If you want a reliable passive income source, then real estate syndication is just for you. Being a limited partner in real estate syndication, you won’t need to do much and you will be free from most of the liabilities. Everything will be managed by the general partners and you don’t have to do anything other than invest in the opportunity. Still, there are some things you need to take care of. Here are some of the responsibilities of a limited partner.
Make The Right Deal
First, you need to have a trustworthy sponsor with a good track record. Make sure that during the deal you attend the meetings and ask questions about the project. It is important to ask about the successful projects the general partners have completed in the past so that you can be sure that your investment will be profitable.
Understanding The Agreement
As a limited partner in multifamily syndications, you have to read all the documents carefully and also be familiar with the private placement memorandum (PPM), subscription agreements & operating agreement. This will help you in several ways. You will be aware of the risks you may face, you will know about the conditions of additional capital raises if the deal requires new capital injection, etc.
Know Your Liabilities
Although you will have limited liabilities, yet being a limited partner makes you an equity holder as well. If the deal works well, you will get extra returns. But if the deal turns ugly, so will your returns. You might be on the hook too in case the project fails. Knowing what your liabilities are as a limited partner makes you aware of all aspects and risks of the investment. The passive investor will have copies of all documents for their personal records.
Know Your Risks
Multifamily syndications are usually long-term. The investment is illiquid so you may not be able to divest out of the investment anytime soon. Also, the real estate market could fluctuate but not as volatile as the stock market and, sometimes you may not be able to make any profit during a wealth preservation strategy during tough economical stretches.
Have Some Patience
Most multifamily syndications might distribute the cash flow to the passive investors monthly, quarterly & sometimes yearly pending the sponsor. There is no right way or wrong way to distribute capital and investors will know upfront from what the investment offering has listed. Pending on the distribution practice, patience is an utmost need in multifamily syndications as it’s a long term investment.
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