Unlocking the Power of Apartment Syndication: A Guide To The Basics

Overview:

A group of people who get together and buy a larger apartment deal than they could individually.

There's a general partner team who finds, underwrites, closes, gets the loan, operates the deal etc.

Then there are limited partners who each invest a minimum of $50,000 - $75,000. There might be 50-100+ limited partners.

Profits are split up among the general partners and limited partners. A common split on the profits is 80/20, 80% of the profits going to the limited partners and 20% going to the general partners. However, deal structures can vary depending on the deal, team and scope of business plan.

Why:

With a larger deal, you can get economies of scale. Because there's more income, you can negotiation lower bulk fees per unit. Because there's more density of units, it often translates to more rent compared to the price of a unit. The result is often a deal that cash flows.

Scalability:

When there is enough income from a property, you can hire out most of the tasks. The remaining tasks like finding the deal, analyzing the deal, overseeing the deal, and raising money can be split up among the general partner team. Partners can get extremely good at one role, rinse and repeat alongside a team.

Roles:

Acquisitions - This is the person who finds the deal, underwrites the deal, works with brokers, often negotiates, often leads the team, reviews the underwriting with vendors to get accurate bids, organizes how to write the offer, handle closing process, etc

Investor Relations - Sources investors for the deal, often raises the majority of the money, builds relationships with investors and communicates with them about the deal, prepares monthly reports on the deal, handles investor K1's, PPM and other reports, etc.

Asset Management Role - Review property underwriting feasibility, helps with business plan, implements business plan once property is closed, works with the property management company, hires contractors and other vendors, helps with property due diligence, gets multiple cost estimates, weekly / bi-weekly calls with property manager, visits the property regularly, communicates operations of property with other general partners, etc

Key Principal - The general partners need to fulfill loan requirements such as the general partner team having a combined net worth equal to the loan amount and 10% of the loan amount in post close liquidity. If they fall short of one or both of these requirements, they can bring on a KP to fulfill this.

Limited Partner - An investor who invests capital into the deal in exchange for an equity position.

Amazon link