One of the many benefits of multifamily syndication is being a Limited Partner. Limited Partners (or LPs) provide some of the funds to close the deal but do not participate in managing the property, work with the leasing staff, or manage any of the day-to-day activities of the property. LPs are able to get cash flow and a return when the property sells or refinances, based on their financial contribution to the syndication. It is not uncommon in many of our investment opportunities to receive an 80% return on the initial investment over 5 years for Limited Partners.
Many of our investors are looking for additional income streams but do not want to leave their full-time job. Being a Limited Partner allows them to still focus on what matters to them, while receiving passive income from their investment. When we buy a property, we will usually start the first distribution after 6 months. Usually, month 7, we provide quarterly distributions. When the property sells, the majority of the return (including your initial contribution) will be returned.
In addition to cash flow, quarterly distributions, and a return when the property sells or refinances, limited partners can receive tax benefits*.
A projected return may look like this:
Year 1 - 3% return from cash flow
Year 2 - 5% return from cash flow
Year 3 - 7% return from cash flow
Year 4 - 9% return from cash flow
Year 5 - 11% return from cash flow + 45% return from sale + 100% initial investment
Cash flow will typically rise over the years as the business plan takes shape. The first year, we underwrite for a small amount of cash flow as we focus on stabilizing the property and implementing our business plan. As the business plan is implemented, cash flow becomes greater, thus better cash flow and higher distributions are passed out.
*Disclaimer: This is not tax or legal advice. Check with a CPA that specializes in real estate.