Real estate syndication is when a group of investors pool their capital and other resources to invest in real estate assets. Typically, there are two broad groups: the passive investors, often called the limited partners or LPs, and the sponsors, often called the general partners, GPs or syndicators.
Both limited partners and general partners will contribute capital, the general partners will contribute time, effort and expertise, and together we acquire assets. General partners oversee the operation of the properties, and all partners share in the profits in accordance with the business plan.
Syndication with Snowball Equity.
At Snowball Equity, we are the sponsors/GPs, and you, as a passive investor, will be a limited partner or LP. Limited partners and Snowball Equity will contribute capital, Snowball equity will further contribute time, expertise and effort, and we will together acquire multi-family assets. Snowball Equity oversees the operation of the properties, and all partners share in the profits in accordance with the business plan.
What is the structure of Snowball Equity’s syndications?
Snowball Equity structures each of its syndications as a Limited Liability Company (LLC). Limited partners become “members” of the LLC, as do the general partners.
The LLC is governed by an Operating Agreement – which outlines, among other things, how distributions are paid out, how voting rights are established, as well as any fees the Sponsor gets prior to distributions. Prior to investing in any syndication, each investor will also receive a Private Placement Memorandum (PPM), which outlines the key features, risks and structure of the investment.
What do most investors look at?
The Operating Agreement and PPM present a comprehensive outline of the investment, and all investors should thoroughly read and review these documents. In our experience, the following items are of the most interest to investors:
- Return of Investor’s Capital – When should investors expect return of capital? For Snowball Equity syndications, this is typically 3-5 years.
- Preferred Return and Ordinary Distributions – The preferred return is what is paid to investors before any profits go to the sponsor. For Snowball Equity, this is typically 7%.
- Carried Interest – After investors have received their preferred return, this is how the profit is split between investors and sponsors. For Snowball Equity, the split is typically 70/30.
- Operations and control – Operations and control are handled entirely by Snowball Equity, and passive investors are free to concentrate on other things.
- Fees to the Sponsors – Snowball Equity collects limited fees in the form of an acquisition fee, management fee, and disposition fee. We do not take financing fees or internal property management fees.
Are real estate syndications a passive investment?
All of the effort to source, vet, acquire, operate and eventually sell the assets are handled by Snowball Equity, making real estate syndication a completely passive investment for limited partners.
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