What Passive Investors Earn in Multifamily Syndication Deals?
Syndicro & Partners Capital would like to go over what passive investors earn in multifamily syndication deals! This is important to understand
There are many different structures in a syndication deal but let me explain pretty simple and common one providing two offerings for passive investors to help you understand.
- Preferred Return
✔Is a way of distributing pay-out to limited partners ☝️”First”☝️. Think of as cash dividends. Typically between 6-8% annually, and limited partners are paid “BEFORE” any money is paid to general partners.
✔For example, 7% preferred return means 7% of your total injected capital to be paid out to you per year. But again, this is only happening when the property generates sufficient cash flow. Choosing the right operators is utmost important when investing passively in multifamily as a LP.
✔Just to use numbers as an example, If a LP invests $50,000, 7% per year of $50k will be distributed to the investor, so $3,500 per year.
2. Equity split 👍
✔Any remaining cash flow after the preferred return over that 7% on income(in this example) would be split 70/30 (LPs/GPs) or 80/20 as an example of common offerings.
✔For example, lets say that the preferred return 7% have been allocated to limited partners, and then the remaining income will be split between LP(70%) and GP(30%) . ✔This structure is attractive to LPs because operators are incentivized to work hard to see income beyond the pref returns otherwise, they would have no pay outs!
✔This 70/30 split between LPs and GPs also applies to profits from sale,refi cash-out, passive loss distributions.
✔So just for an example, lets say the property purchase price was $5 million and after 5 years of holding, the property is worth of $10 million. The profit from the sale is $5 million. So 70% of $5 million, $3.5 million would be distributed amongst the passive investors. The other 30% goes to the general partners.