6 Ways to Make Money as a Multifamily Syndicator

by | BiggerPockets.com

You’ve heard the term “real estate syndication” and are intrigued yet a little confused.

What exactly is a syndication, and more importantly, how do real estate syndicators make money?

Put simply, a real estate syndication is a group of like-minded investors who pool their resources (including money and skills) in order to make larger investments than they would have been able to alone.

Like other real estate investment models, there are a variety of ways you can make money when setting up your own real estate syndications. Every syndication arrangement can be slightly different.

Not all will leverage every revenue option below. Some will even come up with their own to add. The degree to which each is leveraged can vary widely, too. It’s up to you and whomever you’re working with to craft your own model.

From experience, investor partners prefer less complexities, so the simpler the structure, the better. Just keep in mind that being a generous syndicating sponsor and leaving plenty of profit for your passive capital investors is going to be key to your ongoing success, referrals, and repeat raises for new projects.

Here are six common ways multifamily syndicators make money.

apartment-first-deal

Related: 7 Ways to Organize & Structure a Real Estate Syndication

How to Make Money as a Syndicator of Apartment Deals

  1. Acquisition Fees

One of the most common fees is an acquisition on the successful closing of a new asset. This is typically a small percentage of the value, like a real estate commission. This covers sourcing deals, screening them, and managing the transaction from start to finish.

  1. Asset Management Fee

Multifamily syndicators typically also make an ongoing asset management fee as a percentage of revenues collected. This is completely different to profit splits, and generally the role oversees operations relating to property, such as property management.

  1. Refinance Fees

There is a lot of work involved in securing a refinance for a commercial property. For long term holds, this is a regular occurrence due to loans that often mature or face major adjustments every five to 10 years.

  1. Disposition Fee

Few syndications buy and hold forever, as most investor partners want to see an exit in the foreseeable future. Assets are regularly recycled to maximize true returns. Some syndications are created specifically for redeveloping and flipping commercial properties after they’ve been renovated and performance has been established.

  1. Loan Guarantor Fee

Even though commercial mortgage loans are mostly asset-based loans, there is often a guarantor to sign off on the loan required. The more experienced and better their credit, the better the terms of the loan. That helps every partner in the syndication. It’s only fair the syndicator gets an extra risk-based fee for that service.

  1. Profit Split

There are many ways you can arrange to split profits with your partners. You can offer preferred returns to them first if you like. You will often put some cash into the deal yourself. Then, net profits will often be split 70/30 or 90/10. What you want to offer to your partners will usually determine the profit split (i.e., 12 percent cash on cash).

Summary

There are many ways to profit as a multifamily syndicator. My advice? Don’t sell yourself short, aim for desirable yet achievable gains, and be competitive but not greedy. 

Hoping to profit through syndicating in some other way? Questions about any of the above structures?

Let me know in a comment. 

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.

6 Comments

  1. As a passive investor in a few syndication deals (including one with Sterling’s company Holdfolio), I think another factor to consider is communication. It costs you time and energy to write up reports and provide updates, but I really appreciate knowing how my capital is being used during the initial phases, how rehabs are affecting vacancy rates, when investors can expect to start receiving dividends, etc. One of the deals I am in the sponsor has provided only one vague update (“in line with expectations”) in over 4 months and as a result I am not likely to invest more money with them in the near future. Providing regular updates and being honest and candid in those updates is more likely to get me to re-invest with you in the future. I don’t expect everything to always go perfectly according to plan, but I do expect honesty and transparency from the sponsor.

  2. Justin Spears

    Good read! As someone who is interested in getting into the world of syndication, I knew of most of these. Refinance fees and disposition fees are both new to me though. I don’t know if they have come up in my research so far. Thanks for the info!

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