Syndication Profits are proportionally the greatest when the property is sold.
Multifamily Syndicator, Vinney Chopra, takes us through a recent property sale, providing insight to investor earnings, including payment during operation and through the disposition.
Most multifamily syndicators provide a level of preferred return to the investors from operating the property. These proceeds are distributed either monthly or quarterly. Vinney pays his investors quarterly, providing a level payment for three quarters, with bonus returns paid after the fourth quarter.
When you buy a value add property, you have to implement your value add plan in order to increase the value. Renovations, rent increase, etc, are all examples of ways to increase the net operating income and the property value.
When investors invest their money into a syndication, they are informed of the exit strategy and a window of time for when the property will likely sell. It is upon the sale of the property that the majority of the syndication profits are realized.
In a recent sale, Vinney received a Broker’s Price Opinion that the value had increased over $3 million since he and his investors purchased the property. When the investors learned of the valuation, they elected to sell.
Once the decision to sell is made, investors are made aware that the quarterly distributions will cease until the property is sold. This is a measure to conserve cash incase there are some buyer due diligence requirements to complete the sale. This avoids the need for a cash call from the sellers and or a discount at closing.
The sales process can take several months. For this reason, it is very important to vet the buyer’s ability to close. If you chose the wrong buyer, and they fail to close, you can lose market time, and frustrate your investors.
When done properly, the syndicator buys a property, implements the value add plan improvements, increases the rent, noi and market value. The cycle is completed with a successful sale. This makes investors very happy, and likely willing to invest with you again.
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