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Real Estate Syndication Returns and More: Here’s What Happens After you Invest in a Real Estate Syndication
There’s a stark difference between being an active investor and managing your own real estate properties and receiving your tenants’ rent money to being a passive investor and receiving real estate syndication returns directly deposited to your bank account.
I have experience as a landlord, a limited partner in a syndication, and a sponsor. Yep, I’ve worn a lot of hats. Between my husband and I, we’re a couple of mad hatters.
What I want to tell you is what the experience is like after you’ve signed the deal and become a limited partner in a syndication… that feeling…
Communication Between Sponsor and Passive Investors: Waiting for Those Real Estate Syndication Returns
As a landlord, you’re constantly on your guard and waiting for the other shoe to drop. If all goes well, you can collect the rent and pay your mortgage with hopefully pocketing several hundred bucks. But then the non-paying tenant thing happens or the black mold thing happens or the basement floods. And that anticipated cash flow not only disappears but you have to cover the mortgage, expenses, and are now in the negative for the month.
“Oh, but maybe next month will be better. I’ll make my cash flow then?” You tell yourself...
For the passive investors in a real estate syndication, there is a predictable flow each month that one can depend on. For starters, no tenant is going to contact you about a busted pipe and water damage. The only person that’s going to contact you is your sponsor. And usually, they’re going to be talking about the real estate syndication returns via:
Cash Flow Distributions
Your sponsor will send these beloved communiques consistently. This is usually how it will play out:
Each month, usually around the 15th you’ll receive a progress update from your sponsor. This update will outline the various necessities such as the current occupancy, how many units were renovated and photos of the progress, whether the business plan is still on track, and cash flow distributions. These notices will usually come in the form of an email, much like this one:
We have some property updates to share with you regarding Fabulous Apartments:
Current occupancy is 91.3%.
Current pre-leased occupancy is 94.1%
We’ve renovated a total of 15 units since we first purchased Fabulous Apartments.
15 units are in various stages of renovation.
We’ve achieved projected rents for all renovated units.
Building repairs: the landscaping project has been completed.
The community compost units have been installed.
This is an at-a-glance update, a more detailed update is included in your sponsor’s quarterly correspondence.
I love quarterly reports because it’s all about the finances and real estate syndication returns, so it’s juicy reading material! After you’re a passive investor in a multifamily syndication, you receive a detailed quarterly financial report.
This report includes a roll call of current rents tenants are paying for each unit, a profit and loss statement from the trailing twelve months, as well as a thorough breakdown of your investment.
Are there a lot of numbers and spreadsheets involved?
You betcha! But it’s not exactly e=mc2 or anything. But still, you better grab a hot beverage or a sandwich before you sit down to read this baby. At the very least, graze on a light appetizer and scan through the spreadsheets, it’s your investment afterall, and these are the same metrics you’ll see for every quarterly report, so might as well get comfortable with them.
And if you have any questions, your sponsor should be able to hop on the phone and walk you through any of the numbers and line items.
Once a Year
Each year you’ll receive a Schedule K-1. This usually comes around tax season. The Schedule K-1 is a tax doc that reports your share of the income, deductions, and credits. Schedule K-1s are specific to the multifamily syndication. So if you are invested in 2 syndications, you’ll receive two K-1s. If you’re invested in 3 syndications, you’ll receive three K-1s.
You See, it’s a Different Kind of Pen Pal
Communications with your sponsor will be consistent. You’ll hear from them via email each month with succinct above-the-line updates in the monthly correspondence. Each quarter, you will get a deeper look into the health of your investment in the form of spreadsheets on steroids. You’ll see rents, occupancy rates, a profit and loss statement from the previous 12 months, and more.
And finally, at the end of the year around tax season you’ll receive your Schedule K-1. This will show your share of the income, deductions, and credits.
So you see, you’ll frequently be kept in the loop by your sponsor as to the state of your real estate syndication returns. Hmmm… your tenants are lovely people, I’m sure. But considering the passive, no frills role you’ll play as a limited partner in a multifamily syndication you’ll enjoy getting communications from you sponsor much better.
ARE YOU READY FOR FINANCIAL FREEDOM?
We help you create passive income & ongoing cash flow so you can live life on your own terms.
Delphine Nguyen, Investor
Delphine Nguyen is a real estate investor and a licensed real estate broker in Illinois. She learned to be successful from a variety teachers, including her own mistakes. Real estate investing is her passion. Helping others to achieve their goals is another passion that she has. She does what she knows best, therefore, her focus is solely on multifamily and co-living investment types.
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