Multifamily Syndication has become one of the most preferred pathways to break into real estate investment for millennials and first-time investors today. Real estate syndication doesn't practically restrict the pooling of financial resources to accredited investors.
Many syndications allow non-accredited, non-professional, passive investors to invest their funds into multifamily deals they sponsor. A well-developed real estate syndication platform accelerates forming a real estate syndication due to its incredible features.
However, investors must understand the process of forming multifamily Syndication and the ideal duration required to close a multifamily syndication deal. Let's glance at some significant stages in this process:
Finding Profitable Multifamily Deals
In real estate syndication, a multifamily deal may be an apartment complex open for sale or a real estate project comprising multiple residential units. In the first case, the syndicator needs to apply multidimensional strategies to find the best multifamily deals.
In the modern digital era, syndicators can find lucrative deals through online listing sites, use their real estate contacts, and advertise their business through various channels. As the syndicator finds a suitable multifamily property, he needs to put it under a contract.
Formation of the Multifamily Syndication
The syndicators then form Multifamily Syndication by defining their goals, execution methods, partnership structure, disclosing all associated fees, and the details of the subscription agreement.
These details are drafted in a private placement memorandum. Usually, syndicators form an LLC to incorporate the non-accredited passive investors in the Syndication. However, some multifamily syndications may be restricted only for accredited investors, with a minimum investment requirement.
Completing the Legal Formalities
The syndicators register the LLC completing the necessary legal formalities. There may be some regulations enforced by the Securities and Exchange Commission (SEC). Syndicators also file those completing the documentation and any application process.
Thus, the legal framework for the real estate syndication would be almost through at this stage. Another crucial step is entering every investor into an agreement disclosing fees, partnership structure, and distributions, and more. These formalities are carried out when a lead converts into an actual investor.
Acquiring Financing for the Multifamily Property
The syndicator opts for a loan to acquire the multifamily property. This is a crucial step involving various aspects, like the valuation of the property, the rate of interest, the payback period, and whether the property will make a gross rental income to be profitable in the long run.
Most importantly, the syndicator signs the loan agreement and is solely responsible for it. Individual passive investors are not directly involved in the loan agreement.
Finding Potential Investors
Now the marketing strategy to find potential investors and convert them into actual investors comes into play. A real estate syndication platform would be a must for syndicators to rapidly take prospects through the sales funnel.
- Find potential investors through various sources,
- Collaborate with a cosponsor,
- Effectively communicate with the prospects to convince them,
- Take soft commitments from the investors, and
- Keep all financial records, investor profiles, deal-related documents, agreements with the investors, and more in one place by adopting a real estate syndication platform.
Apart from this convenience, the real estate syndication platform can be customized to add the syndicate's logo, graphics, contact details, and project details. Thus, syndicators can utilize the platform as their investor portal.
At this stage, syndicators get funds from the investors. A real estate syndication platform offers many features like ACH Payments to raise funds quickly. Syndicators and investors can use the e-Sign feature to close the agreements faster.
Syndicators can categorize investors based on their accreditation status, location, investment capacity, etc. Both syndicators and investors can get an overview of their investments and other financial information with a single click on the real estate syndication platform.
Closing the Multifamily Deals
Usually, syndicators decide to close multifamily deals when sufficient funds are available for a downpayment of the loan and closing formalities. So, finally, an entity with syndicators as General Partners and investors as Limited Partners is formed to jointly own the stakes of Multifamily Syndication.
The overall duration to close multifamily deals would rely on how fast the stages mentioned above are accomplished. Forming an LLC and the relevant legal formalities may take a typical time. However, finding potential investors and fundraising can be accelerated by adopting a real estate syndication platform.
Let's also understand what happens next after closing multifamily deals:
Syndicators manage the routine administration of the Syndication and also decide on the utilization of the investment. Investors wouldn't have any control over these matters.
Syndicators distribute the profit share (distributions) among the investors as per the mutually agreed terms. Syndicators may manage the property themselves or outsource property management to a third party.
Executing Exit Strategy
As per the exit strategy, the multifamily property will be sold after an adequate holding period. (maybe 5 to 7 years or more).
Thus, the investors get their regular distribution and equity gains at the time of sale.
We have created an infographic to present these steps in short. We hope that our infographic will help you understand the process effectively and remember it for a long time. Here is the infographic:
The Final Thoughts
This article aims at a briefing about the various steps to close multifamily deals. We hope that the discussion helps you understand the process of multifamily Syndication, from finding multifamily deals to selling the property. To complete all the stages faster, switch to a real estate syndication platform and do more in less time!