Difference between Syndication and Partnership?

[Pedro Martins]

Hello BP colleagues,

Let me begin by stating that I am aware that this type of topic should be discussed with a real estate attorney before decisions are made, but I want some early guidance to further my research before that stage.

That said, I am having difficulty understanding the difference between doing a syndication deal and a partnership. I feel that I have a good knowledge about syndication from SEC regulations, to structure and fees - how is it then that I hear about deals described as 50/50 equity, one side brings money, the other brings sweat equity but I never see anything about this having to follow complex (and expensive) regulations and documentation?

Here is my situation - I have a 20-unit multifamily deal in hand with good cash-flow. My bank has agreed to loan me 80% and I have a friend that can provide the 20% + closing costs + initial reserves. My friend is not interested in a loan, he wants equity (and I don't blame him) - though his involvement would be limited to the startup capital. 

How do I structure this in terms of entities and what documentation is required? Preferably without having to fork over $10-15k for a PPM and in a way that taxation issues are easy to deal with (i.e. each of us only has to report on their 50% of the profits and has access to 50% of the depreciation deductions).

Thanks in advance for your suggestions!

Pedro 

[Michael Reyes]

Hi @Pedro Martins,

I am just starting out so I do not have years of experience to provide advice. That said, from my understanding of what I've read or heard on various podcast interviews, an LLC is best used when an investor is bringing on investment capital only. You would be a sole managing member and the investors would be silent partners. They wouldn't have any say in the investment, management responsibilities, etc. You just promise a rate of return for the use of their investment capital.

I believe a general partnership is best suited when equity splits are involved. You're LLC could or would be a general partner, with 100% control and x% equity. Your friend would or could have 0% control, but with x% of equity.

Disclaimer, I am not a lawyer so please don't hold this as the gospel truth.  I hope I got this right and helps you out in any way.

Cheers,

Michael