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Multi-Family Apartment Syndication, The Basics

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Real estate syndication is a partnership between several investors who collectively pool their skills, resources, and capital to purchase and manage a asset they otherwise could not afford on their own. In apartment syndication, the investment property being purchased is a multi-family apartment building or complex. In this blog, we’ll briefly talk about what apartment syndication is and reasons why real estate investors diversify with this form of investing.

Roles:


A General Partner (GP), also called a Sponsor, makes an apartment syndication happen. The Sponsor puts in the sweat equity & behind the scenes work to oversee the Syndication. This includes finding the apartment building, negotiate the deal, finding investors, and management. The next role is Limited Partner or (LP). LPs are the passive investors who contribute their capital to purchasing the apartment building. Lastly, the Property Management Team, which is either part of the General Partners company or outsourced by a 3rd party. The property management team takes care of all day-to-day activities related to operating the asset, including the upkeep of the building, leasing activities, and maintenance.

The Deal:


Prior to investing, prospective investors will receive a document by the name of a Private Placement Memorandum (PPM) which outlines all the key information about the deal, including information about the asset, the business plan to improve the properties operations and Net Operating Income, disclaimers of legal liability and risks, projected returns, and the planned holding period. This will also discuss how returns from the deal will be distributed between the partners.

All Deals are different, but in some cases the Sponsor is likely to receive upfront money for the sweat equity they have already contributed. Another common “fee” is an asset management fee for managing the property and the syndication process. After this, proceeds are likely to be split according to a “straight split” where parties get a percentage of proceeds in proportion to the percentage of the property they own, or a “waterfall” model where preferred investors get a defined return on their investment and any proceeds above this are distributed proportionally.

Investing Amount:


Another benefit of Real Estate syndication is the high barrier to entry of multi-family properties is lowered. Instead of needing large sums of money (or debt) to buy entire properties that easily cost in the millions, investors can get in the door with much smaller amounts of funds. Here at Eden Capital, this can be as low as $25,000, depending on the deal. Again, all Deals are different.
Because of this, investors can invest in several, different apartment syndications diversifying their portfolio. When thinking of investing, not having to place all your eggs in one basket is major.

One Con or disadvantage of investing in an apartment syndication, is that money cannot be withdrawn easily. It is important for potential investors to ask questions and become informed on each deal. Investors should understand how long the holding period of the property is likely to be. However, in exchange for tying up their capital for that period, investors do receive regular revenue payments.

Returns:


In addition to receiving regular returns, partners in an apartment syndication also stand to gain from the appreciation of the asset. Although not always, and not at a predictable rate, properties do tend to gain in value over time, and any appreciation gains are also paid out to partners in the end. This means that investors tend to get more out than they originally put in!


* Investing Involves Risk, Including Loss Of Principal. Past Performance Does Not Guarantee Or Indicate Future Results. Any Historical Returns, Expected Returns, Or Probability Projections May Not Reflect Actual Future Performance. While The Data We Use From Third Parties Is Believed To Be Reliable, We Cannot Ensure The Accuracy Or Completeness Of Data Provided By Investors Or Other Third Parties. Neither Eden Capital Nor Any Of Its Affiliates Provide Tax Advice And Do Not Represent In Any Manner That The Outcomes Described Herein Will Result In Any Particular Tax Consequence. Prospective Investors Should Consult With A Tax Or Legal Adviser Before Making Any Investment Decision.
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