When you’re in the process of investing in a real estate syndication, it can be a lonely process. Perhaps you’re in contact directly with the sponsor of the syndication, or with a group like Goodegg Investments, to help you on your journey to investing your money.
But still, most likely, you’re not meeting up regularly with the other people who are investing in the same deal.
By definition, a real estate syndication is a group investment. Which means, there’s a group of people who are investing in a real estate asset together. However, due to a number of issues, including security and privacy, most of these people will never meet each other or know each other’s names.
That being said, here at Goodegg, we are in constant contact with the passive limited partner investors in these real estate syndications, and while I can’t give out their email addresses, I can tell you a little more about them – who they are, where they come from, and the importance of their role in a real estate syndication.
In this post, I hope to satisfy your curiosity by answering seven questions you’ve always wanted to ask about the other investors in a real estate syndication:
Ready? Let’s jump in.
In a real estate syndication, limited partner investors are the people who invest their money passively into the deal. Typically, limited partner investors are people who have saved up some money and want to invest it in real estate, but they don’t want to deal with the hassles of being a landlord.
Passive limited partner investors are the most important part of any syndication. Without limited partner investors and the money they invest in the project, real estate syndications would not be able to come to fruition.
If a syndication is a car, the passive limited partner investors are the gas that makes the car run.
When you’re poring over the investment summary, listening to the investor webinar, reviewing the private placement memorandum, or wiring in your funds, it can seem like you’re the only person doing this, since, chances are, most of your friends and family aren’t investing alongside you.
However, it’s important to know that you’re part of a community. It’s pretty special, if you think about it. Most of the people in the group have likely never met each other in person, and may never will. Yet, for the duration of the project, they are pooling their money together to make an an impact, both in local communities, and for their own families.
Limited partners are limited in terms of their liability. General partners are the counterpart to limited partner investors. If anything goes terribly wrong in the project, it’s the general partners who are held liable, not the limited partners.
“Limited” certainly doesn’t refer to the projected returns, I can tell you that much.
Even though the general partners take on the majority of the risk and active responsibility in a real estate syndication, it’s the limited partner investors who typically get the majority of the returns.
In the deals we offer our investors, the deal structure is such that most of the returns (usually 70-80%) go to the limited partner investors, while the general partners share in the minority cut, and typically only after the limited partner investors get paid first.
Not bad, for pretty much doing no work. ?️
We often get asked how many passive investors there are in a real estate syndication. And the answer is, it depends. It depends on the amount of capital needed, as well as how much money each investor puts in.
Some smaller syndications might have as few as a dozen investors, whereas larger projects (including most of the ones we do) can have hundreds of investors. Yes, that’s right. Hundreds.
You can think about it this way – there are a fair number of investors who put in the minimum investment (typically $50,000). That means that, for every $1 million that we’re raising, that’s roughly 20 investors, assuming everyone puts in the minimum investment. So for a real estate syndication that needs to raise $10 million, that can be as many as two hundred passive investors. ?
The thing about real estate investing is that, pretty much anyone can get involved. We have investors who have just graduated from college and want to get a head start on building wealth, and we have people who have invested in real estate for decades.
Some are doctors or lawyers, some are software engineers, some are busy working moms, some are new retirees. Some have recently come into some money, while others have been saving bit by bit for years. Some are accredited, some are non-accredited, and some have never even heard the term before.
Some have invested in real estate before and want to take a more passive role. Others have never bought their own home before and don’t own any real estate.
Our investors are everyday people, just like you, who have saved up some money and want to invest it in a cash-flowing real estate asset that will make an impact, without having to deal with the hassles of being a landlord.
Some people think that they have to live in one of the areas where we invest, in order to invest with us. In fact, it’s quite the opposite. The beauty of investing passively in a real estate syndication is that you can do it from anywhere.
There’s no need to live across town from a syndication project you’re investing in, and in fact, most of our investors live outside the areas where we invest. We have a number of investors in the San Francisco Bay Area, though we also have investors on the East Coast, Midwest, and outside the US.
In any real estate syndication, you’ll find some passive investors who have invested in lots of real estate syndications before and know the process well, and you’ll also find some who are just starting out and are anxious about all the steps of the process.
Remember, every experienced passive investor started out as a beginner.
That means that those “dumb” questions swirling around in your head? Those experienced investors who seem so savvy now, they probably struggled with those same questions at one point in their journey as well.
In our experience, we’ve found that those experienced investors are generally very happy to help those who are just starting out. That’s one of the things that makes this community so cool.
We love this question, because it gets at the heart of community, which is what makes a real estate syndication such a unique investment.
One way to meet other passive limited partner investors in a real estate syndication is to ask the sponsor for references. When you’re thinking about investing with a new sponsor, a great way to learn more about them and the experience you would have in becoming a limited partner investor in a deal with them, is to ask if they will put you in touch with one of their current or previous investors.
This will allow you to speak directly with someone who was in your shoes not long ago, and to get their firsthand experience of working with that sponsor, as well as their insights on real estate syndications in general.
Here at Goodegg, we’re very aware of the awesome power of community, especially when it comes to learning and supporting each other. As such, we are working on building an online community of passive investors, through our Passive Real Estate Investor Academy. It is our hope, that through this community, we will be able to connect new and experienced investors alike.
I hope that, through exploring some of these questions, you have gotten a better sense of who the other passive limited partner investors in a real estate syndication are.
They are everyday folks, just like you and me, often people with little ones at their feet and calling “MOM!!” from the other room as they’re trying to learn more about real estate syndications and passive income.
They are people who look at the private placement memorandums with a dumbfounded “huh?” look on their faces, as they try to make sense of the legal jargon. They are people who check, double check, and triple check the wiring information as they anxiously send out that first $50,000 wire.
They are people who stare in disbelief when that first cash flow distribution check lands in their mailbox, and they really start to grasp the power of this whole crazy adventure.
So remember, the next time you’re bumbling through an investment deck or feel like you must be the only one who’s having a certain issue or question, remember that you’re not alone.
When you invest in a real estate syndication, you’re joining a community of dozens, sometimes hundreds, of investors who are in your shoes, just trying to do the right thing for their families, build a little wealth, and maybe make an impact on the world in the process.