As the holding period is contractual, you will be clear on when your original investment will be returned before signing a contract with the Sponsor or General Partner. In general, most syndications run their course in five years, which means you will receive your original investment in year five. Before signing anything, be sure you are comfortable with the hold time as well as the exit strategy.

Yes, payment! Frequency and distribution amount vary depending on the syndication. Most syndications do either monthly or quarterly payment distributions. For our syndications, we prefer monthly payouts directly deposited into the investor’s account. The distribution starts a full 30 days after the property has been operating. For example, distributions for August would be distributed at the end of September. This timeline stands upon property closing as well.

After we’ve scouted the market and found a property we’re interested in, it takes us about 60 days to follow through on a comprehensive appraisal of the property. This allows us to determine its investment potential. If everything meets our standards, we start raising equity among passive investors. This process usually takes a mere 5 weeks or less, depending on the desirability of the investment. Once our pool of investors has reserved their stake, we send out the PPM for them to review and sign. With the PPM signed, we collect the funds, closing the property 2-3 weeks later. Generally, our investors receive their first distribution 60 days after we close.

How the sponsor is compensated is negotiable and may vary depending on the deal. However, to give you an idea of standard compensation, remember there are two parties in a syndication: the limited partners and the sponsor. The sponsor earns their compensation via the acquisition fee, due diligence costs, and asset management. As the sponsor is responsible for finding the deal, they earn an acquisition fee (usually 2%). This fee is based on the purchase price and covers all the sponsor’s costs to find and initiate the deal. Another way a sponsor is compensated is through a due diligence fee which includes what the sponsor put upfront for the earnest deposit and inspection and appraisal costs. For multi-million syndications, this fee may be in the thousands. Finally, the third most common means of compensation is through the asset management fee. This includes property management fees and ensuring the business plan is carried out. This fee is also around 2%. All sponsor compensation should be outlined in the PPM.

Whether you can pull your money out before the hold time is up depends on the PPM. It’s best to enter a syndication with the idea that your money is locked until the hold time (usually 5-7 years). However, if you need your original investment returned to you, usually there is a solution. This may involve selling your shares to another investor within the syndicate, however this is something you would need to address with your sponsor.

If you’re ready to invest in a syndication, you first need to connect with a sponsor and ask to be included on their private email list. It’s possible that they’ll already have implemented a deal and it’s under contract, in which case it’s reasonable to request an investment summary. You may even ask them for recorded conference calls, if any exist. If you’re interested in investing with us, please visit LINK to find out how.

A sponsors’ process varies from sponsor to sponsor and deal to deal. For our deals, we first notify our list of passive investors that there is a promising property. We set up a conference call to share more details. These calls are also recorded and can be retrieved at a later date for those investors who can’t make the call. If the deal is a good fit, we ask for a verbal commitment. Next, we work out the details in the PPM. This is our master document that delineates the structure, business plan, risks, operating agreement (outlines our responsibilities and split), subscription agreement (outlines number of shares of the LLC you own), and accredited investor qualifier form (if applicable). We also ask for a direct deposit form to be filled out so you can automatically receive your disbursements. With a finalized commitment and signed PPM in hand, we close the deal.

Managing the day-to-day operations of the apartment building is one of the most important responsibilities of the sponsor, and for that the property should be managed by a professional property management company. This company may be 3rd party or owned by the sponsor. Whether or not the property management company is on the sponsor’s team, it’s important to know about their experience and historical information such as how many units they’ve managed in the target market.

A sensitivity analysis (also called a “what-if” analysis) is a way to forecast outcomes based on various variables. It helps predict all the possible returns under varied economic conditions, including downturns. As there’s always a possibility that we may not achieve our rental forecasts due to either higher vacancy rates or lower rents than projected, it’s important to analyze possible "bad endings" so our investors are 100% clear on worse-case scenarios, as unlikely as they may be.

I like to keep my passive investors abreast of the latest happenings of how their investment is progressing with a monthly update. In this monthly update, I include bullet points with pictures showing unit renovations, rents, and the like. I also provide a quarterly property financial report outlining the management of the property. And finally, following March of each year my passive investors receive a K-1 statement for their tax filings.

It's not uncommon for there to be pre-existing vacant units when we first close on a property. For example, suppose our new investment property is a 100-unit apartment with 10 vacant units. Those 10 units will be the first to be renovated. Then, the following month, there may be several more leases set to terminate. But before those tenants move out, we’ll show them the newly renovated units. Usually the renovated unit knocks their socks off, and they decide to sign a new lease. After they’ve moved into the renovated unit, we start renovating their previous unit that is now vacated.

