HOW IT WORKS
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Cashflow
Profit left over after expenses is called cashflow. This is distributed monthly or quarterly by General Partners. Cashflow is where tax benefits are pertinent since depreciation can be used to offset distribution amounts.
Sale/Refinance
this is called often referred to as “full cycle” but it really just means we have reached our expected returns and take out the equity. Upon sale the investors get their return before General Partners.
Preferred Return
Investors (Limited Partners) receive an agreed-upon percentage (e.g., 8%) before General Partners. Preferred returns are very favorable Limited Partners and inventive General Partners to carry out the business plan quickly and effectively.
Demystifying Real Estate Syndications: Your Guide to Passive Investing
A real estate syndication is a partnership consisting of General Partners (Managers) and Limited Partners (Investors). General Partners pool together capital from Limited Partners and themselves to fund a real estate acquisition. General Partners target properties with value- add opportunity and create a business plan to raise net operating income of the property which inevitably raises it value increasing the return to investors. Most business plans take 5-7 years to execute upon which the property is sold, and investors receive full return.
- General Partners (GP’s) – find, operate and manage the deal. Responsible for maintaining the property.
- Limited Partners (LP’s) – invest funds in the deal and receive distributions and splits. No responsibilities.
- Key Principals (KP’s) – Often part of the GP team, they bring net worth, liquidity, and the experience necessary to secure the loan.
- Syndication Lifecycle - Acquisition -> business plan -> refinance/sale
Key Players in Real Estate Syndications:
Understanding Roles and Responsibilities
"Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth."
— Theodore Roosevelt, U.S. President
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