Are you considering investing in a real estate syndication but feeling hesitant about the fees involved? Well, fear not, because I’m here to tell you that these fees are a small price to pay for the incredible benefits of multifamily investing.
It’s important to note that these fees are typically paid to the syndicator, who is the person or company that is responsible for finding the property, securing the debt, managing it, and ultimately selling it for a profit. The fees are used to compensate the syndicator for their work and to cover the expenses associated with the property.
Let’s take a closer look at the fees you might encounter when investing in a real estate syndication:
1. Acquisition Fee
The acquisition fee is charged by the syndicator to cover the costs of sourcing and acquiring the property. Some syndicators will put some of their acquisition fee in reserves until the property starts cash flowing. While it might seem like an extra expense, this fee is actually a great way to ensure that the syndicator is incentivized to find the best possible deals for investors. Acquisition fees can range from 1-3%.
2. Asset Management Fee
The asset management fee is charged by the syndicator to manage the day-to-day operations of the property. This fee is a small price to pay for the peace of mind that comes with having a professional team handling all aspects of the property management. In a large multifamily property the asset management fee is usually 1-2% of invested equity.
3. Financing Fees
Financing fees are associated with obtaining and servicing the debt on the property, such as loan origination fees and interest. While these fees may seem like an extra expense, they are actually necessary to ensure that the property is properly financed and positioned for success. These fees are included in the closing costs.
4. Sponsor promote
Promotes are paid to the syndicator when the property performs well, such as hitting certain cash flow or appreciation targets. This fee is a win-win for investors and syndicators alike, as it incentivizes the syndicator to maximize returns while ensuring that investors are well-compensated for their investments. Usually we do an 80/20 split with 80% going to the passive investors and 20% going to the sponsors. In the deals we do the sponsors do not get paid until the passive investors do.
5. Disposition fees
Disposition fees are charged when the property is sold or refinanced. This fee compensates the syndicator for their efforts in the sale or refinance of the property and is a necessary part of the process of maximizing returns for investors. Not all syndicators charge disposition fees.
Now, I know what you’re thinking – these fees sound like a lot of money! But hear me out – investing in a real estate syndication can be an incredibly lucrative investment opportunity. By pooling your money with other investors, you can gain access to larger and higher-performing properties than you could on your own. Additionally, investing in real estate can provide steady cash flow, appreciation potential, and diversification that can help you build long-term wealth.
Real estate syndication fees may seem daunting at first, but they are a necessary part of investing in multifamily properties. Make sure you are aware of all fees being charged by the sponsor before you invest in any deal.
By pooling your money with other investors and working with a professional syndicator, you can gain access to higher-performing properties and potentially earn significant returns. So YESMF don’t let the fees scare you away – consider investing in a real estate syndication and take advantage of this exciting investment opportunity!