What is a multifamily syndication?

28 Replies

Syndication is a big word for a simple process that is not easy. Feel better? Okay, let me break this down “parade rest” (to its simplest form). To put this simply, the process as it applies to apartment syndication is the pooling of money from investors to purchase a large piece of real estate that they might not have been able to purchase themselves.

The prefix “Syn” means together. One of the things you will find interesting about multifamily investing is that it requires a team that has synergy. Resources provide better results when they are employed properly. It helps you minimize risk (Limited Partners); “Get Your Time Back” while “Owning More of America”.

There are a few relationships that are created during the multifamily syndication. We will focus on the two, Passive Investors and Sponsors, that you are more likely to be a part of. Passive Investors are busy professionals who love what you do but is aspiring to create more option at a predetermined time in the future. They might have already retired and had an appreciation of keeping their capital working. Sponsor is also busy professionals who get a great deal of fulfillment of being a good steward of the Passive Investors’ capital.

The Passive Investors are oftentimes referred to as Limited Partners (LP). Limited meaning your liabilities are limited to the capital that you invest. All other liabilities are taken on by the Sponsors.

The Sponsors are oftentimes referred to as Syndicators, Managers, or General Partners (GP). When speaking about profession the word syndicator is used; when speaking in terms of the Limited Liability Company that is created for each acquisition the word Manager is used; and lastly, when speaking in terms of the deal structure GP is wildly used. Sponsor will be used to generalize the meaning.

The choice is yours.

Be an LP and continue doing what you love or take on the associated responsibilities and liabilities of a Sponsor.

-Hutch The Marine Investor

Can you explain the difference between an official syndication and just getting a private loan from someone who wants to invest? 

To be clear, I have a person who wants to invest $300,000 in real estate. He is interested in me making interest only payments to him at the 5%-7% range. There is currently no property isolated for this deal. This is not necessarily a syndication right? Where do I cross that line into an official syndication? 

I look forward to your thoughts!

Originally posted by @Zach Reeves :

Can you explain the difference between an official syndication and just getting a private loan from someone who wants to invest? 

To be clear, I have a person who wants to invest $300,000 in real estate. He is interested in me making interest only payments to him at the 5%-7% range. There is currently no property isolated for this deal. This is not necessarily a syndication right? Where do I cross that line into an official syndication? 

I look forward to your thoughts!

 Typically, Syndications are considered selling securities and a private loan from your money partner or friend isn't considered as a transaction involved involving the selling of securities by the SEC (U.S. Securities and Exchange Commission).

In the simplest terms, you would syndication when you pool investors, Sophisticated or Accredited Investors, for the sole purpose of buying an asset and sharing in the profits. 

Originally posted by @Anthony King :

How do I join one?

 You can simply search online for the city and state you'd like to invest in and there are many syndicators here on BP! You definitely want to choose a syndicator that matches your expectations because it is like a marriage, as most deals can take 5 - 7 years before an exit. 

The last thing you want is to be in a deal with someone you don't like!