Table of Contents
1. Understanding Real Estate Syndication
2. Who Owns the Property in a Multifamily Syndication?
3. Who is Responsible for Property Management?who_is_responsible_for_property_management”>4. Who is Responsible for Property Management?
5. Why Should You Invest in Multifamily Syndication?
6. Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Real estate syndication makes it possible for investors to participate in more lucrative properties. It is a way for multiple investors to pool their money together to purchase a property. This allows investors to invest in larger, more profitable properties. It gives them access to investment opportunities that they may not be able to afford on their own.
Multifamily syndication can be considered a co-investment. It is ideal for real estate investors who want to own a property but are unwilling to get involved in its management. It helps real estate investors enjoy the benefits of real estate investing without the stress of becoming a landlord. [1]
But with multiple investors involved, who actually owns the property in a syndication? In this article, we’ll explore the concept of property ownership in syndication and how it works.
Understanding Real Estate Syndication
Multifamily syndication is a way to invest in real estate that involves pooling your resources with other investors to acquire a single property. Real estate syndication deals can be done with any type of real estate property, but multifamily syndication is the most popular type for two reasons.
One is because multifamily properties offer a strong and consistent cash flow thanks to their multiple units. When a single family property becomes vacant, it basically stops generating income when the tenant moves out. But this is not a big problem when you own an apartment community with several tenants.
The other reason is because multifamily properties are bigger and generally more expensive. This means they are difficult to obtain for the lone investor. A syndication deal makes it possible.
In a real estate syndication, there are typically two main parties involved: the syndicator and the limited partners.
The real estate syndicator, also known as the sponsor, serves as the general partner (GP) for the deal. They are responsible for locating the investment property, underwriting the deal, completing due diligence, arranging the financing, building a business plan, and executing the business plan. They then look for investors who will participate in the syndication deal. [1]
Meanwhile, the limited partners are the investors who contribute capital to the deal and receive a share of the profits. Their role in the deal is to provide most of the capital needed to acquire the property. They then receive monthly or quarterly income distributions from the asset. [1]
Depending on the deal structure, they may also earn a share of the equity upon resale. However, every deal is different. The profit split should be detailed in the private placement memorandum (PPM) before investors decide to join the syndication.
Real estate syndication is a passive investment in real estate. The syndicator handles everything for their investors, from arranging the transaction to operating the asset. [1]
Who Owns the Property in a Multifamily Syndication?
In a real estate syndication, the limited partners are essentially co-investors in the property. This means that they have a stake in the property and are entitled to a portion of the profits. However, they do not have direct ownership of the property itself.
The legal structure of a real estate syndication is crucial in determining property ownership. As mentioned earlier, the property is typically owned by a legal entity, such as a limited liability company (LLC) or limited partnership (LP). This entity is created specifically for the purpose of owning and managing the property.
The ownership structure is usually divided into two classes: the general partners (GP) and the limited partners (LP). The general partners are the syndicators and typically have a more active role in the deal, while the limited partners provide capital but have limited involvement in day-to-day management. As the name implies, investors also have limited liability in the deal.
This structure allows for clear roles and responsibilities, as well as a separation of liability between the syndicator and the limited partners.
As the GP, the syndicator takes a more active role in the investment process. They raise money, choose investors for the syndication, and execute the business plan. They are also in charge of giving investors their initial capital back, along with any profits, at the end of the deal. Therefore, GPs take on the most risk and liability for the syndication. In exchange, they get additional fees, and a (potentially) larger return on investment (ROI) should the property perform well. [2]
On the other hand, limited partners simply invest their money to receive a share of the cash flow from the property’s monthly rental income. This is a passive investment in real estate as investors can just sit back, relax, and enjoy their investment while managing their other priorities. [2]
Generally, LPs are not legally or financially liable for anything involved with the syndication. In terms of losses, they only face the risk of losing their initial investment should anything go wrong. Compare this with the amount of risk you would have to take on if you were to purchase and run an entire apartment community by yourself.
Who is Responsible for Property Management?
In a real estate syndication deal, property management responsibilities will either fall on the syndicator or a third-party property management company. This will also be outlined in the syndication offering documents and contracts.
Some general partners choose to handle the day-to-day responsibilities of property management and operations. They also make decisions about property improvements, handle tenant concerns, and collect rent.
Many syndicators choose to hire a third-party property management company to cover the day-to-day operations of the property. These property managers can also handle rent collection, repairs, maintenance, and tenant communications, among others. They will execute the syndicator’s strategies based on the business plan.
