Real estate syndications are group investments. What that means is that there are General Partners a.k.a the deal sponsors (that’s us at PCRP Group and our partners) and the Limited Partners a.k.a passive investors. Those are the main roles in syndication.
This group of investors forms a partnership together through an entity – usually a limited liability company (LLC) – to pool capital so that we have more buying power to purchase larger commercial assets. This can also give us better economies of scale and better returns.
You as a passive investor also get to capitalize on the decades and decades of the combined deal sponsor’s track record, past performance, expertise, connections, and knowledge.
You become a co-owner of the real estate asset unlike investing in a REIT (real estate investment trust). There are distinct differences between REITs and real estate syndications, but actual ownership of the real estate is one of the biggest distinctions.
We as the deal sponsors take care of ALL of the day-to-day operations and management of the real estate on your behalf as a passive investor.
You as the passive investor just collect the passive income cash flow distributions, participate in any tax benefits, and receive a portion of the equity when the asset is sold.
You get all of the benefits of real estate investing without any of the hassles.
We locate and vet experienced deal sponsor-partners who have an extensive, proven track record of success, and who are acquiring cash-flowing assets in fast-growing U.S. markets.
We then partner with these teams to acquire these commercial assets located in more climate-resilient markets nationwide to help mitigate risk and maximize investment for our individual investors.
Once we locate an asset that meets our stringent criteria, we then present these exceptional investment opportunities to you - our investors - to passively invest in these assets alongside us.
A great way to determine if real estate syndications are right for you is to review your current investment plan.
Most real estate syndication deals are only offered to accredited investors through a 506c offering. An accredited investor is someone who has an annual income of $200K ($300K a year jointly) or has $1MM in net worth – not including your primary home.
A non-accredited investor (sophisticated investor) can still invest in real estate syndications, but they can only invest in a 506b offering.
Because those offerings are not allowed to be released to the general public, non-accredited investors will need to know deal sponsors or be connected in other ways to invest in these types of syndication offerings.
Every real estate syndicate has different structures so the projected real estate syndication returns depend on many factors. The types of returns, however, is something you should know if you’re going to invest in commercial real estate syndications.
When you invest in these types of investments such as a multifamily syndication to buy an apartment building, you can expect to receive a preferred return in most cases.
Typically preferred returns can usually range from 5% – 9%. This is your passive income cash flow distributions you can expect with a preferred return. Additionally, you receive a portion of the profits from the sale of the property.
The average annual return (AAR) varies and is never guaranteed, but from the preferred return combined with the profits at sale we often see roughly 15-20% (AAR).
One of the biggest benefits of passive real estate investments is the tax advantages.
As limited partners and passive investors in the real estate syndication deals you are part of a limited liability company (LLC) that has purchased shares to own the underlying asset.
The LLC gives you pass-through taxation and depreciation allowances, which can significantly reduce your taxable income.
Tax strategies that use cost segregation, which is used frequently with commercial real estate investing, can accelerate paper losses which can offset gains from investments and other income.
Passive real estate investments may allow you to reduce your tax burden significantly, but we always suggest that you consult with your financial advisor or tax consultant.
Real estate investing is like any other type of investment, it has its risks. That’s why it’s important that you do your due diligence in vetting a real estate syndication sponsor well before you invest your hard-earned capital.
Another risk real estate investors can have is investing a lot of capital into one rental property or even one market. Diversification is an integral way to mitigate risk as much as possible.
That’s why real estate syndications are such a great investment vehicle. You can invest in a variety of real estate projects, asset investment types, asset classes, and even real estate markets.
This helps you spread risk across multiple markets and various real estate properties. This mitigates risk and helps to keep your passive investments and income streams more stable.
Your liability is limited to your initial investment. Nothing more. You have to assess your risk tolerance, however, with any investment you make.
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