Apartment Building Syndication
Lowell, AR · Member since 2018 · 4 posts · 1 vote
I have what seems like a very simple question about Real Estate Syndication's that I am having a hard time finding an answer for.
If I was to invest $200,000 in a real estate syndication. After 2 years the syndication refinances the property and pays back my $200,000 investment. If the company continues to own the property and the property continues to receive a positive cash flow. Would I receive a percentage of that cash flow until the property is sold?
@Mitchell Handley if the deal is structured such that you no longer receive cash flow after receiving a return of your capital, run, do not walk, as far as you can from that deal. Those are not market terms. Yes, you see plenty of syndicators doing this, but there is no reason why investors should accept such terms.
In essence what the syndicator is saying with this structure is, "I don't have the money to buy this deal, so I want you to buy it for me. You take all of the risk, and I get all of the upside. I can pay you back your $200,000 and own the deal for myself." No way in heck should you accept that.
@Scott Morongell was absolutely correct that syndications can be structured however the parties agree. If you are new to investing in syndications, you might be lured into investing in something that you don't fully understand. So agreeing, and knowing what you are agreeing to are two different things. Study the language in the operating agreement very carefully because waterfall terms in operating agreements can be confusing and it isn't difficult for sponsors to hide onerous terms among the fluff.
The way the waterfall calculations should work is that you receive 100% of all distributable cash (divided among you and the other investors pro-rata) until you reach the preferred return hurdle. For sake of example let's say that's 8%. Once that hurdle has been met you would receive the portion of distributable cash as specified in the operating agreement, usually somewhere between 50% and 80%.
If you get some of your capital returned, the amount of dollars added to the accumulation of preferred return goes down, which means that satisfying the distributions required to get you to an 8% return on your unreturned capital takes fewer dollars.
Let's walk through an example. Let's say that in the first year you have $200,000 committed. It takes $16,000 to satisfy the preferred return hurdle.
In year 2 you have $100,000 committed because the sponsor refinanced and sent you $100,000 back. For year 2, your preferred return hurdle is $8,000. At the end of year 2 the sponsor refinances and returns another $100,000 so now you have no capital left in the deal. Your preferred return hurdle for year 3 is $0.
Now let's say that the operating distributions total $10,000 for year 1. You get all of it, because the sponsor owes you $16,000 in preferred return. The other $6,000 carries over.
In year 2 there is also $10,000 to distribute. You get all of it, because to satisfy the preferred return the sponsor owes you $6,000 from last year and $8,000 from this year, so $14,000. The remaining $4,000 carries over to year 3.
In year 3 there is $10,000 to distribute. You get $4,000 of it to satisfy the remaining preferred return left over from previous years. Since you had no money in the deal in year 3 there is no preferred return added to the accumulation. The remaining $6,000 is split between you and the sponsor according to the terms of the hurdles in the operating agreement. So for example, if the next tier is a 70/30 split, you get 70% of $6,000, or $4,200.
In year 4 there is $10,000 to distribute. You have no remaining unpaid preferred return and because you got all of your money back there is no preferred return added. If the next tier is 70/30, you get $7,000. And so on.
But let me re-state, the operating agreement can say whatever the sponsor wants it to say. You have to study carefully. What I described is how I do it and is generally considered market terms by sophisticated investors. But plenty of sponsors look for unsophisticated investors that don't know any better and slip in all kinds of stuff that are not in your best interest.
There should never be an alteration of your ownership percentage whether you have your capital back or not. Unless you agree to it, but why would you?
@Mitchell Handley that is a good question, and the answer is "it depends" how the deal is structured.
If the syndicator returned all $200,000 of your investment (that means you do not have anything left invested in the property) and will not get any additional returns from the property's income. On the bright side, you got all of your investments back and can invest it in the next deal.
It is more common to see a refinance on 5th or 6th year, but operator would not return the whole amount back to investor (normally 70-80% of investment would be returned). This way the investor still have money in the deal, and would get returns usually till year 10 when the property is sold.
You have to ask the deal sponsor to be sure as it depends on the deal structure
If you refinance some people will give you a return on the entire initial investment, some will only give you a return on what is left in the deal
They are both fair and common practices
@Mitchell Handley the beautiful thing about syndication is you can do it any which way. I would say that most syndicators including us leave our investors in the deal and you still remain the same % of ownership. The only thing that will change is if the group offers a preferred rate of return. Since 100% of the initial capital would hypothetically be paid back, the pref would go away. Therefore in our deals, it would then become a 70/30 split since all capital is returned. There are groups out there that will buy you out or reduce your ownership % as capital gets returned. There is no right or wrong what, it's a preference for the operator.
