Real Estate WEALTH Magazine Real Estate WEALTH Magazine - DOWNLOAD IT HERE! | Page 64
ferred returns are
paid, and original
investor principal
is returned. The
percent of profits
that get split among
investors can vary
significantly on a
deal, based on risk,
sponsor involve-
ment, and overall
return structure.
8) SPONSOR FEES. Syndication sponsors derive
compensation from one or more of the following catego-
ries.
A. UPFRONT FEES. These fees are built into the
amount of money raised and help compensate spon-
sors for time and money invested to find and vet the
deal, secure the loan and structure the syndication for
the investors. There is no formal terminology, but this
money is commonly called sponsor fees, acquisition
fees, or due diligence fees. These are separate from
3rd party fees from entities such as lenders, attorneys,
title companies, and inspectors.
B. ASSET MANAGEMENT FEES. During the
hold, some sponsors will take compensation for man-
agement time and costs incurred to keep the property
running successfully. These are typically a percentage
of rents collected or net cash flow that the syndication
receives and are paid at the same time as dividends to
investors.
C. PROFIT SPLITS. Typically, most of the value
of a property is derived at the time of the sale. A
successful syndicator is incentivized by a percentage
of net profits to help close a deal out and maximize
profits. These will vary by deal, but should be high
enough that the sponsor is motivated to invest the time
and effort throughout the entire hold period to maxi-
mize returns.
9) EXIT PLAN. Syndications are illiquid and are
passive investments, meaning sponsors decide how to
execute the plan and when to sell the property. A good
sponsor will have an exit plan that has a projected hold
period or range of years, contingent on market condi-
tions. Most value-add deals will be shorter in length due
to most of the value being created in early years. Many
Realty411Guide.com
stabilized property deals will be longer in order to take
advantage of increasing rents, equity build up through
debt payoff, and stabilized cash flow.
10) VOTING RIGHTS. Most syndications are
structured through an LLC. The LLC buys and sells the
property with the sponsors being Class B managers. The
Class A investors will be formally included in the com-
pany/operating agreement of the LLC that outlines their
percentage of ownership. Some LLCs will give mem-
bers voting rights as well, which can be used for large
decisions such as changing management, restructuring
returns, or dealing with death or transfer of existing
members. It is important to understand the type of rights
you have as an investor and what types of transferability,
if any, your shares have.
This is just a sampling of the many components of
a real estate syndication that savvy investors should be
knowledgeable when evaluating opportunities. Knowing
how syndications are set up and function will allow you
to make the best investment choices.
Lastly, a good synidactor will provide a Private
Placement Memorandum (PPM) with extensive disclo-
sures and data to all investors, event rhough the sec only
rquires it for non-accredited investors. Ask for it. v
Best regards to you and your investing,
Tom
Wilson Investment Properties is a
turnkey provider of both single family
rental homes and multifamily and
commercial real estate syndications.
We’ve been providing high-quality
investments for over 16 years to
investors around the world. To learn
more, visit us online at:
www.tomwilsonproperties.com or contact us at:
[email protected] or 408-867-1867.
PAGE 64 • 2017
reWEALTHmag.com