Syndication Question: Multifamily

[James Lanier]

Hello, 

Currently I own three properties and I am researching more creative ways to acquire properties. I came across syndication and I am wondering if this type of strategy works for single families, duplexes, three unit, and/or four unit properties in practicality? My plan would be to buy locally and  self manage initially since I currently do that with the properties I own now and expand if it is successful. 

1. How much interest on investment is typically offered? 

2. What is the standard up front cost for the limited partnership setup and filing with the SEC?

[Loren Jacobs]

Hey James, great questions. 

1. There are an infinite number of ways you can structure a syndicate and the returns. Most common right now is a 7 - 8% preferred return, which we can think of as interest on investors money, which is paid first. Also, investors typically get an ownership interest when subscribing to a syndication deal.  I have been seeing a lot of 80/20 and 70/30 equity splits recently. What that means is 80% of profits, after the preferred return has been paid, to the investors and 20% to the managers. 

2. Most SEC attorneys will charge somewhere between $10,000 and $25,000. Keep in mind you get what you pay for. 

With those questions answered, forming a syndicate for a residential property (1-4 units), while possible, is impractical. As the gentlemen prior have stated, there are other much more practical means of finding capital for smaller ventures. A joint venture partnership is a great way to start. A JV partnership is when there are two or more partners actively invested in a deal together. Key word there is active, all partners must be active to be considered a JV. If there are passive investors you must syndicate to comply with SEC law. In real estate, syndications are typically formed with a group of operators, 3-5 usually, to acquire a specific deal. This strategy is used most commonly to purchase multifamily properties worth $1M+.

Let me know if there are any other questions I could help you with.