With multifamily real estate syndication, investors can conveniently invest in a large-scale projects or other previously inaccessible projects. With this real estate investment approach, you won’t need skills a handyman or landlord possess, and your investment will:
- Yield monthly revenue
- Increase in equity
Real estaet syndication is a great approach for passive investors who have the resources but not the time to manage their investments.
If you’re a tech executive, business owner, or doctor, multifamily real estate syndication can fulfil your dream of owning an apartment building without all the hassle!
What is Multifamily Real Estate Syndication?
Think of a syndication as a structure that has been designed to raise equity from passive investors. Since there’s a large capital requirement to improve or acquire an apartment building or multifamily property, syndication is often the preferred option to raise money from passive investors. An individual investor taking part in the syndication receives equity and returns according to the investment they’ve made without having to perform any work on the property.
This is also one of the most prominent reasons multifamily real estate syndication is one of the best passive investments. Every syndication has a structure that needs to be followed for the partnership to succeed.
The Structure of a REAL ESTATE Syndication
Two primary parties are involved in a real estate syndication:
- General partners (the Sponsors)
- Limited partners
The general partners handle all of the complications of the deal, which includes:
- Navigating through the financial process
- Paying the various investors involved based on their contribution
- Collecting funding and finding investors
- Managing the property
- Finding an appropriate property
Many people simply don’t have the time or resources to find and manage a multifamily property, which is why syndication is attractive for passive investors. This is especially true for medical professionals and high-level executives with schedules that don’t leave them enough time to actively manage their portfolios.
The limited partner is the individual investing in the syndication. This person provides some or all of the funding needed to purchase the property. In return, they receive a consistent return regarding the agreement they’ve made. Moreover, an investor can also look forward to their equity increasing. When the project ends, every investor receives a proportionate share of the growth in equity.
The Money an Investor Makes from a Multifamily Real Estate Syndication
The sponsor will get a share from the equity for the services they’re providing. The way the equity is split varies from one syndication to the next.
Typically, you may see the 80:20 split, in which investors receive the larger share. Additionally, some syndications are structured on a preferred return model, meaning the investor will get a return on their investment before the sponsor gets their share.
To understand this, let’s consider a syndication with a preferred rate of 7%. This means any revenue up to 7% will be given to the investors. This rate is also called the threshold. In this example, the sponsor will receive the money after the threshold is met. If the revenue is 8%, here’s how the money will be distributed:
- 7%: directly to the investor
- 1%: will be split according to the agreement
How the payments play out after the threshold is met depends entirely on the agreement between the two parties. One common scenario is the waterfall method. This is when the sponsor gets a higher percentage as the returns increase.
Should You Invest in a Multifamily Syndication?
For investors, multifamily syndication provides several advantages that can benefit them in the long run and have immediate gratification. Here are a few:
- Multifamily syndication is considered to be of the most dependable kinds of passive income.
- Even if a building you’ve acquired is not operating at full capacity, you’re technically getting richer by the equity you’re gaining on your investment. Apart from sharing the profit from the monthly revenue, a syndication’s investor might also see an added return when the building is sold.
- Typically, the rise in real estate prices exceeds the inflation rate. This makes multifamily syndications an effective hedge against inflation.
- Taxation laws favor investment in real estate, too. Multifamily syndication is a great way to take advantage of lucrative tax perks.
Multifamily syndication can be a great way to accumulate wealth. If you’re considering becoming a passive investor, we can help sponsor the deal and handle all the hands-on tasks involved in the process. We have an extensive track record of success. We look forward to working with you to make your real estate ownership a stress-free experience.
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