As I started moving into the multifamily space, I was introduced to the concept of real estate syndication. I had a lot of questions and since you are reading this article, I’m assuming you do as well.
In this post, I’m going to answer the top five questions we often get asked about multifamily syndication.

What Is Multifamily Syndication?

In simplest terms, multifamily syndication involves pooling together of resources from individuals to accomplish a specific investment objective. A multifamily syndication is when a group of investors come together to acquire a large asset together. This creates economies of scale and allows the group to acquire an asset with greater potential upside. Let me walk you through an example.

Let’s assume you have $50,000 to invest. You could take those funds and invest it in a single family rental property yourself, but you would be tasked with finding the property, securing a contract, overseeing inspections, deal analysis, obtaining financing, finding qualified tenants, and managing the property or the property manager. Not nearly as simple as they make it look on  HGTV!

It is the scenario described above that makes many people just throw in the towel and say “real estate is just too hard”. This is where syndications come into play and can act as an alternative for some investors. Syndications allow you deploy capital and passively reap the benefits of multifamily investments. A syndication allows one investor to put in $25,000, someone else puts in $50,000 and someone else puts in $75,000, pooling together resources to not just buy a small rental property, but a larger asset like an apartment building.

The beauty of the model is that as passive investors you are not tasked with the day-to-day hassles of managing the asset. A General Partner or Sponsor manages the asset and shares in profits with the passive investors.

Who Are The Key Participants In A Syndication?

A typical syndication deal is comprised of two main groups; the general partners and the limited partners (the passive investors).

The General Partners (GP) are responsible for finding the deal, acquiring the asset and managing the asset to deliver value for the investors. They form the active part of the partnership while the passive investors provide capital to help fund the transaction. The Limited Partners (LPs) have no active responsibilities in managing the asset.

The general partners and limited partners join in an entity, typically an LLC, and they all have equity ownership in the LLC. Since our tax code treats LLCs as a pass-through entity, LPs receive all the tax benefits of direct ownership. 

After a property is acquired and renovations are completed, the general partners will either refinance the property or sell the property, return invested capital to LPs and split any profits or equity gained. 

What Are Other Types Of Real Estate Syndications

Multifamily real estate is not the only asset class that can be syndicated. There are literally countless other investment opportunities that can be syndicated; self-storage buildings, mobile home parks, new home development, hotels, student housing, retail space and even your favorite Hollywood movie!

At Blue Arrow Capital, we focus our syndication efforts on value-add multifamily, retail and office space asset classes. In the commercial world, value-add means that the properties could benefit from light renovations, better management, expense reduction or addition of amenities and services that improve the quality of life for residents. We execute our business plan which leads to higher net operating income, increasing the overall value of the property.

Why Would You Invest In A Syndication?

Now that you understand a little more about syndications, let me share why many passive investors consider add multifamily syndications to their portfolio.

• You want to invest in real estate but don’t have the free time or interest in active management
• You want to avoid the volatility associated with the stock market
• You are looking to take advantage of the tax benefits of real estate
• You need supplement cash flow to fund your lifestyle or retirement
• You have funds in an retirement account that you want to diversity into a different asset class

Who Can Invest In A Syndication?

Statistics show that roughly 90% of all syndications done in in United States are done through what is known as a 506(b) offering. A 506(b) allows sophisticated investors ( close friends and family who you have a relationship with  that can demonstrate an understanding of the risk) to participate in these investment opportunities. The other 10% are for what the Securities and Exchange Commission (SEC) calls, accredited investors, who invest in 506(c) offerings. An ACCREDITED Investor is someone who has $200,000/yr income individually or $300,000/yr if  married, or $1,000,000 in net worth excluding their primary residence. 

Let not your heart be troubled, at Blue Arrow Capital, we work both with sophisticated and accredited investors. We can’t publicly advertise 506(b) opportunities but feel free to contact us if you are interested in learning more about deals in our pipeline.

I hope this post has helped you better understand how real estate syndications work so you can decide whether or not they are a good fit for investment portfolio. If you have any further questions, just visit our contact page to send us a note.