Real Estate Syndication for Beginners (Syndication Basics Explained) | LIVE WITH SETH

good evening today we are talking about real estate investing for beginners specifically real estate syndication you might be interested in real estate investing you might have watched a bunch of my videos before and it sounds pretty good but you're not sure what syndication means when the word comes up and you're not really sure how well things are structured for you as an investor so that's what we are covering today real estate syndication for beginners and if you have any questions or if you'd like to get started investing in real estate you can go over to call SATCOM and we can set up a quick twenty or thirty minute call and talk about your real estate goals and where you want to go with real estate so we were talking about real estate syndication our syndication sounds like a fancy word but once we break it down it's going to be crystal crystal clear as clear as mud so what is this engagin well a syndication is really a pool of funds so investors will pool their funds together to acquire a piece of real estate syndication is used in the TV business but for real estate purposes we're not talking about reruns of cheers or friends or other TV shows we're talking about acquiring real estate so here's all of our investors over here and individually you know these investors could be business people lawyers sales professionals you know technicians whatever you need whatever you want to call it they have money to invest and on their own they might be able to acquire a small piece of real estate but if they pull all of their funds together they're able to acquire a much larger piece of real estate which as you know if you followed the videos gives off more cash flow it's a lot more stable you have better management in place and you get better debt when it comes to financing the property because lenders want to lend on these big deals more so than the smaller residential deals plus all of these investors here are these professionals they might be the world's best lawyer world's best brain surgeon they don't have time to start researching real estate markets how to properly underwrite our property property they don't know how to deal with tenants but that's not their job to that their job is to contribute to society you do a great job and earn a great living doing what they do best in their day jobs they shouldn't have to start a second job just to invest in real estate and this is where the syndication comes in because these investors will pool their funds and then somebody called a general partner will come in and the general partner is a person with the real estate experience they have the team but they have the track record they have all the connections and the general partner will be able to take those funds and acquire a piece of real estate and then go through the business plan and all that stuff to earn a return for the investors and we'll explain that in a little bit more more detail coming up I really need to find a new ledge for my eraser I'm trying to balance it right here and almost every single video it always falls off the ledge so I'm gonna have to come up with the solution maybe I'll have a little necklace let me erase your necklace and I'll just carry it around this way so who invests in a real estate syndication well that's a very good question and I'm going to give you a very broad answer because there's a couple different peculiar peculiar peculiarities that's a tongue twister to go through depending on how the deal is structured so we know the syndication is a group of investors who pull their funds and put those funds in the control of another person to acquire a specific piece of real estate I should mention that if investors pull their funds and for the purpose of acquiring multiple pieces of real estate within the same entity that is a real estate fund not in syndication but since today we're talking about beginners we're going to stick just with a real estate syndicate so we're talking about acquiring one piece of real estate but if you do want to talk about funds hop on over to call SOUTHCOM and we can chat for 20 or 30 minutes though your real estate investing so who invests in the syndication well we're going to talk but let's talk about 506 B forget reggae forget 506 C if you've even heard of these terms we're going to keep things simple so accredited investor who is an accredited investor well not that's a person who who earns $200,000 a year plus for the past two years or as a couple they earned $300,000 a year oh okay or they have 1 million dollars in assets excluding their principal residents so it has to be beside your principal residence you can't count your house so this is who an accredited investor is and typically depending on there's different structures but typically most syndicators so the people the general partner is doing these deals will approach accredited investors to bringing their funds to these deals and earn a earn a return go all these tax benefits all the other advantages that come with investing in multifamily real estate so these are accredit investors so typically we'll see lots of doctors enjoy this lawyers actually there's quite a number of lawyers who see the potential in real estate lots of real estate lawyers actually end up as passive investors in this in syndications we have lots of tech tech ladies and gents coming into very well-paying jobs and that's the skill I have not mastered and I never will I'll stick to real estate we also have business owners and again this isn't an exhaustive list but again to meet the accredited investor criteria you have to earn two hundred thousand dollars a year for the past two years or as a couple three hundred thousand or half a million dollars in assets and the whole reason this was set up actually I did a live stream on this but some scammers back in the day back in the old timey days were going around scamming people with these men