A real estate syndication is a group investment, yet it can feel like a lonely process at times. For security and privacy reasons, you may never meet or even know the names of the other investors, even though you’re pooling your money into the same asset alongside each other.
It’s likely you’re in touch with the syndication sponsor, or with a group like SPARK Investment Group, but you won’t get the team atmosphere you’ve come to know with other group activities. So, you may find yourself wondering what the other investors are like, where they come from, and how they chose the same deal as you.
Today, let’s satisfy your curiosity by addressing a few questions you’ve probably always wanted to ask about the other investors:
- What is a limited partner investor?
- What makes limited partner investors “limited”?
- How many passive investors are there in a real estate syndication?
- Who are the investors in a real estate syndication?
- How can I meet and talk to other passive investors?
top 5 questions new passive investors have regarding other passive investors in a deal:
What is a Limited Partner Investor?
Limited partner investors in a real estate syndication are people (just like you) who want to invest in real estate without the hassles of being a landlord. These passive, limited partner investors and the capital they commit to the project are the most important part of any syndication.
If a syndication deal were a car, the limited partner investors would be the gas that fuels the car. Without that fuel, the car won’t go anywhere.
Even though you may be reviewing the investment summary and wiring your funds alone, it’s important to remember you’re part of a community. Most people investing passively in a syndication never have and never will meet each other. Yet, for the duration of the project, their money is pooled together to improve an asset, the community around it, and produce income for their own families.
What Makes Limited Partner Investors “Limited”?
The word “limited” in the phrase “limited partner investors” refers to the amount of liability in the project being limited. In a syndication project, there are general partners and limited partners. The general partners assume the majority of the risk and active responsibility while limited partners invest capital, are not actively involved in improvements and property management, nor will they be held liable if anything goes terribly wrong.
“Limited” has everything to do with the liability at risk and nothing to do with the projected returns. In fact, deals are often structured so that limited partner investors receive 70%-80% of returns while the general partners share in the minority cut. Typically limited partners get paid first too!
Not a bad deal!
How Many Passive Investors Are There In A Real Estate Syndication?
The number of passive investors in any real estate syndication deal varies depending on a variety of factors including how much capital is needed and how much each person invests. Some smaller deals could have a dozen investors and some larger projects could have hundreds.
Consider this, there are plenty of investors who commit the minimum amount required (typically $50,000). This means for every $1 million raised, 20 investors would have invested. However, some investors may contribute more than the minimum required.
So, for a $10 million real estate syndication, there could be as many as two hundred passive limited investors.
Who Are The Investors In A Real Estate Syndication?
One of the coolest features of real estate investing is that pretty much anyone can get involved. Anyone in any stage of life – from fresh college graduates to highly experienced (we’re talking decades) investors, in any profession, whether they have young families or are retiring next month, single or married, with family money or their own personal savings – can invest.
Some have had rental properties before and are interested in a more passive role. Others may have never even owned real estate at all.
Mostly, they are everyday people, just like you, who have saved up and want to build wealth while improving a community without being a landlord.
How Can I Meet And Talk To Other Passive Investors?
When you’re exploring the idea of investing with a new sponsor, a great way to learn more about them and have insight as to what it’s like to work with them, is to ask the sponsor for references.
This is not only a great way to find out more about the sponsor, but also a great opportunity to chat with someone who was in your shoes not long ago. You’ll be able to ask questions about their experience and their insight on real estate syndications in general.
Here at SPARK Investment Group, we’re very aware of the power of community. We encourage you to continue to read and learn about investing in real estate syndications and connect with others who have invested in syndication deals.
You never know, maybe one day you’ll be the experienced investor on the other end of the phone line sharing your experience with a soon-to-be investor.
Through exploring some of these common-curiosity questions, it’s likely you’ve gotten a better sense of who passive limited partner investors really are.
They are people, just like you, maybe with kids hollering “Mom!” from the other room as they’re trying to learn more about how to invest passively in real estate syndications.
They are normal folks who wrinkle their forehead at the confusing legal jargon in the private placement memorandums. They are everyday citizens who nervously triple check the wiring information as they send out their first $50,000 investment.
They are the same neighbors who stare in disbelief at their first cash flow distribution check as they start to grasp the power of the crazy world of real estate syndication investing.
So, the next time you begin to feel lost or lonely while flipping through an investment deck or think you’re the only one with these questions, remember you aren’t alone.
You’re part of a community of investors who feel the same way you do- who are trying to do the right thing for their families, build wealth, and possibly make a positive impact on the community in the process.
To learn more about real estate investing and syndications, reach out to us at https://investwithspark.com/contact/ today!
As usual, great and insightful article Arn.
Quick question, would I pay STATE tax on any syndication dividends received to the specific state the asset is located?
It’s an excellent question and one many investors do not consider.
The short answer is yes. But like most tax questions, it’s complicated.
Check with your (our) CPA. 😀
State taxes from where the property is located are typically due.
But with most syndications due to the use cost segregation, bonus depreciation and regular depreciation, the depreciation more than offsets most if not all of the cash flow resulting in “passive” paper losses so no tax is due anyway.
If one did have to pay state tax to the state the property is located, one would then get a credit on their state (of residence) tax return.
So if a CA investor made a syndication investment in South Carolina, that CA investor would have to pay tax to SC for any gain or income from that SC investment but then would take a tax credit on their CA return for the tax paid SC. The investor would not be doubled taxed on that gain or income at the state level.
And of course if one invests via their self directed IRA most of the tax issues go away.
This is an evolving issue as syndication investments have become more “mainstream” over the past decade.
Hope this sheds a little light on a complicated issue.