👋 8% preferred return, doesn't mean you receive 8% any year.

[Justin Goodin]

Truth: An 8% preferred return, doesn't mean you receive 8% any year.

The preferred return in real estate syndications alludes to the precedence of limited partners receiving a specified return, BEFORE the general partners share in the profits.

// A preferred return (Pref) is not a guarantee or claim that you will get X% in any given year.

How much (or how little) the project cash flows, will determine what you receive on a quarterly basis.

🏢Example:
- $100K investment
- 8% pref

Year 1: You receive $2,000 (2%)
6% is accrued

Year 2: You receive $4,000 (4%)
10% is accrued

Year 3: You receive $6,000 (6%)
12% is accrued

Sale: Pref is caught up with sale proceeds. Then General Partners can share in profits.

It’s not unusual for syndications to roll over a balance right into the sale of the property. The profits from the sale are then redistributed with priority given to catching up on any missed preferred distributions.
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✅ Bottom Line: If a sponsor is offering a preferred return, it does not mean you will receive that % every year in distributions. This is NOT a bad thing and pretty common with real estate syndications.

Did you know this before reading this post? Let me know what you think about this in the comments 👇