Updated: Feb 29, 2020
A Syndication is the pooling of resources together and shared risk in order to handle a large transaction that would be challenging or impossible for the entities involved to handle individually.
In a real estate Syndication the resources include a Sponsor /General Partners and you as an Limited Partners (LP) who invest directly in the Syndication. There are other resources such as Loan Brokers, Property Managers, Insurance Brokers, Lawyers as well as a CPA. It takes a village to take down a worthwhile real estate project and a whole lot of resources.
A Private Placement Memorandum (PPM) is primarily a disclosure document that is descriptive but not persuasive in its style and allows the investor to decide on the merits of the investment. The presentation of the PPM is more factual and concrete addressing external and internal risks facing the company. A PPM may indirectly serve a marketing purpose if it is professional looking and thorough. A well drafted PPM will balance disclosure requirements with marketing elements designed to sell an opportunity.
Over the 25-year period from 1992 through 2017, multifamily real estate provided the highest average annual total returns (9.75%) of any commercial real estate sector with the second lowest level of volatility (7.75%), according to research cited in a 2018 report by CBRE, the world’s largest commercial real estate investment firm.
According to data from the U.S. Census Bureau, renting represents the most common form of housing for the millennial generation, the largest generation in U.S. history.
According to 2017 research from Real Capital Analytics, multifamily investors enjoyed better terms for funding than investors in the broader commercial real estate market. For example, the typical mortgage rate of 4.25% for multifamily was lower than the overall commercial real estate sector, at 4.5%.
APARTMENT EBB & FLOW
There are many revenue streams from an apartment complex; rents, storage, parking, laundry income, etc.
Rental income comes in, operational expenses get paid, loan gets paid, the remaining cash is the cash flow distributed to investors.
Revenue - Expenses - Loan Payment = Cash Flow
HOW LIMITED PARTNERS GET PAID
Distribution to LP’s are monthly or in some cases quarterly.
For a $50,000 investment expect a targeted 8% cash on cash (CoC) annual return. For this example that’s $4000 a year, $333 a month in cash flow deposited directly into the account that the LP provides.
WHEN SHOULD LP’s EXPECT INVESTMENT BACK?
In our business model LP’s should expect original principal return around year 3 or 4.
Depending on market conditions we start planning the sale of the property around years 5-6. After a sale LP’s would participate in the share in equity, increasing their overall return.
HOW DOES THE PROCESS WORK?
After establishing a relationship with myself and joining the Purple Circle (it’s free btw) you will be notified about private opportunities. Should the opportunity fit your investment goals eDocs are sent to you for signatures and wiring instructions.
DUE DILIGENCE PHRASE
During the due diligence phase inspection are being done on various facets of the building. From roofs to toilets, plumbing, building mechanics as well as auditing the properties financials. Should something be uncovered that is a red flag and we don’t go through with the opportunity investors will receive their money back.
LIMITED PARTNER (LP) EXPECTATION
There isn’t much else expected from an LP as LP’s won't be involved in the day to day management. Syndications are designed for busy professionals who don’t want to be Landlords but want real estate in their portfolio and seek tax benefits.