Upon closing the deal, ideally the sponsor would send consistent and frequent updates. These recurring updates may be sent once a month – at least, this is what we do here for the passive investors in our syndications. Other syndicates may send quarterly or annual updates. There are instances where sponsors choose not to send any updates, ever… this is not our style. Of course, you may have your own idea of how often you would want to receive status updates on your deal, and that’s something you should communicate with your sponsor prior to entering an agreement. In terms of what information is included in a status update, it can range from occupancy rates, renovation updates, rental premiums vs. the forecasts, capital expenditure updates, and any other pertinent updates concerning the residents or market. We make a point each quarter to send our passive investors links to the financial statements of the property, as well as the T12 and rent roll.

The sponsor generally sells private securities to passive investors (the limited partners) under SEC Rule 506(b) or 506(c). The first main distinction between the two is that 506(c) permits the sponsor to actively advertise the deal to the public while this is forbidden for the 506(b) offerings. The second distinction is what kind of investor may participate in either offering. For the 506(b), only up to 35 unaccredited investors (these must be sophisticated investors) may participate. The 506(c) offering is open exclusively to accredited investors. Those investors participating in a 506(c) must verify their financials with a 3rd party – this involves reviewing tax returns, bank statements, etc with a broker, attorney, or certified accountant. Accredited investors must have a net worth exceeding $1M (excluding primary residence), or an individual annual income exceeding $200,000 in the last two years or a joint income with an income exceeding $300,000. For investors participating in a 506(b), financial verifications are not required. As well, to prove that the sponsor did not actively solicit the offering to unaccredited investors, they must demonstrate that they had a relationship with the passive investor prior to the deal.

Let’s get one thing straight: failure means that the passive investors don’t receive their preferred returns and/or initial equity investment at the sale of the property. However, if the sponsor underwrote conservatively and purchased the property with the idea to renovate and improve it, then the deal shouldn’t fail. Syndication should never be a matter of entering a deal and keeping your fingers crossed it succeeds. It requires a thoughtful and balanced approach combined with research and experience to execute a deal and achieve satisfying returns. We acquire property based on several proven factors that have worked for us in the past as well as due diligence. One primary factor for us is an occupancy greater than 90% (which can be verified with the T12 statement). We also clarify the course of action if the returns dip below projections so there aren’t any surprises. Be sure to ask these questions of your prospective sponsor, as well as inquiring about any questions you may have about the deal, team, and market. A forthright and experienced sponsor should never balk at your questions and instead take you and your concerns seriously.

This depends. When there is a new opportunity, some sponsors may notify all their passive investors at the same time, while others may notify their “preferred investors” first. In an ideal world, all investors are notified at the same time so that the deal is open to those first in line. At least that's what we try to do here.

Real estate syndication Sponsors require a minimum investment, also called the “original investment.” This minimum investment may vary depending on the size of the project. For example, the larger the project the more money required to invest. Our syndications are set at $50K minimum and increase in increments of $5K. In terms of maximum investment, Sponsors rarely allow a single investor to invest more than 19% of the total equity. Reason being, if a passive investor invests more than 19%, they would then have to be underwritten by the lender.

Usually, the point of contact is the Sponsor/General Partner. This person can field questions and concerns surrounding the syndication deal. It’s important before you sign a deal that you are clear with who your Sponsor is, have a transparent understanding of their responsibilities, and know how they can be reached. Your Sponsor is involved from the beginning of the deal, and as an active investor they are intimately privy to the day-to-day happenings of your investment.

As we’re working with many investors on one project in a syndication, with each investor owning shares, we do not write in a formula for early cash-out or withdrawal in our partnership agreement. However, we understand that there may be situations where someone in the family is ill unexpectedly or experiencing other hardships that were otherwise unforeseeable. Of course, in these scenarios, we will review your circumstances and try to see if we can reach a solution agreeable to all. This may include selling your shares to another investor in the syndication, or even an outside investor.

The preferred return is the threshold return (annually) that the limited partners are offered before the sponsor receives any payment. After all the operating expenses and debt service has been paid, the cash flow remains. This is where the distributions come from, and you can view this cash flow in the profit-and-loss statement available each month. What the limited partners receive is based on their original capital and the preferred return. For example, if a limited partner invests $100,000 and you offer an 8% preferred return, they receive $8,000 per year in distributions. Let’s say the sponsor has 10 limited partners in the deal who each invested $100,000 with an 8% preferred return, requiring the sponsor to distribute $80,000 annually. If cash flows are less than $80,000 each year, then the sponsor would first distribute whatever the amount of the cash flow is – say, $60,000 – to his limited partners. In this scenario the sponsor wouldn’t receive his split of the profits. This means that $20,000 would accrue to be paid at closing (this is a situation where you want to make sure there is a “catch-up” provision in the PPM). So if the actual returns are less than the preferred return, the preferred return will accumulate until it can be paid retroactively with the cash gains at sale.