Who Owns the Property During Real Estate Syndication?
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In this modern era, real estate syndication remains one of the most lucrative investment opportunities out there. If you are still not familiar with how it works, you are missing out on a fantastic source of passive income.
For those who are interested in real estate investing but do not have the time or energy to manage a 50-unit building all by themselves, this is the perfect investment strategy. A syndication deal can help investors enjoy all the benefits of owning a real estate property without the responsibilities of becoming a landlord.
This article will cover real estate syndication deals: what they are, how they are structured, and why you should participate in one. As an investor you will want to learn how these deals are structured so that you know how earnings are distributed.
Because syndication deals are a group investment, earnings will be split among participants depending on the deal structure. A syndicator will promise long-term returns from a real estate syndication offering, but you still want to know where this money will come from. Let’s take a closer look at these real estate investments.
What is a Syndication Deal in Real Estate Investing?
A real estate syndication deal is when a group of investors pool their resources together to purchase a single real estate asset. A syndicator acts as the general partner and puts the deal together to form the real estate investment syndicate. This is a great alternative to real estate ownership wherein you have to run the property and make sure it is profitable yourself. [1]
A syndication deal consists of a syndicator and a group of investors. The syndicator locates the real estate property, secures the financing, puts the deal together, and looks for accredited investors who will provide most, if not all of the money needed for the real estate investment. Once the deal is in place, the syndicator will also take charge of property management, making it a true source of passive income for any accredited investor. [1]
Syndication deals are different from a real estate investment trust (REIT). REITs are companies that own or finance income-producing real estate. Investors can invest in a REIT, but they are investing in the company itself rather than any particular real estate asset. With real estate syndication, you can choose which deal to participate in, meaning you can base your decision on the real estate property being offered.
A syndication deal offers plenty of benefits for investors involved.
For starters, as a group investment, a syndication deal allows investors to buy assets that are larger than they could normally afford on their own. Larger real estate properties like apartment buildings and condominiums can generate much stronger cash flow than a single family unit.[1]
Because multifamily properties have several units, they are also much more reliable when it comes to generating monthly income. These properties do not have to worry about vacancies. Even if one or two units become vacant, the remaining units can still generate income through monthly rent while you are waiting for new tenants. Single family properties on the other hand stop generating income as soon as they become vacant.
Syndication deals are a great source of passive returns for investors. While real estate normally requires a significant time investment, this is not the case for syndication deals. You don’t have to manage a building or handle tenants. It is a hassle-free way to participate in real estate investing.
Plus, you also get to enjoy tax benefits. By owning a piece of the real estate, investors get tax benefits through their K-1 tax filings. [1]
A real estate syndication investment also appreciates over time, just like any piece of real estate. This means the property value will increase over time along with the return on investment (ROI).
Finally, syndication deals are perfect for diversification. Participating in a syndication deal lets you spread your capital across multiple assets, or even across multiple syndication deals. You can easily diversify your investment portfolio this way.
Who Owns the Real Estate Property During Syndication?
Now that you know what syndication is and what its benefits are, you may be wondering how these deals are structured. Each syndication deal may have a different deal structure. This deal structure will be detailed in the real estate syndication agreement.
A limited liability company (LLC) is typically formed for syndication deals. The syndicator becomes the general partner (GP) as the managing member, while the investors become limited partners (LP).
In a syndication deal, each party owns a percentage of the property. In some deals, ownership is split equally among all the partners. Sometimes the syndicator takes a larger percentage of the equity.
The syndicator’s capital share may range from 5% to 20%. Passive investors pool their resources together to raise remaining capital.
Syndicators usually secure a mortgage while acquiring the property. Repaying this mortgage is their liability. Investors have nothing to do with it. [2]
In terms of the cash flow generated by the building itself, this is usually shared amongst partners according to the percentage of the property they own. Again, syndications may vary from one deal to another, so this will depend on the specific deal structure of your investment.
Some deal structures come with preferred returns to investors, wherein the deal has to hit a minimum return before the syndicator can make money. This provides an added layer of safety for investors. It also encourages syndicators to work hard on the investment property to make sure it is profitable. [1]
Syndication deals are safer in general because you don’t have to purchase a large multifamily property all by yourself. This investment is significantly smaller compared to real estate ownership, particularly multifamily real estate ownership. You only have to worry about your initial capital investment, particularly your percentage of the investment property.
The distribution of profits from monthly rental income is predefined in the agreement, so you can check it ahead of time if it will be done quarterly or monthly. The syndicator calculates the profit and divides it for every investor. It is then distributed accordingly. [2]
Some syndicators perform renovations and add better amenities to attract high-paying tenants. The syndicator will inform all investors ahead of time regarding any upgrades or repairs for the property.
Who Can Participate in Real Estate Syndication Deals?
As lucrative as they may be, most real estate syndication deals are exclusive to certain groups of investors.
To participate in a real estate syndication, you need to be an accredited investor. An accredited investor is someone who has an annual income of at least $200,000, or $300,000 with a spouse. [3]
Alternatively, you can also be considered an accredited investor if your net worth exceeds $1,000,000.
The US Securities and Exchange Commission (SEC) limits syndication deals to accredited investors because they have in-depth investing knowledge and experience. Accredited investors are able to weigh the merits of prospective investments before pursuing them. Plus, with their high income and net worth, they have a financial safety net in case these large scale investments do not work out. Regular investors may not be able to recover as quickly. [3]
For those who want to find real estate syndications, you will have to actively network with other investors. A lot of syndication deals are not listed publicly, so you have to find like-minded investors who can give you reliable recommendations for real estate syndication companies. You can attend events and build relationships with fellow investors in the real estate circles. This way you will expand your knowledge and find your very first syndication deal on your own.
An easier route would be to work with a company that already has a solid track record and is already widely-known in the industry for being trustworthy: work with BAM Capital.
Why Work with BAM Capital for Multifamily Real Estate Syndication
If you want to work with a reliable syndicator with a consistent track record, look no further than BAM Capital. This Indianapolis-based real estate syndicator covers all steps of the investment life cycle, handling everything from purchasing to remodeling to management. BAM Capital has a strong Midwest focus, prioritizing Class B++, A-, and A multifamily assets with in-place cash flow and proven upside potential. [4]
BAM Capital’s strategy mitigates investor risk and allows the fund to target a consistent monthly cash flow. [4]
Thanks to its vertical integration, BAM Capital has the edge over other syndicators. It has unmatched expertise in the field of multifamily real estate syndication.
BAM Capital operates under The BAM Companies which also includes BAM Construction and BAM Management. This means they have their own property management services, unlike other syndicators who have to hire third party companies. Plus, they can renovate and repair properties as needed because they also have a construction arm.
BAM Construction handles upgrades and updates for features and amenities, while BAM Management ensures that the multifamily properties are running smoothly.
Accredited investors will enjoy BAM Capital’s award-winning multifamily investment strategy that creates forced appreciation. BAM Capital will negotiate the purchasing and financing of high quality multifamily properties on your behalf.
BAM Capital’s consistent track record speaks for itself. In fact, it now has $700 million AUM and 5,000+ units.
Keep in mind that no investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
Accredited investors can schedule a call with BAM Capital and invest today.
