Investors who invest in private real estate limited partnerships are what the security and exchange commission (the SEC) refers to as accredited investors. An accredited investor is one who makes $200,000 or more in the last two years or $300,000 if married, or have a combined net worth over $1,000,000 and or an institution or entity of similar members. That might be a bank, retirement system, etc. You must be sophisticated enough to know what you are getting into. For non-accredited investors, we have private lending, and direct partnerships LLC’s.
As the returns from a well-selected equity real estate limited partnership or LLC can be 8% to 20% per year, you can see why these are desirable investments.
Some of the benefits of investing in a real estate syndicate are.
By investing in a real estate syndicate, you take advantage of the experience of the syndicator. The syndicator is a specialist with experience investing in real estate for the benefits of the investors. His knowledge and skills of finding, acquiring, managing and selling real estate to produce a profit are made available to his investors. The syndicator brings experience and professional management to the investment.
The syndicator by gathering several equity investors together makes it possible for the investors to buy a larger property than they could on their own. Larger multi-unit properties are less risky as the more tenants the property has, the less a single vacancy affects the income stream.
Larger properties allow for economies of scale, making professional management affordable that might not be available with smaller properties. The management fees are less as a percent of income with the larger properties.
A real estate syndicate owning income producing property makes profits from the monthly income. Profits are distributed to the members according to the terms of the syndicate agreement.
The syndicate can make a profit from increases in the value of the property over time. Improvements to the property that increase rents increase the value of the property at resale. Borrowed money is often part of the deal, any reduction of principal on the real estate note(s) increases the rate of return on the investment at capital gains tax rates.
A syndicate can use leverage to increase returns.
The use of borrowed funds by the syndicate can increase the return to the members. This is possible anytime the cost to borrow is less than the net rate of return on the investment. The risks to the members is limited to the amount of their investment.
Properly set up the syndicate can protect investor members from liability. This is most often accomplished by using a registered limited partnership form of syndication.
A mobile home park syndication opportunity.