If you’re an investor, you’ll inevitably come to the point where you find more deals than you can finance.
Rather than trying to juggle your portfolio to see how you can dredge up the cash – or worse, letting a great opportunity pass you by- consider REAL ESTATE SYNDICATION, the commercial real estate investor’s best friend.
WHAT IS REAL ESTATE SYNDICATION?
Syndication is similar to tenants in common, or its newer counterpart, crowdfunding, in that it involves a group of investors who put their money together in order to buy a property, or receive an equity contribution.
Generally, commercial real estate syndication take the form of either:
- limited liability corporations,
- companies or
- limited or full partnerships.
Essentially a commercial real estate venture, many real estate syndicates are involved in the purchase of land for the purpose of building and leasing a commercial real estate investment property.
How do you make money with real estate syndication?
There are several ways of making money from real estate syndication:
- Brokerage Fees
As a syndicator you can earn money for finding, negotiating, and closing the transaction. A syndicator finds a property, does due diligence in order to ensure its profitability, and helps close the deal between the seller and the syndicate. The fee is based on the cost of the transaction, and is generally between 1-8%.
- Acquisition Fees
As a syndicator you can receive a flat fee or a percentage of the purchase fee for finding the property, carrying out due diligence, and structuring the deal.
- Asset Management Fees
Your position as a syndicator means you are also responsible for managing the syndicate. This includes property management, supervising rehabs, processing legal paperwork, handling accounting,, and other tasks required to manage the real estate syndicate.
Standard fees range from 3%-10% of the gross rents collected, if you have experience managing commercial income properties, or 1%-2% percentage of the gross rents, for overseeing the property management company.
- Raising Capital Fees
You can also collect anywhere between 3%-15% of the total capital raised, depending on the amount paid to others involved in raising capital for the investment deal.
- Loan Acquisition Fees
Charging anywhere from 0.5%-`% of the loan amount is considered the standard fee for acquiring the loan for the syndicate. Plus, since you are also considered a partner, you can also act as a hard money lender, thereby upping your profit to between 8%-15% plus loan origination fees. These sums are paid right after the escrow is closed.
- Construction Fees
Just as your responsibility as a syndicate requires you to oversee the management of the property, you are also required to supervise any rehab projects on the property. You would of course charge a fee for this, which usually falls between 5%-12% of the total cost of the rehab.
- Leasing Fees
Commercial syndicators can also charge for finding tenants for the syndicate’s commercial real estate investment property.
Backend Profit Splits
Standard practice is for investors to receive a preferred rate of return on their money first, whereupon the remaining cash flow and/or equity us split between you and the other investors. While this backend deal can vary substantially between syndicators, the percentage generally ranges from as much as 50% of the profits to a more modest 30%.
As you can see, being a syndicator in commercial real estate allows you to make a substantial amount of money, without investing a huge amount of your personal finances in order to get started. It’s a good deal for investors as well, allowing them to participate in a winning deal that they would have been unable to enter on their own.