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Where does cash flow from real estate syndications come from?

We get this question often when talking with people who haven’t previously had experience with investing passively into real estate. Most understand where cash flow comes from when fixing and flipping a single family home or from buying and renting a property.

Cash flow from multifamily real estate can be much more favorable and if done passively through a real estate syndication, it will not involve your having to actively manage the asset. Depending on the syndication teams business plan, investors should expect to see quarterly (or monthly) distributions within the first few months after the team has acquired the property. The timing of when distributions start will depend upon how much “value add” the property needs in order to stabilize.

The cash flow that is paid out to investors originates from the rent that tenants pay. Then, the sponsor team deducts the expenses, pays the mortgage, taxes and insurance, and what’s left over is then divided and shared with investors.

Most sponsors project an annual cash on cash distribution to be paid to the investors of 7% (preferred return), with a 16% - 20% annualized rate of return (this includes your profit split and is paid out to investors at the time the asset is sold). If you’d invested $100,000 into a real estate syndication with a 8% preferred return, you would expect a quarterly distribution of $2,000, which works out to be $8,000 for the year.

Assuming the sponsor team executed well on their business plan and achieved the projected IRR (internal rate of return) with a 5 year hold, investors should expect to have doubled their investment over the course of the investment hold period.

Please reach out if you’d like more information about upcoming real estate investing opportunities!