciate it even more.
Curious to know what the average cash on cash distribution % is for the various projects. With interest rates rising, I can see some projects being more conservative with their distributions.
We make monthly or quarterly distributions based on the project and business plan. For our MultiFamily Fund, we make quarterly distributions since it seems to have the right balance between frequency and admin overhead/costs.
@Percy N.I've included a link to the file that I use here - https://docs.google.com/spread.... It's not pretty, but it does the trick and gives you a spot to track all of your deals and results. Feel free to provide any feedback as this is a living document that seems to adjust monthly:)
In regards to COC, I'm seeing results between 4% and 7% in year one on Class B Value Add in appreciating markets. This, of course, is not a static number but simply a reflection of a point in time during this cycle. The bigger challenge is that I'm seeing a lot of operators stop paying distributions or not paying them for the first 12-18 months with the added cash flow constraints we are seeing with increased interest rates up against rate caps. In addition, I'm really starting to watch closely the monthly cash flow on these deals as we see reserves getting eaten up by the higher interest rates.
Hi @Randy Smith! Great information above. We have also heard about a new software that is being beta tested call Vyzer.com. Some people are recommending this for tracking investments. I have not tried it out yet.
@Paul Moore. I've heard about Vyzer.com as well from some of my friends over at Left Field Investors (@Jim Pfeifer). It looks like an amazing tool, but it costs a little more than I'm interested in spending at this time. I'll consider pulling the trigger on it when I hit some of my targets later this year:).
I have been using Vyzer for over six months and it is fantastic! It is much better than my Excel spreadsheets - it gets very complicated to track everything in a spreadsheet. We tried to develop our own web-based solution with this and it just wasn't good enough. Then we found Vyzer and have been very pleased. I have given them pages of feedback and they do a great job of incorporating recommendations in updates to their platform. The Founders of Vyzer developed this platform specifically for passive syndication investors - it's the first tool like this that I have found - but you can also use it for all of your wealth management.
I agree that the cost is higher than you might expect, but with the number of deals I am in - including the group investments I have - it makes sense for me. Distributions take about 20 seconds to enter and a new deal takes just a couple minutes. It's a time saver for me and that makes it worth the cost! This is designed to be the only wealth management platform you will need and I think if you look at it that way, it might justify the cost for you.
@Jim Pfeifer, I had a call with the Vyzer folks from a sponsor and LP perspective and it seems like a good tool for the "professional investor" or anyone who wants to closely track their investments.
It does take some work to keep it current and I am not sure if more than 5-10% of the typical HNW investor would keep up with it to justify the cost, but I was planning to try it myself and then mention it to our investor base as a tool they can look into (no profit sharing or conflicts here).
I think it's a lot easier to keep current than my Excel files! You are correct that I don't think a vast majority of syndication investors will use something like this - but if you are in more than 5-10 deals, it can certainly simplify things. I haven't used many of the other features, but it could replace the wealth management tool people are using to track all of their investments. I think that's one of the big benefits is that you could have all of your finances/investments in one place.
Awesome info! I'll have to have you on the podcast again to talk about keeping track of these! @Randy Smith
@Justin Moy. Looking forward to it Justin!