investments not real estate specifically about all these other things and the government stepped in and the government felt that if you were making this amount of money you could absorb a bad investment and it wouldn't wipe you out so we've got the JOBS Act and all that stuff but again I'm keeping it simple today I'm not going off on a tangent we are talking about real estate syndication for beginners so these are the types of people who will invest in a syndication and if you have questions or if you are an accredited investor and you want to start investing in real estate in these large commercial deals I just head on over to call Seth comm and we can have a quick chat about it so what is the structure of asset of the syndication well we have two sides we have the LP and we have the GP so the LP is going to be the investors these are your doctors accountants lawyers business owners you know programmers all of that stuff these are the investors that have put their money in and have decided that for this specific piece of property that are going to invest and the whole way the general partner approaches these investors is the GP so the general part will be the person controlling the deal so I'll say control and they have the experience and they have the team and they have the track record track record so what will happen is the general partner will recognize an opportunity in real estate they'll say hey this deal looks really good I see lots of potential with this I need to now put this bill under contract and once the deal goes under contract the GP will approach the limited partners the investors and say hey listen this is the deal I have we spoken before you know my game plan with these types of properties this is how much capital we will need these are the expected returns this is what I want to do with the property this is our exit so this is when we're looking to divest or sell it do you want to invest and the investors will think it over and if the deal looks good and fits their parameters and their goals and what they want to do they will invest their funds and the amount of the investment will vary depending on the GP the deal etc so the investors have put their money into the syndication in they have invested now the LLP is the limited partners they enjoy lots of protections under the law because they not they are not deemed to be experts in real estate that's the general partner so there are a lot of advantages to being a limited partner if the deal goes south for instance let's say the property the mortgage defaults they stopped making payments while the general partner is on the hook there the LPS are protected because they're not deemed to be experts they're not active in investing in real estate they've just put their money under the control of a real estate expert to go to go out and earn a return for them so lots of advantages there plus you have all the tax benefits you can basically wipe out a large portion of your tax through depreciation and cost segregation I've done another video on that so this is how a syndication is structured you have the two sides so you have to help P and GP and I will draw a piece of the pie actually yeah we'll do a pie today I'm always a fan of pie cherry pie blueberry pie there was actually a really good pie from the place down the street called Mutual pie and that was a mix of cherry pie blueberry and they had some other stuff in there really good stuff all right so this is our syndication so the investors will own so the investors don't really buy a piece they don't really buy the property they buy shares in the entity that holds the property so that this is our let's say it's an LLC or you can have an LP we won't get into that stuff that's just different structures so let's say let's say the general partner has deal and everything pencils out and the investors will be earning a very good return in exchange for the general partners of work experience management of the property for let's say the next 5 years the general partner let me get rid of this so it's not confusing the general partner will get let's say 30 percent of the deal on the back end so the 30 percent GP in exchange so this is for the general partners hard work there there diamonds and all that stuff the investors for bringing the capital that makes the deal go around they will be getting 70% split amongst them obviously in proportion of the deal and there's something called the preferred return so a preferred return is a really a way of aligning interest between the the limited partner and the general partner you always want to make sure everybody is on the same page striving for the same goals whenever on my podcast I interviewed watts of successful real estate investors and usually when there's a breakdown and there's obviously a good story that goes along with that whatever there is a breakdown it's because people weren't aligned with their interest so one person was able to make money one way but to the detriment of another party and the deal wasn't structured properly so a preferred return is a great way of aligning interest so a preferred return also called a prep for short form return so preferred return says listen we are expecting this deal to pump out ten percent on your money a year but in order to make the general partner so the person running deal produce the LPS the limited partners are going to get the first eight percent of that and that and the general partner the GP will only be able to participate once a once this threshold has been reached so think about it this way from a passive investor side the general partner the person who is responsible for making this deal work they're not able to share in the profits of the deal until the investors are paid their eight percent this is a really good set up because the GP has to work really hard not only to hit this threshold but if they don't hit it the the if they don't hit it the GPS don't get paid so there's a lot of incentive there to make sure the