How do Limited Partners Make Money in a Syndication?

So many of you may be wondering: “What the hell is a syndication? If I invest, how soon will I get my money back and how often?” Excellent questions!

Syndication means a group of individuals or organizations combining their resources to promote a common interest. In our real estate syndications, we effectively pool money together from like-minded individuals to purchase large multifamily properties. This allows everyone to share ownership and enjoy great  cashflow until we sell the property (our hold-time is usually 2-6 years). We typically distribute the largest check to our investors at the time of liquidation.

 When you invest in a deal with us, once we close on the property we immediately begin the process of renovating units and increasing the overall property value by implementing value-add strategies. When the additional income starts to flow, we begin our quarterly distributions to our investors. Our investors usually start seeing returns during the 3rd quarter post-closing on the property.

Our deals include a 7%, sometimes 8% preferred return to our investors. Now let’s dive deeper into this by using one of our recent deals as an example. Say you invest $100k into a $17.5mm property to be held over the course of 4 years before liquidating.

• 7% preferred return
• 19% ARR
• 4 year hold

See how the distributions would play out.

• Year 1- $4,319
• Year 2- $6,119
• Year 3- $7,000
• Year 4- $7,297

Over the course of 4 years you will have accumulated $24,735 in cashflow. Next, we liquidate the property with a projected net equity of $51,585 (on top of your initial investment of $100k). This investor walked away with $176,320 over the course of 4 years.

Common next question: “Well it is actually a lot less than $176k because of taxes, isn’t it?” Not true! There are various tax incentives that save you from giving your profits back to the government.

Keep an eye out for the next article explaining different tax incentives you may be able to capitalize on!

Drake Stratton

Managing Partner – True American Capital

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