A lot of new real estate investors find it difficult to buy large multifamily buildings because they think the down payment is to much and they do not have access to large amounts of capital.
Let's face it real estate prices are going up and if you want to buy a two million dollar deal at 25% down plus closing costs, renovations, and reserve funds you are looking at well over $500,0000 in capital to do that deal...
The next option real estate investors look at is doing a joint venture partnership where your partner puts up all the capital and you manage the day to day operations of the investment property... ( J.V. Partnerships are a topic for another day)
But again it is a challenge to find a J.V. partner that has that amount of capital set aside and willing to invest it in one property...
So what are the other options?
Give up on your dream? Hell no.... ( but sadly this is what most people do or they settle for something easier like a small single family home in a rough area of town)
The real estate strategy you can use to buy bigger multifamily real estate deals is called a real estate syndicate.
Simply put a real estate syndicate is a group of like-minded investors who pool their money in order to buy larger real estate investments...
Would you rather have a 100% of nothing or a small percentage of a large real estate deal?
Now before you go out and attempt this strategy I would suggest you consult your real estate lawyer to make sure it is properly structured and everyone understands the intricacies of a syndicated real estate deal.
Just like joint venture deals there are several ways you can structure the syndicate real estate deal.
Now let's take a look at a few ways you can make money with this strategy, aside from the traditional rental income, mortgage pay-down, property appreciation, and tax deductions...
Finding and negotiating great deals takes work so it makes sense that the most common fee is an acquisition fee on the successful purchase of a new multifamily investment property. This is typically a small percentage of the purchase price for example 1 to 3 percent. This covers finding the deals, marketing, collecting data, due diligence, basically managing the acquisition from start to finish.
Working with banks and non traditional lenders is a lot of work. Securing a refinance for a commercial property requires that you maintain good documentation, credit, and relationships. Refinancing on this type of deal is a regular occurrence due to loans that often mature or face major adjustments at the end of it's term.
Most syndication's do not buy and hold forever, as most investor partners want to see an exit in the foreseeable future. Some syndication's are created specifically for redeveloping and flipping commercial properties after they’ve been renovated and performance has been established. Again a syndication real estate deal can be structured in many ways to meet your investment needs and goals...
Loan guarantor service
Even though commercial mortgage loans are mostly asset-based loans, there is often a guarantor to sign off on the loan required. The more experienced and better their credit, the better the terms of the loan. That helps every partner in the syndication. It’s only fair that you get an extra risk-based fee for that service.
Syndicate profit split
There are many ways you can arrange to split profits with your real estate investment partners. You can offer preferred returns to your investors first if you like. You will often put some cash into the deal yourself. Some investors like to see that you have some skin in the game.
You can split profits 70/30... 60/40... 35/65.. it's up to you to negotiate a split that is agreeable to all investors.
Asset Management Fee
Multifamily syndicates typically also make an ongoing asset management fee as a percentage of revenues collected. This is completely different to profit splits, and generally the role oversees operations relating to property, such as property management. Since I own a management company we would handle this "in house" offering even more value to the investors but you can also out source management to a professional firm and just over see the management company.
So as you can see this is another great strategy to raise capital for bigger deals and it has multiple steams of potential income built into the strategy.
I hope this blog post inspires you to think bigger. Multifamily deals are possible to do providing you have the proper education and team to support you.
I am here to help. If you want to talk real estate book a complimentary call with me today.
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Until next time always remember " The More You C.A.R.E. The Less You Work"
Your real estate-based wealth coach,
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