BPI Episode #7: Invest Smarter, Not Harder: The Syndication Advantage

Welcome to Building Passive Income, the podcast for professionals, entrepreneurs and investors who want to build wealth, diversify beyond Wall street, and create financial freedom through passive commercial real estate investing. Your host is Wayne Courageous iii, a seasoned investor and founder of CREI Partners, a leading commercial real estate investment company. He spent nearly two decades navigating and educating others on the commercial real estate, from multifamily to storage to retail. Each episode is under 15 minutes, intentionally short, easy to understand, and packed with insights that help you grow your income and protect your capital without becoming a landlord or sacrificing your time. If you're ready to learn fast and invest smarter, you're in the right place. Let's get started.

All right. Welcome back to Building Passive Income. I'm your host, Wayne Courageous. Hope everyone's doing well, excited to share more about passive investing and hopefully adding a lot of value to you as our listener. What I want to go through today is what is a real estate syndication? A real estate syndication, think of it as this way, like if you were able to go buy a property on your own, like that is like your the limit of the loan amount or the money you had in your pocket, like that's that limit. Whatever it may be a house or maybe a shopping center, whatever it is, like that's the limit, right? But imagine if you were able to pull your money together with other investors, friends, family, colleagues, you know, and partner with people like us who are active in real estate investing, you know, or putting our capital in there. We've got our other people, you know, putting in capital. We're able to do a lot more together than we are on our own. And that's really in essence what real estate syndication is. It's bringing multiple investors to pull capital to purchase a large commercial property. It could be like an apartment complex or self sourced facility. One of the really cool things though, with syndications like, this isn't just a real estate focused thing. People that buy baseball parks and NFL football teams and all syndicate, they're pulling money together from different investors. And it's not necessarily what I had always thought, even at cbre, because I was working with some extremely wealthy people who owned real estate and they were like the owner, their grandchild was one of the entity names on one of the industrial warehouse that the granddaughter got cash flow. But the reality is like that's few and far between. Most people are like you and I pulling money together to buy assets that we wouldn't be able to do on our own. And no matter where you are, like if we're doing 12 to 15 million dollars deals. Like that's where we're at today. But you know, as we scale and grow, we're able to do 30 to $50 million deals. And you know, we do that through partnerships and syndications. So within the syndications, though, think of it as a business buying a property. That business has members, people that are owners of that entity which owns the property. And it's split between general partners and limited partners. And if you haven't heard those terms, I want to go through it on this episode. So a general partner, we've talked about active investors previous. If you haven't listened to the prior podcast, like, definitely check those, what an active and a passive investor is. But the active investor is the general partner. They're the ones who are signing on the loan, who are managing the deal, executing the day to day and getting it to a landing, hopefully a very smooth landing at exit. Whereas limited partners are where the passive investors sit. And typically if you've got the entity, say the entity's 100% owns that asset, well within that 100%, it's typically for us at CRI Partners, but 75% owned by the limited partners and then 25% owned by the general partners. And so and that makes sense because 75% or more of the capital to close that deal was a limited partner capital. And the 25%, the general partners were investing in the deal as well, along with other general partners. But we're controlling the deal. And the goal for us, the deal sponsor in a syndication is to get the limited partner to have the majority of the ownership, in essence, the majority of the distributions and the majority of the wealth. Why would we do that? Well, we do that because the more money we make you, the more money you we grow together, the more you're going to tell your friends and your family and we're all going to grow that way. Right. And so limited partners typically take, remember I mentioned that 75%, some deal sponsors maybe do a 7030 split, some may do 6040. Every deal is going to be different. Every sponsor is going to be different. But for the most part, limited partners will always own the majority of the shares, despite not being the controlling group, meaning making the decisions. That's more for the general partner. And that's where you want to be because you don't want to be on that active side because you've made a choice that you're a limited partner and you want to value your time but still be able to invest passively in Real estate. So the general partner is going to source the deal, they're going to raise the capital, they're going to do the due diligence, they're going to oversee the business plan once closed and they're going to manage the asset. Maybe from an asset management standpoint where it's like a higher level, not day to day boots on the ground. That's what property management does. Or they may do both. They may do asset management and do property management as a vertically integrated company. So in a real estate syndication now that you know like what it is pulling of