What is a real estate syndication?
A syndication is when investors and capital that are pulled/pooled together from a group of investors to purchase real estate.
The organization, entity, investment structures have to be done legally, according to federal law, and follow Securities and Exchange Commission (SEC) guidelines.
State and federal laws consider real estate syndication a form of security, and one must comply with a myriad of securities regulations. A lawyer or syndication attorney will be needed.
What is a Syndicator?
Syndicators can also be referred to as a Deal Sponsor, General Partner (GP), or class B members.
They are responsible for identifying and acquiring real estate and managing the project’s day to day operations.
Equity ownership for participation for the GP side is typically 10-40 percent.
If there is a pref, or preferred return, then you will provide the investors X% return on the investment before the 70/30 actually takes place.
What is a Passive investors?
Passive investors can also be referred to as capital partners, limited partners (LP), or class A members.
Passive investors receive passive income from the venture and have equity in it.
They don’t need significant real estate experience and typically aren’t involved in the business daily operations.
This can be a better option than a mutual fund, CD, savings account, etc.
How is the equity split on an investment?
Typically 70% to the LPs and the 30% to the GPs
Can be structured in a variety of different ways - ie. 60/40, 65/35, 70/30, 75/25, or 80/20
Sometimes there is a “pref” built in
With a 70/30 structure and no pref, the LPs will take 70% of the profits and the GPs will take the other 30%.
If there is a pref, or preferred return, then you will provide the investors the investors X% return on the investment before the xx/xx equity split actually takes place.
What is an acquisition fee?
It is a one time fee paid at closing and is typically in the range of the 1-3% of the Toal purchase price.
A lot of time and effort goes into this deal, so this fee is justified and well deserved, but most investors usually stay on the lower end of this range, around 1-2%, especially for newer investors.
