4 Tips to Evaluate a Real Estate Syndication

[Justin Goodin]

Low Break-Even Occupancy

The break-even occupancy is the number of units that must be rented for the building to meet its overhead costs. The lower the break-even occupancy, the more likely the building is to survive times when tenants are not paying rent or are hard to come by.

Preferred Returns

This means that investors must receive a certain minimum return on their investment before the sponsor gets paid. Choosing a syndication with preferred returns can offer you a bit of safety in knowing that the sponsor needs the building to generate revenue for the investors first before they can get paid themselves.

Fees

Sponsors often charge fees to the investors, and that is normal. What investors need to consider in the syndication memorandum is whether the fee structures are such that there is the potential for fees to erode all chance of profit.

Equity Split

Just as sponsors take a portion of monthly profits, they may also take a portion of the net proceeds when the property is sold. Projects may offer very low monthly splits but a high equity split, or vice versa.