A multifamily syndication is a great option, if you are looking to scale up your real estate investment strategy. Real estate investing takes a large amount of capital. When your money runs out, do you stop, or do you 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 ins and outs of forming a multifamily portfolio and how you will be able to benefit from your investment assets.
WHAT IS A SYNDICATION?
When money runs out, the growth of your real estate portfolio stops. OPM Syndication is an investment vehicle that allows unrelated investors to pool their capital together. The combined funds allows you to purchase larger, more expensive multifamily properties than you are likely to have on your own. Hence, it’s a great option to consider when you are seeking to scale your income.
However, you will still need to understand the fundamentals of a multifamily syndication. 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. They are responsible for finding prospects to join. Moreover, they actively operate the multifamily property and attract investors. Investors, on the other hand, are passive and thus counted as limited partners.
Because you have investors trusting you to take care of their money, the SEC requires multiple documents that makes it clear to all parties regarding the risk enclosed in it. The documents also makes it clear how the entity operates, responsibilities, and how money will flow.
You’ll need a securities attorney to prepare the Private Placement Memorandum, Operating Agreement and the Subscription Agreement for each syndication. Even with these roadblocks, a syndication is still a great option, mostly due to how easy it is to raise capital.
Rule 506 B or C
There are multiple vehicles for raising capital. The two most common for multifamily investing are 506b and 506c. Both allows 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 can also have up to 35 “sophisticated investors” participates in this structure.
Regulation 506c requires no pre-existing relationship. In-addition, you can advertise far and wide and attract any accredited investor to participate in your deal.
Understanding these fundamentals should help you decide on joining a syndication or form one out of scratch!