In any case, the investors do not have to worry about property management. You don’t have to deal with the headaches of being a landlord. This is a rare example of a true passive investment in real estate because you don’t have to provide any further input after your initial investment.
In conclusion, property ownership in a real estate syndication is divided among the members or limited partners of the legal entity. By understanding the concept of property ownership in a syndication, you can make informed decisions before joining a syndication deal.
Why Should You Invest in Multifamily Syndication?
As we mentioned earlier, multifamily properties can be expensive, and syndication provides access to larger, more profitable properties that may be out of reach for individual investors.
But investing in a multifamily syndication comes with even more advantages. For example, multifamily properties are generally in high demand in the US because people need a place to live. If the property is in a strategic location, then investors can even expect a high occupancy rate. [3]
This, plus the fact that multifamily syndication deals offer strong and reliable cash flow, makes it an attractive investment for people looking to invest in real estate.
Multifamily syndication also allows investors to diversify their real estate portfolio by investing in a range of multifamily properties. Diversification can help spread risk and potentially provide more stable returns. Larger multifamily properties can even benefit from economies of scale. Expenses such as maintenance, management, and utilities can be more cost-effective when spread across multiple units, potentially increasing the overall profitability of the investment.
Multifamily syndication deals are a great source of passive income where investors can rely on the knowledge and expertise of experienced syndicators. Syndicators have the skills to identify, acquire, and manage properties effectively. This expertise can potentially lead to better investment performance.
Real estate syndication deals are also generally safer because there are multiple investors sharing the risks. This can be beneficial in case of unexpected issues, as the burden is spread across multiple investors.
Lastly, real estate investments, including multifamily syndications, can offer various tax benefits, such as depreciation, which can reduce taxable income and potentially increase overall returns.
It’s important to note that while multifamily syndication offers many benefits, it also comes with risks. Some investors do not appreciate the passive nature of syndication deals. While this passive investment means limited liabilities and responsibilities, there are real estate investors who do not like having limited influence over their investment. The lack of control may not appeal to those who appreciate a more hands-on approach. [4]
Multifamily syndications also require substantial capital investments. If the investment underperforms, there’s a risk of losing a significant amount of money. Not all deals work out. You have to be aware of things like market fluctuations, economic downturns, and other unforeseen issues that can negatively impact returns. That said, it is still much easier than trying to purchase an apartment community all by yourself, since those properties can easily cost millions of dollars.
Joining a syndication deal also exposes you to illiquidity. It’s not so different from other real estate investments in this regard. If needed, it’s not easy to quickly convert your investment into cash. Your capital will be tied to the deal for several years, so you need to be aware that you won’t have access to it. Syndicated deals tend to be illiquid for the entire holding period. [4]
Due diligence is crucial before committing to any investment. It’s advisable to research the syndicator’s track record, the specific property, and the terms of the syndication agreement before making an investment decision. Additionally, investors should consult with financial and legal professionals to ensure they understand the investment and its potential implications for their financial situation.
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Due to the passive nature of real estate syndication, it is essential for investors to perform their due diligence before making any investment decisions. The syndicator you work with should be trustworthy and reliable. After all, they are the ones who will be making all the decisions involving the investment moving forward.
Also keep in mind that most real estate syndication deals are exclusive to accredited investors. These are individuals or entities that meet certain financial criteria and are therefore eligible to participate in certain types of investment opportunities that are typically not available to the general public. Accredited investors meet certain criteria set by the US Securities and Exchange Commission (SEC).
An accredited investor is someone who has an annual income of at least $200,000 for the past two years (or $300,000 combined with a spouse or partner) and an expectation of the same income in the current year. An individual with a net worth exceeding $1 million (individually or jointly with a spouse or partner), excluding the value of their primary residence, is also considered accredited. [5]
The purpose of defining accredited investors is to ensure that they have a certain level of financial sophistication and resources, which may make them better equipped to evaluate and bear the risks associated with certain investment opportunities, such as private placements, hedge funds, and syndication deals.
Accredited investors who are looking for high quality multifamily syndication deals in the Midwest should work with BAM Capital.
BAM Capital is an Indianapolis-based syndicator with a proven track record for excellence. This syndicator has a strong Midwest focus, prioritizing multifamily real estate properties that are Class A, A-, and B++.
BAM Capital is a vertically-integrated company that focuses on high quality real estate properties with proven upside potential and in-place cash flow. They then use their award-winning investment strategy to create forced appreciation while mitigating investor risk. [6]
Being vertically-integrated means BAM Capital can handle every step of the syndication process, from locating the deal to managing and renovating the property. In fact, this syndicator now has over $700 million AUM and 5,000+ units. [6]
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.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
