With real estate syndication, your profit is largely dependent on your role and the exit strategy. Some groups elect to split profits equally, but many real estate syndicates do not. It’s common for Property Management Cape Coral passive investors to receive about 70%, while the syndicator gets about 30%.
Investors usually earn more because they put in more money. A syndicator only contributes between 5-10% of the investment or nothing at all.
However, a syndicator may get a higher percentage if they manage a fix-and-flip or acts as the property manager for tenants. While the specific breakdown of capital will vary based on the specific real estate syndication, there are numerous ways that both syndicators and investors can increase their profits when moving forward with a syndication.
Acquisition Fees
Because the syndicator oversees the property transaction, they receive an “acquisition fee” that’s between 1-5% of the transaction value.
If you’re the syndicator, then you may be able to negotiate your acquisition fee on the syndication agreement. Don’t ask for fees that are too high, or else other investors may not want to participate with you. But you also shouldn’t undervalue yourself, especially if you’re tasked with finding the property and structuring the deal.
Asset Management Fees
If the syndicate is purchasing a rental property, all the members could elect to pay a property management company to find tenants, collect rent, perform maintenance, etc.
But the syndicate can also give property management duties to the syndicator. In that scenario, the syndicator will earn a property management fee that’s usually around 10%. The syndicator will earn an even higher share if they’re tasked with conducting a fix-and-flip.
Cash Flow & Appreciation
Whether the syndicator invested money or not, they still get a piece of the pie. The passive investors, however, earn a “preferred return” that’s much higher.
For example, if the passive investors each get 12%, the syndicator will probably get around 5%. But once again, it all depends on the structure and how many responsibilities that syndicator takes on.
Suppose the property is going to be sold. In that case, each investor will get a percentage of the sale’s profits (ideally, the property will have appreciated in some way—many real estate syndicates do house flipping to maximize the return).
But if the property is going to be rented out to tenants, then the investors will all get a percentage of the profits generated by rent.
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