3 Primary Ways an Apartment Syndicator Makes Money on a Deal
There are countless ways for a syndicator (also referred to as sponsors or general partners) to make money on an apartment deal. However, three are the most common.
#1 Acquisition Fee
The first primary way that a multifamily syndicator makes money is with an acquisition fee. The acquisition fee compensates the syndicator for their time for putting the entire deal together, from start to close.
The acquisition fee charged can be anywhere from 1% to 5% of the purchase price. I’ve heard upwards of 5% at certain seminars I’ve attended but I’ve never actually seen it in real life. And I’ve actually personally seen an acquisition fee of less than 1%, which was what I charged on my first deal. At the time, I didn’t know about the acquisition fee, and I backed into it after I talked to my investors, which resulted in a very awkward conversation!
If a syndicator were to charge a 2% acquisition fee, for example, and the apartment sales price is $1 million, it would be $20,000 paid to the syndicator at closing.
#2 Asset Management Fee
The second primary fee is an asset management fee. I’ve seen this fee collected in two different ways.
First, an asset management fee can be charged as a percentage of income. The industry standard is 2%. If a property collected $100,000 in income per month, the syndicator would receive $2,000 each month.
Another asset management fee structure is a cost per unit per year. The standard fee I’ve seen is $250 per unit per year. If a syndicator is managing a 100-unit asset, they’ll be compensated $25,000 per year.
I personally don’t like the latter approach – cost per unit per year – because it doesn’t show alignment of interest. No matter how well or poorly the property performs, the syndicator’s compensation remains the same. Therefore, I prefer the alignment of interests that receiving a percentage of monthly income provides.
#3 Percent Ownership
The third primary way a syndicator makes money is getting ownership interest in the entity that owns the property. Ownership can be anywhere from 10% to upwards of 70%. It depends on the deal, how much money the syndicator personally invested, and the overall opportunity for the investors.
A typical example is the limited partners (i.e. the investors) receiving 70% ownership and the general partner (i.e. the syndicator) receiving the remaining 30%. These percentages equate into dollars when you refinance or sell the property. While this method lacks in consistent cash flow, as long as the syndicator performs for the investors, it’ll turn out to be significant dollars at the end.
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