@Mitchell Handley if the deal is structured such that you no longer receive cash flow after receiving a return of your capital, run, do not walk, as far as you can from that deal. Those are not market terms. Yes, you see plenty of syndicators doing this, but there is no reason why investors should accept such terms.
In essence what the syndicator is saying with this structure is, "I don't have the money to buy this deal, so I want you to buy it for me. You take all of the risk, and I get all of the upside. I can pay you back your $200,000 and own the deal for myself." No way in heck should you accept that.
@Scott Morongell was absolutely correct that syndications can be structured however the parties agree. If you are new to investing in syndications, you might be lured into investing in something that you don't fully understand. So agreeing, and knowing what you are agreeing to are two different things. Study the language in the operating agreement very carefully because waterfall terms in operating agreements can be confusing and it isn't difficult for sponsors to hide onerous terms among the fluff.
The way the waterfall calculations should work is that you receive 100% of all distributable cash (divided among you and the other investors pro-rata) until you reach the preferred return hurdle. For sake of example let's say that's 8%. Once that hurdle has been met you would receive the portion of distributable cash as specified in the operating agreement, usually somewhere between 50% and 80%.
If you get some of your capital returned, the amount of dollars added to the accumulation of preferred return goes down, which means that satisfying the distributions required to get you to an 8% return on your unreturned capital takes fewer dollars.
Let's walk through an example. Let's say that in the first year you have $200,000 committed. It takes $16,000 to satisfy the preferred return hurdle.
In year 2 you have $100,000 committed because the sponsor refinanced and sent you $100,000 back. For year 2, your preferred return hurdle is $8,000. At the end of year 2 the sponsor refinances and returns another $100,000 so now you have no capital left in the deal. Your preferred return hurdle for year 3 is $0.
Now let's say that the operating distributions total $10,000 for year 1. You get all of it, because the sponsor owes you $16,000 in preferred return. The other $6,000 carries over.
In year 2 there is also $10,000 to distribute. You get all of it, because to satisfy the preferred return the sponsor owes you $6,000 from last year and $8,000 from this year, so $14,000. The remaining $4,000 carries over to year 3.
In year 3 there is $10,000 to distribute. You get $4,000 of it to satisfy the remaining preferred return left over from previous years. Since you had no money in the deal in year 3 there is no preferred return added to the accumulation. The remaining $6,000 is split between you and the sponsor according to the terms of the hurdles in the operating agreement. So for example, if the next tier is a 70/30 split, you get 70% of $6,000, or $4,200.
In year 4 there is $10,000 to distribute. You have no remaining unpaid preferred return and because you got all of your money back there is no preferred return added. If the next tier is 70/30, you get $7,000. And so on.
But let me re-state, the operating agreement can say whatever the sponsor wants it to say. You have to study carefully. What I described is how I do it and is generally considered market terms by sophisticated investors. But plenty of sponsors look for unsophisticated investors that don't know any better and slip in all kinds of stuff that are not in your best interest.
There should never be an alteration of your ownership percentage whether you have your capital back or not. Unless you agree to it, but why would you?
@Mitchell Handley if the deal is structured such that you no longer receive cash flow after receiving a return of your capital, run, do not walk, as far as you can from that deal. Those are not market terms. Yes, you see plenty of syndicators doing this, but there is no reason why investors should accept such terms.
In essence what the syndicator is saying with this structure is, "I don't have the money to buy this deal, so I want you to buy it for me. You take all of the risk, and I get all of the upside. I can pay you back your $200,000 and own the deal for myself." No way in heck should you accept that.
@Scott Morongell was absolutely correct that syndications can be structured however the parties agree. If you are new to investing in syndications, you might be lured into investing in something that you don't fully understand. So agreeing, and knowing what you are agreeing to are two different things. Study the language in the operating agreement very carefully because waterfall terms in operating agreements can be confusing and it isn't difficult for sponsors to hide onerous terms among the fluff.
The way the waterfall calculations should work is that you receive 100% of all distributable cash (divided among you and the other investors pro-rata) until you reach the preferred return hurdle. For sake of example let's say that's 8%. Once that hurdle has been met you would receive the portion of distributable cash as specified in the operating agreement, usually somewhere between 50% and 80%.
