How Much Do Multifamily Syndicators Usually Make Per Door?

by | Aug 24, 2023 | Accredited Investor, BAM Blog, Blog, Real Estate Investing | 0 comments


If flipping houses or dealing with unruly tenants does not sound appealing to you, you may want to consider other real estate investing options. One of the best alternatives is real estate syndication.

Real estate syndications allow you to work with other real estate investors, and then sit back, relax, and enjoy your passive income.

Real estate syndication is a partnership that allows you to participate in much larger investments that you normally wouldn’t be able to or wouldn’t want to get into alone.

Because multiple investors are pooling their resources together, they can fund a large multifamily property or a commercial real estate property. You can gain access to larger and more profitable real estate deals that may be too large or too complex for you to undertake on your own. This type of investment opens up a lot of doors.

However, in a syndication deal, you are not just working with other real estate investors. You are also partnering up with a syndicator.

A real estate syndicator is a person or company that pools together capital from multiple investors to purchase and manage real estate assets. The syndicator is responsible for identifying and evaluating investment opportunities, structuring the deal, raising capital from investors, and managing the ongoing operations of the property.

In exchange for their role in managing the investment, the syndicator typically receives a portion of the profits or equity in the property. If you are a passive investor hoping to participate in a syndication deal, you may be wondering how much a syndicator usually earns.

The amount of compensation and other terms of the deal are usually negotiated and spelled out in a legal agreement between the syndicator and the investors. Let’s take a closer look.

What is Multifamily Real Estate Syndication?

Before we discuss the distributions for this type of investment, we need to talk about what real estate syndication is and how it works.

Multifamily real estate syndication is a type of real estate investment strategy where a group of investors pool their resources and funds to purchase and manage a real estate property. While this can be done with any type of real estate, multifamily syndication is the most popular strategy because of the strong cash flow generated by apartment buildings.

Examples of multifamily properties include apartment complexes, townhouses, and other residential buildings with multiple units such as duplexes and triplexes.

In a real estate syndication, a sponsor or lead investor with experience and expertise in the real estate market identifies and manages the investment opportunity. The sponsor creates a business plan for the property, including strategies for acquisition, financing, and property management. They then look for accredited investors who will participate in the syndication deal. [1]

The sponsor then raises capital from investors who are interested in investing in the property but may not have the expertise, time, or resources to manage the property themselves. The investors contribute capital to the syndication, and in exchange, they receive an ownership interest in the property, typically in the form of a limited partnership or LLC ownership structure.

In a syndication deal, there are two parties involved: the real estate syndicators who serve as general partners (GPs) or sponsors, and the passive investors who are considered limited partners (LPs). The limited partners provide most of the capital needed for the deal, while syndicators are in charge of strategizing real estate investments and managing the property once the deal is done. [1]

There are several legal structures that can be used for this deal. However, Limited Liability Company (LLC) formations are the most common. The US Securities and Exchange Commission (SEC) does not require this type of organization for syndication deals. [1]

The sponsor is responsible for managing the property and making all operational and financial decisions.

Multifamily real estate syndication can offer several benefits to investors, including access to larger and more complex investment opportunities, diversification of their investment portfolios, and potentially higher returns than other types of investments.

One of the biggest benefits of multifamily syndication is the ability to invest in large real estate deals. Normally, these large apartment complexes can cost you a million dollars if you were to purchase one on your own. A syndication deal makes it possible to invest in large multifamily syndication deals without shouldering the costs and the risks all by yourself.

You also get to avoid the usual headaches associated with being a landlord, which is a responsibility you have to take if you purchase a multifamily property by yourself. The syndicator handles property management and makes sure the investment is profitable.

Do take note that most real estate syndications are exclusive to accredited investors.


Distribution Cycle for Real Estate Syndication: How Does it Work?

The cycle for distribution for multifamily syndication is predefined in the agreement. Investors can usually expect a share of the cash flow from the apartment complex’s monthly rent. [2]

Investors not only receive returns from the rental income but also from the appreciation of the property’s value. However, this depends on the deal structure. Every syndication deal is different, and the distribution cycle will also vary so it is important to look at the specifics of each investment you participate in.

