Apartment Syndication - What is it?

Previously we posted a blog about the most versatile tool available for building net worth and wealth. You can read that post here. As a reminder the most utilized tool in building personal wealth is Real Estate Investing. The wealthiest people in the world have often utilized Real Estate to build their wealth and continue to do so well after they are rich or "set". And we told you that buying MultiFamily, or Apartments, was the most versatile Real Estate tool available. It's the hammer in your investment toolbox.

So naturally you're wondering, "but how". The most common question we get is "aren't apartments expensive" followed by the most common comment "I am not rich and don't have enough money to buy an apartment". Very good question and very good point! Most of us don't have $10 million lying around that we can just use to buy an apartment. And if you did, would you want to invest all that money in a single investment vehicle? Probably not.

That's where Apartment Syndication comes in. It's rare that someone owns a large, expensive property, all themselves. Most commercial real estate properties, which apartments of more than 4 doors are, tend to be owned by some sort of partnership. In many cases, that partnership was created through Syndication. And Syndication is a vehicle that opens doors to Apartment buying and investing to many of us.

To put it simply, an apartment syndication is when multiple people(ie- partners) come together and pool their money and resources for the purposes of buying an an apartment building and executing the project’s business plan.

Apartment syndication is best used when buying large apartment buildings or communities that would be nearly impossible for the partners involved to purchase and manage individually. This syndication allows companies and people to pool their resources while sharing in the risks and returns.

In any syndication you typically have two types of partners. The General Partner(GP) and the Limited Partner(LP). Let's look at those 2 main players.

The General Partner(GP). The GP is the owner of the partnership and is usually the person, or group, that brings the syndication to life. In terms of liability, the GP has unlimited liability. In apartment syndication the GP is commonly referred to as the syndicator or sponsor. This is usually the entity that has brought this deal together by lining up investors and finding the property. The GP is the active, day to day, partner responsible for managing the operations and ensuring the business plan is executed correctly and on time. The GP is responsible for lining up investors, negotiating on the property, lining up property management, ensuring construction(if needed) occurs as planned, putting together the operating agreement, working with the attorneys and making sure all partners are updated on progress regularly. Just to name a few of the responsibilities.

The Limited Partner(LP). The LP is the partner whose liability is limited to the ownership shares invested in the deal. Or more simply put, the LP's liability is limited to the amount of money they've invested. In apartment syndication this is commonly referred to as the "passive investor". Which is where most people want to be. They want to invest, let someone else grow the deal, while they await their returns. As such the LP does not control the day to day operations nor are they responsible for executing on the business plan. They receive periodic updates, from the GP, on the progress of the deal and then receive payments, or dividends, on their investment at some agreed upon interval. Just like the GP, an LP can be a person or multiple people. But the most common type of apartment syndication is when multiple people come together to pool their money to fund the deal.

So that's Apartment Syndication, in a nutshell. We'll get into "How Syndication Works" in a later post. For now we hope we've helped answer the question of "what is it" and further shown that this is the most effective way for most people to get started in MultiFamily Real Estate Investing where we commonly see Annual Returns of 12-15%, which historically outperforms the Stock Market while providing passive cashflow on a regular basis. No wonder the wealthy utilize this so much!! And, as you can see, you don't need piles of cash lying around to leverage this tool and make it part of your investment tool box.

If you are interested in investing or want to know more contact us.