A real estate syndication is a group investment with other private investors in what becomes a Limited Partnership for those investors who invest in a commercial real estate acquisition such as a multifamily apartment community. For security and privacy reasons, it’s unlikely you may ever meet or even know the names of the other individual investors in these multifamily syndications, even though you’re pooling your money into the same asset alongside each other to achieve the same objective: passive income.
It’s likely you’re in touch with the syndication sponsor, or with a group like us at PCRP Group and our Co-Sponsors (or Deal Sponsor) – these team members are also known collectively as a Sponsor Team. We, as a Sponsor Team then form a General Partnership to oversee and execute the business plan on behalf of our investors.
The responsibilities of a General Partnership include such tasks as putting together the Private Placement Memorandum for the investment opportunity that is presented to our group of investors. We also provide all of the asset management to ensure that the property is making the projected returns. We oversee the property manager and the property management company that is responsible for the resident community and the apartment building. The Sponsor Team also oversees the construction management in implementing the value-add to improve efficiencies, tackle any deferred maintenance, and upgrade units. We also conduct in-depth due diligence prior to purchasing the asset, and we perform an extensive list of other tasks to ensure that the investment is a sound real estate deal and the best deal possible for our investors.
It’s important to have a Sponsor Team with a proven track record of success so that you can have a full understanding of their past performance.
So, while it’s important to know what exactly the Sponsor Team does, you may find yourself wondering what the other investors are like, where do they come from, and how did they go about choosing the same deal that you are invested in.
You likely have lots of questions, so let’s tackle some general questions that we think most new investors may have. This is a good place to start. This list of questions are common questions that a real estate investor may have:
- What is a limited partner investor?
- What makes a limited partner in a real estate syndicate “limited”?
- How many passive investors are there typically in a real estate syndication?
- Who are the investors in a real estate syndication?
- What kind of investments have they invested in as a passive investor?
What is a Limited Partner Investor?
Limited partner investors in a real estate syndication are potential investors (just like you) who want to invest in a commercial property without the hassles of being a landlord. These passive, limited partner investors and the capital they commit to the project are the most important part of any syndication. This platform is not the same as real estate crowdfunding. A crowdfunding platform is a different investment model than a real estate syndication structure. We will only be exploring the syndication model in this article.
If these real estate transactions (or syndications) were analogous to a car, the limited partners would be the gas that fuels the car. Without that fuel (or the equity in this case), the car (or real estate transaction) won’t go anywhere. This equity (or private capital) that the limited partners bring to close the transaction is a portion of the purchase price (or acquisition costs) of the asset that the debt (or loan) on the property doesn’t cover. So, limited partners are a very important piece to getting the acquisition over the finish line.
Passive investors aren’t just investing in a building, it’s important to remember that you’re part of a community that is effecting real change in communities.
What Makes Limited Partner In A Real Estate Syndication “Limited”?
The word “limited” in the phrase “limited partner investors” refers to the amount of liability that you have in the project is limited. In a syndication project, there is the general partner who is essentially the real estate syndicator (or sponsor team) who is responsible for putting the pieces of the transaction together and then there are the limited partners. The general partners assume the majority of the risk and active responsibility of the day-to-day operations while limited partners invest capital to ultimately obtain a cash return.
Some limited partners can invest enough capital in enough real estate investments (syndications) that they can achieve financial independence, which is the ultimate goal for most.
But it is important to remember that limited partners are not actively involved in improvements and property management – none of the day-to-day operations, management, nor will they be held liable if anything goes terribly wrong.
“Limited” has everything to do with the liability at risk and nothing to do with the projected returns. In fact, deals are often structured so that limited partner investors receive 70%-80% of the returns while the general partners share in the minority cut. Most limited partners can receive a preferred return, and they get to partake in the tax benefits too!
That’s a pretty good deal!
How Many Passive Investors Are There Typically In A Real Estate Syndication?
The number of passive investors that are in real estate syndication deals varies depending on how much capital is needed for the equity portion of the acquisition, and how much each investor commits to the deal. Some smaller deals could have as few as a dozen or less investors while with a larger project, there could hundreds of passive investors.
Say there are a number of investors who commit the minimum investment required of typically $50,000. That means for every $1 million that is raised, 20 investors would have invested $50,000. Oftentimes, however, investors contribute much more than the minimum required.
As a side note, there are two types of offerings that we do with our passive investors: a 506b offering, which you can invest in if you are a “sophisticated investor” or a 506c offering, which means you must be an accredited investor to invest in the deal. An accredited investor has annual income requirements or net worth requirements (excluding your primary residence) in order to qualify for a 506c offering.
Who Are The Investors In A Real Estate Syndication?
One of the greatest aspects of real estate investing is that virtually anyone can get involved. Our investors run the gamut from college graduates to retirees to highly experienced investors to brand new investors who may not have ANY real estate experience. There’s no real “profile” of a “type” of investor we work with.
Some have had rental properties before and are interested in a more passive role. Others may have never even owned real estate at all.
Mostly, they are everyday people, just like you, who want to stop trading their time for money and build their wealth for themselves and their families. They want to secure their financial futures and make a difference in the communities that they invest in.
What Kind of Investments Have They Invested In As A Passive Investor?
A good rule of thumb is to ask other investors general questions about their investment experience:
- What asset types have they invested in? (multifamily, storage facilities, mobile home parks)
- What asset classes have they invested in? (class A, class B, class C, etc.)
- What kind of returns did they receive in those investments?
- What was their experience overall?
Hopefully, this has helped you get a better sense of what a passive limited partner entails. They are people, just like you with the same aspirations, dreams and, goals.
They are the same people who are elated when they see their first cash flow distribution as they start to understand the power of passive income.
So, the next time you feel intimidated going through an investment summary or you think you’re the only one with these questions, just remember…you’re not alone.
You’re part of a vast community of investors who are learning and growing while experiencing new and exciting opportunities every day.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!