Creative Finance Series, Part III: Partnership/Syndication
A partnership is when two or more people (or entities) purchase a piece of real estate together. The easiest and most straightforward way to arrange this is to share all expenses and revenues 50/50, although other terms can be arranged depending on the situation. These arrangements can be made legally binding by a partnership agreement, or you may decide to set up a separate entity that will last the life of the partnership. It is imperative that both parties discuss and agree to short- and long-term goals prior to entering into such an arrangement; it’s better to pass on an opportunity, than to realize too late that your finances are tied to someone who doesn’t want the same thing you do.
A syndication is also when a group of people pool their money together to acquire a piece of real estate. The main distinction between a partnership and a syndication, is that there is an organizer, or manager, in charge of the syndication who will be responsible for all aspects of the investment.
The amount of money you put in to the syndication will determine your equity stake in the property. This type of arrangement is usually reserved for large purchases starting in the millions, for office buildings, apartment complexes, and other commercial properties. Because multiple parties are contributing money, this is considered a security; the manager of the syndication will need to be registered with the SEC. In addition, there are significantly more expenses that are involved—fees to get in and out, monthly fees for management, additional fees based on the performance of the investment, etc. All of these fees sound daunting (this type of investment only makes financial sense with a large cash investment; otherwise all of your profits get eaten up by fees), but you will get a rate of return not possible in a smaller investment, and this is usually the only way for most people to have equity in such a large commercial investment.
