Thank you for tuning in on the special webinar about Real Estate Syndication.
About Stephanie:
Many people are interested in real estate investing, but they don’t have the time to be active, full-time landlords. Most people want monthly cash flow, tax advantages through depreciation, and the potential for financial freedom and early retirement. A big point of confusion is how passive investors are compensated in a real estate syndication.
One of the most important ways investors are compensated in a syndication is through what is known as a preferred return.
What is a Preferred Return?
A preferred return in private real estate syndication investing is the minimum return an investor must receive before the investment sponsor can earn a performance fee.
The preferred return is typically between 6% to 9% in real estate syndications, depending on the risk of the investment. You can think of this as an interest payment on your money as it accrues the same way, but it is not a guaranteed payment.
How does Preferred Return Work?
The preferred return is the order in which partners are repaid their equity investment and their share of the profits until a certain threshold has been achieved.
I can break this down with an example of how preferred return distribution would work in one of my deals. Let’s say the syndications operate in an agreement and set the preferred return hurdle at 7%. In this instance, assume that the property produces enough cash flow to distribute.
So, preferred return is simply a form of preferential treatment on who receives cash flows during the asset’s holding period or at the time of sale. If you have a preferred return, you are served first. You get the first share of the proceeds, protecting your downside risk in real life.
This means that even if the general partners couldn’t pay themselves, you will still receive your payment because you are legally in a higher priority position.
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Book(s)Recommended
- Killing Sacred Cows- Garrett Gunderson
Thank you Stephanie for special presentation
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