A Peek Into The Projected Returns In A Real Estate Syndication

Real estate syndication deals come in various forms and offer different outcomes. Some have potential appreciation upsides but come with significant risks, while others provide stable cash flow but lack the potential for appreciation. At Goodegg Investments, our primary focus is on real estate investments, and we conduct thorough due diligence to ensure that we only invest in deals that we would invest in ourselves. We then offer these opportunities to our community of like-minded investors.

As real estate investors and operators/syndicators with years of experience, we evaluate potential real estate syndication deals based on a stack of benchmarks that we have established. We sift through numerous real estate investment opportunities every month, and no two are alike. However, before presenting a real estate syndication deal to our passive investors, we make sure that the underwriting criteria and business plan meet our expectations.

In this article, we will discuss the typical expected returns that we aim to offer our passive investors within each of our real estate syndication deals. These returns vary depending on the investment opportunity, and we ensure that each deal meets our benchmarks before offering it to our community. We understand that our investors trust us with their hard-earned money, and we take this responsibility seriously by conducting thorough research and analysis on every deal we present.

Big Fat Disclaimer About Real Estate Investing

Before we delve into the projected returns, we must state that they are not guaranteed, and any real estate investment comes with risk. We acknowledge that some individuals may be dissatisfied if the actual returns do not match the projections. However, this is a common disclaimer among real estate syndication companies, and we cannot guarantee the returns.

Despite the speculative nature of real estate syndications, we believe that with our experience, we can provide excellent investment opportunities for our investors. We monitor the metrics and have a reliable property management team in place to mitigate risk and maximize returns.

This article aims to provide a rough estimate of the returns we aim to offer through preferred return, cash flow during the hold period, appreciation, or sale. Investors must thoroughly review the private placement memorandum and business plan for specific details on available real estate syndication opportunities. It may not be exciting to read through legal jargon, but understanding the passive investment process is crucial for the security of financial and intellectual resources.

Investing in a real estate syndication is different from purchasing single-family properties. We urge our investors to do their due diligence and understand the investment thoroughly before making any decisions. We prioritize transparency and open communication with our investors to ensure that they feel comfortable with the investment opportunity.

Returns on Real Estate Syndications

Multifamily apartment buildings are among our most popular real estate syndication offerings since people will always need a place to live. This market is appealing to passive investors due to its relatively steady cash flow and potential for appreciation.

We specialize in value-add real estate syndications, which offer even more opportunity for cash returns but come with added risk. The equity splits in real estate syndications are pre-calculated and outlined in the PPM and Operating Agreement, allowing investors to review and perform due diligence on any returns projections.

Now, let’s discuss the exciting topic of cash flow!

Three Main Criteria of Our Overall Real Estate Investment Strategy

Investment summaries for real estate syndications are loaded with data and metrics. Each metric provides valuable information about the real estate asset and the deal. At Goodegg Investments, we prioritize three main criteria when evaluating potential real estate syndication investment opportunities.

1. Projected hold time

2. Projected cash-on-cash returns

3. Projected profits at the sale of the asset

Projected Hold Time: ~5 Years

Projected hold time is an essential criterion for real estate syndications. It refers to the time period for which the real estate property will be held before selling it. Typically, the hold time for such projects is around five years. This is because five years is a moderate timeline for real estate syndicators to get in, renovate the property, and let it appreciate before selling it.

Moreover, five years is a good length of time for most investors. It’s long enough to witness some healthy returns but not too long that investors feel like they won’t have access to their money for a prolonged period. There are, however, some passive investors who may want to invest for a more extended period of time. It’s important to base personal investment decisions on individual goals.

Lastly, commercial real estate loans usually have a seven or ten-year fixed term. With a five-year projected hold time, the syndicators have a bit of buffer to hold the property longer if required, in case the real estate market is soft at the time they originally projected a sale. Overall, projected hold time is a crucial factor that helps real estate syndicators make informed decisions for investment opportunities.

Projected Cash-on-Cash Returns: 6-8% Per Year

The cash-on-cash returns or cash flow is an essential metric we consider in real estate syndications. It represents the rental income left after accounting for various costs, and it is the amount of money that investors receive on a regular basis. We usually distribute cash flow returns to passive investors on a monthly or quarterly basis after deducting sponsor fees, acquisition fees, and other property and asset management expenses.

In general, we prefer to see cash-on-cash returns ranging from six to eight percent per year for the real estate syndications we pursue. For instance, if an investor’s initial investment is $100,000, they can expect to receive around $7,000 to $8,000 in cash flow returns each year during the hold period of five years, which amounts to $35,000 to $40,000.

To put this in perspective, let’s compare it to the interest earned from a savings account. The average interest rate on savings accounts is usually below one percent, but let’s assume it’s one percent. If someone invested $100,000 in a savings account over five years, they would earn only about $5,000 in interest, resulting in a total of $105,000 at the end of five years. In contrast, investing the same amount in a real estate syndication would yield $140,000 in passive income over the same period, making it a far more lucrative investment option.

Projected Profit Upon Sale: 40-60%

Real estate syndication deals involve multiple factors, and one of the most crucial pieces is the potential profit upon the sale of the real estate asset at the end of the hold period, typically in year five. By this point, the property has undergone improvements and upgrades, and the tenant base is strong, resulting in increased rental income, and hence, a higher property value. For the real estate syndication projects that we are interested in, we anticipate a profit of around 40-60% upon the sale of the asset.

It is important to note that the projected profit takes into account the improvements and efficiencies planned by the sponsor team, but does not factor in the appreciation of the investment property in that particular market. When selecting markets for real estate investment, we focus on areas with strong job growth and increasing populations, leading to greater demand for housing and higher rents. However, we never rely solely on market appreciation and always include conservative underwriting as part of our investment strategy.

We also have several exit strategy options for each unique real estate syndication to protect passive investor capital, as preserving their capital is our top priority above any projected returns. In short, projected profits upon the sale of the asset are just one aspect of the overall investment strategy, which also involves cash-on-cash returns, market selection, and conservative underwriting.

A Summary of the Returns You Can Expect From Real Estate Syndications

So there you have it. Projected returns for our middle-of-the-road typical real estate syndications look like this:

• 5-year hold on real estate assets

• 7-8% annual cash-on-cash returns, or cash flow distributions

• 40-60% profits upon sale of the asset in year five

If you were to invest $100,000 in a real estate syndication deal with these projected returns, you would end up with roughly $175,000 to 200,000 at the end of five years.

With this example, you can easily see how a real estate syndication investment can put your money to work for you in a powerful way. With our multifamily investment opportunities, you have the potential to double your money passively in just five years! Try asking for that from a savings account, and let us know how that goes.

Onbrdige Capital offers a way for you to expand and vary your real estate portfolio by investing passively in real estate syndications. With this option, you can reap the benefits of real estate investing without the challenges that come with being a landlord or hiring property management services. By joining us as a passive investor in real estate syndications, we’ll handle the majority of the workload while you sit back and enjoy the regular cash flow.