How do you structure a real estate syndication deal?

How do you structure a real estate syndication deal?

In a real estate syndication deal with an 80/20 split, the passive investors get 80% of the returns across the board, and the general partners get 20% for their role in syndicating real estate. This deal structure can be especially beneficial to passive investors in deals with high returns. More on this in a bit.

What does syndicated mean in real estate?

A real estate syndication is the pooling of funds from many passive investors to purchase income-producing real estate. As the manager, you are called a syndicator and have a fiduciary responsibility to define the returns and risks to investors and protect their investment.

What are the common structure of a syndicate?

The Investor Entity in a syndicate will typically have multiple classes of Members. We’ll call them Class A (for cash-paying Investors) and Class B (the management or “sweat-equity” class). If certain Class A Members will have different returns, Class A can be broken into separate sub-classes (A-1, A-2, etc.).

What is Multifamily Syndication?

A multifamily syndication is a real estate investment with multiple investors pooling their money to purchase the asset. There is a sponsor that locates the deal, coordinates the transaction and financing, and manages the investment once the deal has closed.

What does a syndicator do?

The first ingredient for a real estate syndication is a “syndicator” or “sponsor”. This individual or company is in charge of finding, acquiring and managing the real estate. They have a history of real estate experience and the ability to underwrite and do due diligence on the real estate.

How does syndication work in real estate investment?

Real estate syndication is a transaction between a Sponsor and a group of Investors. As the manager and operator of the deal, the Sponsor invests the sweat equity. This includes scouting out the property and raising funds. In addition, the Sponsor acquires and manages the investment property’s day-to-day operations.

How is rental income distributed in syndicated real estate?

Rental income from a syndicated property is distributed to investors from the Sponsor. This typically occurs on a monthly or quarterly basis according to preset terms. A property’s value usually appreciates over time.

How does crowdstreet work in real estate syndication?

CrowdStreet focuses on individual commercial real estate deals in 18-hour cities. If you have a lot of capital, you can use CrowdStreet to build your select real estate syndication portfolio. Before the JOBS Act passed in 2012, you had to be rich and connected to invest in real estate syndication.

What are the pros and cons of syndication?

Like any real estate investment, there are pros and cons to real estate syndication. Sponsors can tap into more capital to grow their real estate portfolio without spending their own money. They have a more extensive network to use and can pool the funds to make more significant investments.