If you get some of your capital returned, the amount of dollars added to the accumulation of preferred return goes down, which means that satisfying the distributions required to get you to an 8% return on your unreturned capital takes fewer dollars.
Let's walk through an example. Let's say that in the first year you have $200,000 committed. It takes $16,000 to satisfy the preferred return hurdle.
In year 2 you have $100,000 committed because the sponsor refinanced and sent you $100,000 back. For year 2, your preferred return hurdle is $8,000. At the end of year 2 the sponsor refinances and returns another $100,000 so now you have no capital left in the deal. Your preferred return hurdle for year 3 is $0.
Now let's say that the operating distributions total $10,000 for year 1. You get all of it, because the sponsor owes you $16,000 in preferred return. The other $6,000 carries over.
In year 2 there is also $10,000 to distribute. You get all of it, because to satisfy the preferred return the sponsor owes you $6,000 from last year and $8,000 from this year, so $14,000. The remaining $4,000 carries over to year 3.
In year 3 there is $10,000 to distribute. You get $4,000 of it to satisfy the remaining preferred return left over from previous years. Since you had no money in the deal in year 3 there is no preferred return added to the accumulation. The remaining $6,000 is split between you and the sponsor according to the terms of the hurdles in the operating agreement. So for example, if the next tier is a 70/30 split, you get 70% of $6,000, or $4,200.
In year 4 there is $10,000 to distribute. You have no remaining unpaid preferred return and because you got all of your money back there is no preferred return added. If the next tier is 70/30, you get $7,000. And so on.
But let me re-state, the operating agreement can say whatever the sponsor wants it to say. You have to study carefully. What I described is how I do it and is generally considered market terms by sophisticated investors. But plenty of sponsors look for unsophisticated investors that don't know any better and slip in all kinds of stuff that are not in your best interest.
There should never be an alteration of your ownership percentage whether you have your capital back or not. Unless you agree to it, but why would you?
Mitchell, essentially if you have no idea what you're doing, just invest with Brian. He's probably the most experienced syndicator on BP that HAS been through 2008 and HAS funded deals to keep them afloat with his OWN money. No I do not work for Brian, I have my own firm, but if I couldn't invest in my own deals, I know I'd sleep well with my money riding on Brians back. Whoever you do choose to invest with, please vet them thoroughly and ask for referrals.
LOL @Scott Morongell I really appreciate the endorsement, however I wasn't implying that folks should disregard everyone else and just invest with me. There are many excellent firms out there in this space, I strive to be just one of them. And I have no problem exposing tactics that are unfair to investors trying to understand the complicated world of syndication investments.
Having said that, I can't fault anyone for following your advice. Just kidding! :) Seriously though, I really appreciate the vote of confidence!
@Brian Burke always brings the heat with his answers!
I would echo that you should read, re-read, and probably re-re-read all documentation the sponsors provide for a deal.
In my opinion, investors should review at least a few syndications before investing in one, including the PPM, operating agreement, and everything else. Research sponsors thoroughly, up to and including criminal background checks. There are folks out there who will review deals for you and provide their opinion for a fee.
Welcome to BP community! It is a great resource to do any kind of real estate research. It sounds like your focus is currently on syndications. As other suggested, spend some time educating yourself on the process of syndications and the language used. Review a bunch of offerings prior to investing in one to ensure you're understand what you're doing. And of course, ensure that you're accredited investor as it opens up a lot of investment opportunities.
To help you with the educational component, here're a few articles that will get you started:
https://www.biggerpockets.com/blogs/10850/77215-th...
https://www.biggerpockets.com/blogs/10850/76728-qu...
https://www.biggerpockets.com/blogs/10850/77571-se...
https://www.biggerpockets.com/blogs/10850/79257-de...
If you need books recommendations, feel free to PM.
Best of luck!
When looking at the structure of the syndication the sponsor will classify distributions in one of two ways. Either a return of capital (ROC) in which your investment base will be reduced by the amount you receive or as a distribution payment similar to a dividend that is essentially your promised rate of return on investment. A refi is the leverage effect that generates a windfall as part of the business plan. In either case you are effectively getting back the money you put up initially and every dollar earned is the upside to having putting up risk capital in the deal. The return of capital should not terminate your position as an investor until the property is disposed of and the income flow associated terminates with that disposition.
Pending on the structure of the deal, once the capital is returned your returns could go from 80/20 return split to 50/50 return split in a waterfall structure. Or in some cases as well, the returns stay on that original split once the capital is returned. Each sponsor sets it up differently.
