A multifamily syndication is a great option if you are looking to scale your real estate investment strategy.
Real estate investing takes tremendous amounts of capital. When you run out of your own money, do you stop, or try to keep going?
Vinney Chopra is an experienced deal sponsor who has purchased over 38 properties through multifamily syndication. Today, he takes us through the why, what, who, how it works.
WHAT IS A SYNDICATION?
When you run out of your own money, your ability to grow your real estate portfolio will stop. Unless, you learn how to attract other people’s money, OPM. Syndication is an investment vehicle that allows unrelated investors to pool their capital together. The combined funds allow you to purchase larger, more expensive multifamily properties than you are likely to qualify for on your own.
The syndication forms an entity that has two general groups; general partners and limited partners.
The general partners are the sponsors, or the syndicator, of the deal and are responsible for finding and actively operating the multifamily property. Additionally, the general partners attract investors. The investors are passive and join property purchasing entity as limited partners.
Because you have investors trusting you to take care of their money, the SEC requires multiple documents that make clear to all parties the risk. The documents also make clear how the entity is to operate, responsibilities of the parties, and how the money will flow.
You will need a securities attorney to prepare the Private Placement Memorandum, Operating Agreement and the Subscription Agreement for each syndication.
Rule 506 B or C
There are multiple vehicles for raising capital. The two most common for multifamily investing are 506b or 506c. Both allow for you to raise capital from accredited investors. The distinct difference between the two is based on whether or not you have a pre-existing relationship with the investor.
Regulation 506b requires that all investors have a pre-existing relationship, you the deal sponsor. You can also have up to 35 “sophisticated investors” participate in this structure.
Regulation 506c requires no pre-existing relationship. Additionally, you can advertise far and wide and attract any accredited investor to participate in your deal.
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