A real estate syndication is a partnership where a sponsor, or general partner (GP), teams up with passive investors to acquire large-scale assets such as multifamily properties. The sponsor manages the acquisition and operation of the property for a typical period of 5-7 years, collaborating with a team that includes brokers, property managers, and legal experts.
Passive investors, also called limited partners (LPs), invest capital but have no active role in property management. They receive returns through cash flow distributions and profits from property sales or refinancing, without the responsibilities of direct ownership. The success of a syndication depends heavily on the skills and expertise of the sponsor team, making it crucial to assess their ability before investing.
Sponsors
A real estate syndication is a partnership between the sponsor, also known as a general partner (GP), and passive investors to acquire a real estate asset, including but not limited to multi-family residential, industrial, self-storage, mobile home parks, etc. The sponsorship team combines their skills and resources to buy a property that a single individual would otherwise be unable to purchase. Then, they execute their business plan and operate the property for 5-7 years. Several parties are involved in a syndication, including real estate brokers, property managers, CPAs, lenders, attorneys, passive investors, and the general partner or sponsor who puts it all together to acquire and operate the project.
The Passive Investor
The passive investor, also known as a limited partner (LP), is entirely hands-off and is not involved in operating and managing the property. Investors receive tax benefits, cash flow distributions, and shares of the profit after capital events (i.e., if the property is refinanced or sold). They do not have any voting rights or active responsibilities operating the property. Typically, a minimum investment amount is between $50,000-$100,000, and cash flow distributions are made to the passive investor every month or quarter. These distributions are calculated according to how much was invested and the ownership percentage (which we will discuss in a later lesson.)
The Team
Participating in syndications is an excellent way for individuals to invest in real estate without the hassle of direct real estate ownership. Compared to owning a single-family home as an investment (house, apartment, etc.), participating in a syndication means you don’t need to worry about getting a mortgage, managing tenants, or general maintenance – this is all handled by the sponsor and their team. Therefore, assessing the team’s skills, expertise, and integrity is essential before investing – no single element is as crucial to the outcome as the team players, so we at Veritas Equity chose our team members carefully in order to protect your investment!