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 23rd Street Investors, but you won’t get the team atmosphere you’ve come to know with other group activities. This is the nature of being a Limited Partner in a real estate syndication.
So let’s explore exactly what it means to be a Limited Partner.
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 two things: (1) the amount of liability in the project and (2) the amount of input/involvement in the project.
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 nothing to do with the projected returns. It has everything to do with limited involvement. By being involved in a very limited capacity it allows you to maintain limited liability. In fact, if a limited partner were to start getting involved in the management of the project, they might lose their limited liability in the event something goes wrong.
How Many Limited Partner 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.
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.
Recap
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 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.