As others have said, it depends on how the GP/LP partnership is structured. Unless it is a heavy value-add deal, distressed deal, or new development, you likely won't receive 100% of your capital back at a year 2 refinance. What is more likely is that you will receive a portion of your capital back. If that is the case, then one of the following will happen:
@Mitchell Handley Do you have a deal in mind? You might want to have an attorney review the PPM with you to tell you exactly how that's going to play out.
Like @Brian Burke said, there's investors that seek out unsophisticated investors to line their pocketbooks with unnecessary fees and structures. However, don't be scared off because the operator is making money either, you want the person managing the deal to make money, just ensure that your goals are aligned and they aren't profiting when you aren't.
@Mitchell Handley if the deal is structured such that you no longer receive cash flow after receiving a return of your capital, run, do not walk, as far as you can from that deal. Those are not market terms. Yes, you see plenty of syndicators doing this, but there is no reason why investors should accept such terms.
Let's walk through an example. Let's say that in the first year you have $200,000 committed. It takes $16,000 to satisfy the preferred return hurdle.
@Brian Burke which rate of returns do your investors typically want to see? I see the different returns as well as the different ways firms calculate them, but I don't want to be overwhelming with it. For example, IRR levered vs unleverred, do you provide both of these? The same for IRR, ROI.
In addition to which returns/ratios to show, what frequency do you illustrate the returns to your investors? For example, if the hold period is expected to be 5 Years, do you present the IRR only at year 5 or do you provide it for let's say years 2-4 based on the analysis of sales price & growth? In case the property has the potential to sale sooner.
The same applies with cash on cash vs cummulative cash on cash, terminal cap rate (forecasted years 2-5), etc.
Finally, am I correct to present the IRR in a given year with the assumption of the sale in that year? This is for presentation/ forecasting purposes only, not actual returns.
In this case, there is no pref rate.
I have what seems like a very simple question about Real Estate Syndication's that I am having a hard time finding an answer for.
If I was to invest $200,000 in a real estate syndication. After 2 years the syndication refinances the property and pays back my $200,000 investment. If the company continues to own the property and the property continues to receive a positive cash flow. Would I receive a percentage of that cash flow until the property is sold?
A lot of syndicators when they refinance your capital out - you're no longer part of the deal.
I do it differently. Even when I give 100% of my investors' money back, I still keep them in the deal with no dilution of their equity. That means, they still get the same percentage of the cashflow and the profit when we sell the property.
My rationale is this: my passive investors helped me to succeed and even when I gave them their principal back, they still deserve to share in the success of that property they invested in.
This is a great thread, thanks to the posters.
I want to invest in syndication, but, I am just starting to learn. @Michael Ealy mentioned what seems like the best structure for an investor, and what I would assume to be the common practice. The investors participate in cash flow and appreciation for the entire duration, possibly at varying levels depending on the return of initial investment.
BUT, I am getting the impression that if the sponsor pays back your capital and the prefered 8%(from the above example)...you no longer participate in cash flow and/or any of the appreciation when the property sells? How is that a desirable?
For just an 8% return with no collateral or guarantees/protections against mismanagement or losses, seems like a big risk for a nominal return. I am not sure I'm understanding, does the investor have partial fee simple ownership of the actual asset, or do they just own shares in an LLC that owns the asset?
@Brian Burke which rate of returns do your investors typically want to see? I see the different returns as well as the different ways firms calculate them, but I don't want to be overwhelming with it. For example, IRR levered vs unleverred, do you provide both of these? The same for IRR, ROI.
In addition to which returns/ratios to show, what frequency do you illustrate the returns to your investors? For example, if the hold period is expected to be 5 Years, do you present the IRR only at year 5 or do you provide it for let's say years 2-4 based on the analysis of sales price & growth? In case the property has the potential to sale sooner.
The same applies with cash on cash vs cummulative cash on cash, terminal cap rate (forecasted years 2-5), etc.
Finally, am I correct to present the IRR in a given year with the assumption of the sale in that year? This is for presentation/ forecasting purposes only, not actual returns.
In this case, there is no pref rate.
I operate from the philosophy that more information is better than less, so I do show both levered and unlevered IRR (although I find that most investors don't care about unlevered IRR, maybe because they don't know why they should care—but that's another topic). I show IRR and equity multiple assuming 3, 5, and 10 year holds, plus a sensitivity analysis for each of those potential hold periods comparing IRR forecasts against variations in occupancy, income, and exit cap rates above and below baseline. I show CoC for each year, and the average, plus exit cap rate assumptions for every year going out 10 years.