capital and sort of how that entity is split between general partners and limited partners and who controls what from that standpoint from a day to day running the business. We also look at target returns and we talked about this on our last podcast. So if you missed that one, definitely check that one out where we talk about average annual returns and the equity multiple and preferred returns, et cetera. Those returns are made through the syndication based on the deal parameters. Whether it was a 6 or 7% cash on cash preferred return, maybe it's an 8%. You know, a lot of those terminologies may not make sense to those maybe listening and for the first time on this episode, but go back and listen to the other ones. You know, plug in for our passive investor coaching program. Like it's free and it's a lot of great education for you. So you know, check that out as well. But from a real estate syndication, all this is governed. You know, we, we, we talked About GPs and LPs here, Target returns a little bit, but it's all governed by the Security Exchange Commission. And when we are doing a syndication, we're in essence selling a security. And that security is ownership or shares in the business that is operating or owning the asset. So we have to follow legal compliance. And we Talked about a 506B and a 506C in a prior podcast. But now that you understand now like what a real estate syndication is, it's nothing complicated. It's more of, you know, a group of people coming together to, to buy an asset. Now again on another podcast we talked about accredited investors versus non accredited. That all is really, really important when it comes to investing in syndications and the type of offering, whether it's a 506B or 506C. So all those intricacies, like once you learn it and once you understand the terminology through this or check out crime, I've got a. On the FAQ section there's a lot of like common Terminology that you could just go in and, and read as well. If you prefer that over, prefer that over an audit. Audio but the point is there's a lot of resources out there and a real estate syndication really exists to dilute the risk for the passive investor. And how is that possible? So when you go buy a property on your own, right, or you are the main LP investor, potentially like your capital is at risk, right? So if you buy a property and you had to put a hundred thousand dollars down, well, if you bought that property and you're operating it, right, and you're the one who put the main capital like you're at the higher risk. Whereas a real estate syndication, say you put 50,000 in, well, you can dilute and diversify into multiple deals or thing I love about syndications the most is you're able to do bigger deals than you could on your own. Meaning instead of like buying that $300,000 home, you know, to, to do a rental, right? Which is what most LPs do. You know, they think they want to get on the real estate side. So what do they do? They do what majority of people do and they get into buying a single family doing a rental. And then they're like, man, this is too much work, I hate this. And then they come over, skip that, go into multifamily and think about this or retail. Think about this. If you are able to invest in an 11 million deal, there's a far greater upside in a shorter amount, amount of time because of the scale, the amount of the property versus like a 200, $300,000 property too. So there's different ways to consider it. Plus the depreciation that I've mentioned before. But you know, if you haven't thought of real estate syndications, now you, now you know about them and now you know that, you know, this is what it's all about. When you say passively investing in deals, you're passively investing into a business which that business is syndicated. It's being pulled by different investors that's owned by an entity that owns the property, that property, the deed on that property will be, you know, for us, CREI multifamily, you know, numbers of the, you know, typically a number 1, 2, 3, 4 of the, you know, which is the property, address owner lp. So that entity is split between limited and general partners. And the general partners run day to day. And you as a limited partner building passive income are true owners into that asset. And you're benefiting from all the income that is coming through the property. So hopefully this was helpful and you're getting a lot out of it. And I hope that it's you do take time to go to our passiveinvestorcoaching.com because if you're doing this podcast and it's 10 to 15 minutes your day, you're getting a lot out of it, I hope, but taking it to the next level and accelerating that learning curve so that way you're ready when that opportunity comes to invest passively. Um, I also want to mention our virtual meetup. On the fourth Monday of every month, just go to meetup.com and just put in tax Texas multifamily active and Passive Investor Meetup and you'll see our meetup. It's virtual. It's a great way to learn about and have more of a conversation and be able to ask questions and build a relationship. So I definitely encourage those interested in that to to participate. But I'm excited to go on to our next podcast and appreciate everybody's time. Hope everyone's doing well.

Thanks for tuning in to Building Passive Income. If today's episode helped shift your mindset or gave you a new tool to grow your wealth, do us a favor and like subscrib share this podcast with someone you care about. Want to go deeper? Join our free Passive Investor coaching program@ passiveinvestorcoaching.com it's the perfect next step to start building wealth through commercial real estate the right way. Remember, financial freedom isn't a dream, it's a decision. And it starts with Building Passive Income. We'll see you in the next episode.