deal performs for the investors so if you ever see preferred return or pref or you know pref recurring around this is what it's talking about it's talking about the LPS of the limited partners the passive investors basically get first dibs on on profits just to make sure that the GP is working hard on the deal and if you have questions about preferred returns or anything like that I head on over to call Seth comm and we'll set up a quick call for that so how do you splits work well we were just talking about splits in general but this is a there's really a couple different ways that you make money in a real estate syndication so one you have cash flow and then you have your equity or I'll just say divestment because it sounds fancier so as you're holding the deal so let's imagine this deal is being held for five years over the five years there's going to be cash flow being spit out by this property and the investors going to be getting monthly or quarterly checks I always like to do monthly but quarterly works as well that's pretty standard so the investors are going to put their money in they're going to be earning a return and the cash flow is coming off the property and if it's a percent preferred return so they'll get their eight percent before the general partner does and then anything in addition to that will be paid out based on the split so you know let's say it's a 70/30 like we used so once the investors earn their eight percent that's good and then everything else is calculated to make sure it's a 70/30 split now divestment this is where the big payday comes the cash flow is good it's going to give you your monthly checks or quarterly checks as you hold the deal but you're going to be doing what's called a value add place or you're going to be looking for opportunities the GP is looking for a property where there's underperforming rents potential for renovations you know you can add storage facilities you can add parking you can add valet trash service all these things to improve the income on the property the great thing about commercial real estate is the property is valued based on the income approach with which rewards and that operating income will cover that a hole never a hold another video because I'm keeping things basic right now for beginners at least I'm trying to I tend to go off on some Chan so we have the cash flow while we're holding the property then when we sell there's going to be a big chunk because we've increased the value so much on this property so again it's going to be paid out based on I'm just using this as an example 70/30 split so 70 percent of the back end will go to the investors and the 30 percent will go to the general partners the the syndication set up is is really a great vehicle and a great way to make sure that the investors are protected and the general partner is rewarded for their experience and and their game plan and actually executing on that business plan to ensure the investors are getting return the GP doesn't get paid unless the investors are hitting the getting paid and the deals hitting the targets plus the investors are getting protected for anything going wrong because the GP is basically on the hook if something does go wrong so that the syndicating is an amazing way for let's say your your successful business owner lawyer accountant you know programmer you name it if you are successful owning earning over $200,000 a year or $300,000 as a couple or if you have a million dollars plus in assets you can really take advantage of this and invest in these large real estate deals that would normally be out of reach but you're able to participate and earn the the great returns that come come with owning these commercial properties without any of the risk and without having to learn a whole new business because let's face it coming up with the the knowledge that the track record that the team behind you the contacts even getting in front of real estate brokers and having a shot at the property that takes a lot of clout and if one person if if I'm a brain surgeon one day I decided by a 40 million dollar asset chances are I'm going to be back to doing some more brain surgeries before I can acquire a property but the same thing with the general partner won't the general partner is focused on real estate there's no reason for them to open up a law firm it so you want to stay within your lane and become an expert at that so this is what syndication allows people to do allow them to get says to these large real estate deals participate in the tax benefits the cash show the appreciation and all the good things that come with owning large commercial pieces of real estate so I hope that clarified real estate syndication especially if you're brand new to the term and you're not really sure what it means but just keep in mind that credited investors typically will be approached to invest in these deals you know 506 B would be the legislation that that falls under but there are other ways for non-accredited investors to invest but I will save that for a totally different video so if you do have any questions that or if you think this real estate investing thing sounds pretty good head on over to call Seth comm and that we can hop on a quick call and talk about your real estate goals thanks a lot and have a great night

Channel: Seth Ferguson - Multifamily Real Estate Investing

Views: 1,212

Rating: 4.8518519 out of 5

Keywords: real estate syndication for dummies, real estate syndication, real estate syndication business plan, real estate syndication example, real estate syndication explained, real estate syndication structures, real estate syndication training, real estate, commercial real estate, commercial real estate investing, commercial real estate investing for beginners, how to invest in real estate, how to invest in real estate for beginners, multifamily real estate investing, syndication

Id: fAk93B0XCM0

Length: 18min 39sec (1119 seconds)

Published: Wed Aug 28 2019