What is real estate syndication?
Traditionally, people wanting to get into real estate, myself included, would scour the market, often competing with other investors, to find rental properties, in the best locations, with the best price, and a good pool of tenants in the area. I am very familiar with how time consuming the process is, let alone the time and money spent on dealing with tenants and repairs once the property is purchased.
A real estate syndication is a pool of of capital by a group of investors, with the sponsor, also known as the operator or syndicator, at the helm. The sponsor's role is to identify potential target acquisitions, perform extensive market research and site inspections prior to securing the deal, manage the underwriting process, secure property management, oversee property renovations, and, overall, to manage all operational aspects related to the property.
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The sponsors that I work with operate in very specific niches - markets with population and job growth, a diversity of job sectors in the area, and crucially, in apartments in areas with great tenants and high occupancy rates. They add value to these investments by renovating each property, and the pool of investors participate in monthly distributions, as well as on the exit, or sale of the asset.
4 Ways to Make Money in Multifamily Syndication
1.
cash flow
Cash flow from rental income is distributed either monthly or quarterly, with a lump sum distribution upon an exit event such as sale or refinance.
2.
appreciation
Similar to house flipping, our operators add value by renovation, improvement of net operating expenses, and increasing of rents thereafter, in accordance with the local market. Investors reap the benefits upon exit, as assets sell for significantly higher than they were purchased for.
3.
amortization
Income from rents & additional sources related to the assets pay down the underlying debt (mortgage), thereby increasing equity of the properties.
4.
Depreciation
Syndicators can utilize tax-advantaged strategies such as cost segregation and accelerated depreciation, meaning investors can usually earn income free of tax obligations. Investors can also participate in 1031 exchanges upon exit, meaning they can roll over their capital gains into another similar project.