BUT, I am getting the impression that if the sponsor pays back your capital and the prefered 8%(from the above example)...you no longer participate in cash flow and/or any of the appreciation when the property sells? How is that a desirable?
You might find some deals out there where your participation is altered in some way after your capital has been returned (or even after your capital plus pref), but I see no reason why you would invest in a deal that caps your upside like that. There are plenty of sponsors that don’t structure this way, so you can vote with your wallet. It is more common that your ownership percentage in the deal stays consistent no matter what (except perhaps a capital call)...just be sure to carefully read the partnership agreement and be sure that you understand what it is saying before you commit to invest.
BUT, I am getting the impression that if the sponsor pays back your capital and the prefered 8%(from the above example)...you no longer participate in cash flow and/or any of the appreciation when the property sells? How is that a desirable?
You might find some deals out there where your participation is altered in some way after your capital has been returned (or even after your capital plus pref), but I see no reason why you would invest in a deal that caps your upside like that. There are plenty of sponsors that don’t structure this way, so you can vote with your wallet. It is more common that your ownership percentage in the deal stays consistent no matter what (except perhaps a capital call)...just be sure to carefully read the partnership agreement and be sure that you understand what it is saying before you commit to invest.
Hey Brian, Thanks for the clarification! I was gonna say it doesn't make sense without the continued participation.I really like the idea of investing in Syndications and getting the benefit of well trained and well established team, and it seems the returns can be much better than the larger dividend yielding REITS.
What you say are the major "cons" for investors Syndications? How are investors interests protected?
Thanks again for the great posts.
What you say are the major "cons" for investors Syndications? How are investors interests protected?
Thanks again for the great posts.
The biggest con is you could be investing with a con, so it is really important to select sponsors carefully and do complete due diligence. A friend of mine lost her entire life savings when she invested with a sponsor that turned out to be a thief, not to mention an ex-con (convicted felon who conveniently neglected to disclose this fact in the PPM as required). Instead of living comfortably, she drives for a ride share service to put food on the table.
Passive investing adds an additional layer of risk not present when direct investing—the sponsor. But that can also be the biggest pro of investing in syndications. So invest with a pro, not a con, LOL.
Another con is you give up 1031 (almost always), and you give up control. So there are a few cons, yes, but done correctly there are a lot more pros than cons.
What you say are the major "cons" for investors Syndications? How are investors interests protected?
Thanks again for the great posts.
The biggest con is you could be investing with a con, so it is really important to select sponsors carefully and do complete due diligence. A friend of mine lost her entire life savings when she invested with a sponsor that turned out to be a thief, not to mention an ex-con (convicted felon who conveniently neglected to disclose this fact in the PPM as required). Instead of living comfortably, she drives for a ride share service to put food on the table.
Passive investing adds an additional layer of risk not present when direct investing—the sponsor. But that can also be the biggest pro of investing in syndications. So invest with a pro, not a con, LOL.
Another con is you give up 1031 (almost always), and you give up control. So there are a few cons, yes, but done correctly there are a lot more pros than cons.
Wow, sorry to hear about your friends loss.
As for cons, I hear ya about sponsor selection. Are the deals ever structured in such a way that the subject property is collateral of the investment? How do you suggest an investor should vet a sponsor?
As for the 1031 not being available, that may actually answer my previous question about collateral of the underlying asset for the investor, I'm' guessing the answer is NO....so, it's not similar to a DST, where you are able to 1031 out because you are a part owner of the RE. That, also, means I could have some considerable capital gains in a liquidation year.
I agree with your point about the benefit of syndication and that's what I'm after. I want the benefit of a top notch team that is way smarter and more squared away than I am. Bigger deals, economies of scale with the renovations, and bigger upside than I can achieve on my own.