Investors should receive communication from the syndicator regarding the periodic financial statements and the occasional upgrades and repairs.

The distribution may be done on a quarterly basis, while other syndication deals do it monthly. The profits are calculated and divided among each investor based on the agreed-upon percentage and their contribution in the capital investment. [2]

Overall, multifamily syndication is a popular investment strategy among real estate investors who want passive income and long-term wealth building opportunities.

Cash Flow for Passive Investors: Expected Returns for Multifamily Real Estate Syndication

Calculating the expected returns of a multifamily syndication deal is a crucial part of the decision making process.

Real estate investors usually calculate the net operating income (NOI) to assess the profitability of the real estate investment property. This financial metric represents the income generated by a property after deducting all operating expenses, but before deducting debt service and income taxes.

NOI is calculated with the following formula:

NOI = Gross Rental Income – Operating Expenses

Gross rental income is the total income generated by the property from rents, lease payments, and other sources of income. Operating expenses include all the costs associated with operating the property, such as property taxes, insurance, utilities, repairs, and maintenance.

Once the NOI is calculated, the syndicator can use it to determine the property’s cash flow and potential for appreciation, as well as to calculate important financial ratios such as the cap rate and cash-on-cash return.

If a 50-unit apartment building has all units filled and the rental rate is $500 per month, then the Gross Rental Income Per Month will be $25,000. The Annual Gross Rental Income will be $300,000.

In this example, the vacant units and expenses have not yet been considered. Investors should receive a percentage of the income once these expenses are deducted including the mortgage installments, renovation and maintenance fees, and taxes. [2]

The net rental income of the syndication deal will be the difference between the gross rental income and the total expenses. Even with the deductions, real estate syndications are usually lucrative because syndicators work hard to make sure they are profitable.

Some syndicators aim for a certain percentage of returns for their investors before they can get their share of the profits. This provides some extra protection for the passive investors.

Syndication deals have a predetermined exit strategy. After a considerable holding period, the syndicator will begin looking for a buyer for the property. They will then sell it for a better price. [2]

Keep in mind that the distributions depend on the deal structure, and investors should learn all the details of the syndication deal before participating.


How Much Do Syndicators Usually Make from Real Estate Syndications?

It is important to remember that not all multi family syndicators are the same, but generally speaking there are a few ways they can make money from a syndication deal. The first one is through an acquisition fee and refinance fee.

Syndicators are compensated for the time they put into finding investment properties and putting deals together. They handle everything from start to finish. The acquisition fee may range from 1% to 5% of the purchase price. It’s rare for a syndicator to charge higher than that, but it does happen. [3]

Another way syndicators earn money is through asset management fees. The asset management amount can be charged as a percentage of income. The standard asset management fee is 2%. So for example, a property that collects $100,000 per month in rental income will have an asset management fee of $2,000 per month. [3]

Overall, multifamily syndication is a great source of passive income wherein investors enjoy all the benefits of owning a large apartment complex—including the large cash flow and the tax benefits—but without the usual headaches that come with being a landlord. Participating in a real estate syndication means you can just sit back, relax, and let your investment generate income on its own.


Work with BAM Capital for Multifamily Syndication

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, the best choice is BAM Capital.

BAM Capital is a vertically integrated syndicator based in Indianapolis that has a consistent track record and a strong Midwest focus. Being vertically integrated means that BAM Capital can handle every step of the process from negotiating the purchasing and financing, to managing the property. BAM Capital even has its own property management team.

BAM Capital prioritizes Class A, A-, and B++ multifamily real estate properties, particularly those that have an in-place cash flow and proven upside potential. With its award-winning investment strategy, BAM Capital can create forced appreciation and help their investors grow their wealth. [4]

This syndicator mitigates investor risk while handling everything from start to finish.

BAM Capital now has over $700 million AUM and 5,000+ units, making it one of the most reliable syndicators for accredited investors.

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.