I have always been interested in Apartments as an investment over the years, but felt it was out of reach due to the major financial commitment and lack of knowledge and time to acquire and manage them. Investing in a syndication of a large apartment property solves all of these issues for an investor that would like to diversify into this great asset class
So how does it work?
A Syndication team brings all of the knowledge, experience, time and financial backing that is needed. They find a great investment property and put it under contract with the seller. This Syndication team will spend a significant amount of time, money and effort to perform due diligence on the property to insure it is a good investment and the strategy to improve the returns can be implemented. Once due diligence is completed and the strategy is confirmed, the team will work with lenders to qualify for and guarantee the loan for the property. This loan is usually 60 to 80 percent of the value of the property. The next step is to create a Private Placement Memorandum (PPM). This creates a private security allowing the Syndication team to raise the money needed to close in exchange for ownership in the project. The Syndication team will retain a portion of the equity in the project as compensation for their time and expertise to acquire and manage the property during the hold period. Typically a Syndication team will hold a property for 2-10 years.
So why is this powerful for me?
The Syndication team has solved the lack of knowledge, time and financial wherewithal you would have to have if you were doing this on your own. They have also provided you a vehicle to take a small ownership of a large multi-million dollar property by creating a private security with the Private Placement Memorandum (PPM) and associated documents. Usually the minimum investment amounts the Syndication team require is between $50,000 to $100,000 for most apartment syndication’s. This investment is completely passive, meaning you don’t have to worry about managing the property and the associated headaches.
So why haven’t I heard of real estate syndication’s before?
Over ninety percent of the private securities that are created with the PPM fall under an SEC exemption in Section 506b. This exemption allows sponsors of projects to offer the security for sale ONLY to investors that they have a pre-existing relationship with and are not allowed to advertise these securities for sale. This means that you would never hear about this type of investment unless you knew the sponsor of a syndication.
I hope this opened your eyes to a whole new way that you can invest in real, income producing, multifamily assets that have little correlation to the stock market…more on that in another installment.
Wishing you Great Fortune and Happiness!
Dan Engdahl, Co-Founder Multifamily Connections, LLC