More and more real estate investors are considering syndications these days, as a means of diversifying assets in their portfolios. More experienced investors are seeking to create their own syndications, but with a whole wealth of options for organizing these syndications, it can be a little daunting about how to proceed. Here are some possibilities for organizing your own syndication.
When you’re considering a large real estate syndication investment deal, an LLC can provide a great deal of flexibility in terms of how returns are shared and how control is managed, as well as how taxes are handled. With this business structure, you’ll have active investors and organizers who are also managing members, as well as passive investors who are considered members of the LLC.
Real estate investment trusts (REIT’s) can be an ideal structure for assembling a real estate syndication, and they can be either public or private entities. They can also be set up as corporations which have the unique feature of being able to pay out 90% of taxable income to investors as dividends. There must be at least 100 members involved in order to form an REIT.
In some syndication structures, sponsors will offer preferred returns such that passive partners receive a fixed rate of return on their investment, which is subtracted out before the sponsor realizes any profit. Once all those fixed dividends are paid out, the sponsor can then participate in the profits. The most common figure associated with a preferred return is in the neighborhood of 7% to 8%, with a 75/25 split of remaining profits.
Debt versus equity fundraising
Almost all syndications will involve either equity capital or debt financing, with both of these having their unique advantages. Many syndications will put their capital to best use by investing in real estate assets or in mortgage notes. Other groups prefer to use a mixed model which incorporates both approaches, or an entirely new model which combines debt or private capital with mortgage loans.
Need a real estate syndication loan?
If you’re considering a major investment in a real estate syndication, but don’t have adequate funding, we may be able to offer some financial assistance. Contact us at Business Capital Providers so we can discuss some possible options for funding your next real estate transaction.