They can be, yes. It's called a TIC structure, which stands for Tenants In Common. In this structure, each investor owns a percentage of the fee title to the real estate. But this does nothing for you. My friend that lost her whole life savings--that was in a TIC investment. Let's say that you own 0.75% of the deal and the sponsor raids the bank accounts and the property goes into foreclosure. What are you going to to? Somehow round up the other 99.25% owners that you don't know and try to get consensus on how to take over? Start paying the mortgage yourself? Probably not--so owning a percentage of the real estate doesn't help here. In fact, while it might sound desirable, it's actually the opposite. Maybe you want to own some fee title, but you wouldn't want the other investors to--you don't know them nor have any idea how they'll decide to grant or withhold consent for major decisions. It's exactly due to this decentralized control that the TIC industry largely went down in a ball of flame during the last recession. And it's why lenders don't like lending to these types of syndicates. As for how you vet a sponsor--I could write a whole book on that. Oh wait, I did! But you'll have to wait until BP launches the book in the spring. :)
Correct, it is not similar to a DST. But in a DST you don't own fee title either. You are a beneficial owner of a portion of the trust that owns the real estate, just like you would be a member of an LLC in a conventional syndication. The difference with a DST is that the IRS issued a revenue ruling acknowledging that beneficial interests of a DST are like-kind to real estate for the purposes of a 1031 exchange. But they also placed enormous restrictions on what a DST can do if it wishes to preserve that treatment--and those restrictions make DSTs impractical for many real estate business plans. It's also why returns in most DST investments aren't all that exciting, and why DST sponsors lack alignment of interest with the investors. This doesn't mean that DSTs are bad--but they really exist for one purpose and one purpose only--to allow a path for someone taking money from an active real estate investment who wishes to defer tax and switch to a passive role for their real estate investments (or as an emergency parachute for someone who couldn't find an upleg and is running out of time and options).
@Brian Burke thanks so much for great answers! Yes, I completely get your point and have read about the TIC issues that come up, when I was researching DSTs. Too many chefs in the kitchen, spoils the stew.
So, I need to focus on vetting sponsors. Unfortunately, your reply only had a teaser for your book, regarding that process. Haha, nice plug, but seriously I would like to pick up copy of the book if that is something you are actually publishing.
I have checked your site Praxis Cap, and I really liked your transparency, having the purchase price, date, amount invested per unit and sell price. I have some experience renovating my building and I think that your renovation costs seemed very reasonable, so that earned some trust from me.
I'll be sure to follow up with the correspondence I get through the site and look forward to learning more and maybe some day transitioning completely to a passive investor.
Great question. This would be outlined by the sponsor and could be handled a number of different ways.
Just to add further education to the DST considerations...having worked on the Sponsor side of the business since that industry started (as TICs) and then switched to the DST structure round about 2009, I think the restrictions of the DST mentioned, sometimes referred to as the seven deadly sins, is a bit overstated. When the DSTs first came it, it appeared that the only viable asset type for them were NNN leases with strong credit tenants with long lease terms due to the restrictions placed on that structure. As time progressed, it became apparent that a master lease could be placed over other asset classes, such as apartments, et. where lease terms are shorter and the asset type requires active management.
There is certainly DST offerings that may be poorly underwritten, but there are some good options out there. As was mentioned above, the DST option is can be the right choice for the right investor. This is a determination best made in conjunction with the taxpayer's financial and tax advisors. The cash flows seen in the DST industry today are hovering around the mid 5's, not primarily because of the DST structure, but because over 50% of the offerings are Class A or B apartments. Cap rates, as many of you know, and have compressed considerably across the country in that asset class, even in secondary or tertiary markets.
I hope this information helps the education as it relates to the thread's original post.
This is a great thread, thanks to the posters.
I want to invest in syndication, but, I am just starting to learn. @Michael Ealy mentioned what seems like the best structure for an investor, and what I would assume to be the common practice. The investors participate in cash flow and appreciation for the entire duration, possibly at varying levels depending on the return of initial investment.
BUT, I am getting the impression that if the sponsor pays back your capital and the prefered 8%(from the above example)...you no longer participate in cash flow and/or any of the appreciation when the property sells? How is that a desirable?
For just an 8% return with no collateral or guarantees/protections against mismanagement or losses, seems like a big risk for a nominal return. I am not sure I'm understanding, does the investor have partial fee simple ownership of the actual asset, or do they just own shares in an LLC that owns the asset?
Isaac,
Stay away from those syndicators who limit your upside. Some of them claim they're giving the passive investors 70% equity BUT when they refinance and returned the principal, you don't participate in the upside anymore. That's NOT good at all.
In contrast, because of my experience and track record and the kind of deals that I acquire, I only give 30% or at most 50% equity in the deal to my LPs BUT even when I returned the money of my investors after the refinance, they're still 30% or 50% owner of the asset. This is why a lot of my investors keep on reinvesting with me. They can literally have no money tied up anymore but they have ownership interests in 3, 5 or even 10 buildings!
So be careful and read the PPM before you invest.