3 Common Structures for Real Estate Investments
By Amanda Cruise
Are you clear on the differences between JVs, syndications, and private lending structures for investing in real estate? Each can be a great way to invest in real estate… that is if you know what they mean! Let’s get back to basics and break down each of these investment structures.
Joint Venture (JV)
The idea of Joint Venture (or JV) structures is to make investing together streamlined. This can be as simple as 2 people buying a property together, splitting the money 50/50 and splitting the work 50/50. JV structures can be a bit more tailored as well, such as when one investor brings more of the money and another investor brings more of the work, time, or expertise. In JV structures everyone has to provide something other than money. That can include help with underwriting or inspections, being local to the property, etc.
Where do we use JV structures?
We’ve bought manufactured home communities as JV partnerships before and we’d do it again. Often these are smaller dollar amounts (a few hundred thousand) being infused and we have just one single partner who brings the majority of the out of pocket costs while we bring the majority of the work & expertise.
Syndication
This is like a Joint Venture deal for bigger properties. There are generally more players. You can also have truly passive investors in a syndication who contribute capital and zero work. With a syndication, you typically have a small group of sponsors or “general partners” find the asset and execute on the project. A larger group of passive investors or “limited partners” bring the funds. They share the cash flow and upside of the property as well as tax benefits such as depreciation. This is a very common way to structure real estate investments with multiple passive investors.
Where do we use syndications?
We use syndication structures when we have multiple passive investors who will own the property alongside us while we find, manage, and improve the asset.
Private Lender
Unlike JV and syndication structures, being a private lender means you are issuing a loan that is secured by an asset. You do not own the asset. You have a set interest rate you receive on your loaned principal. You receive your interest no matter how the property is performing. Typically the interest rates for our private lenders are double digits.
Where do we use private lenders?
We’ve partnered with private lenders for buying manufactured home communities, especially where we need to close quicker than a bank can. We also regularly partner with private lenders to fund land projects and land-home builds.
Which structure is best?
It may seem a little overwhelming to determine which structure is best. There’s good news. We handle the work of comparing and picking the best structure for the specific investment. We consider the timelines, budget, hold period, and risk. Once we have an asset and know we will partner, we reach out to our Investor Circle with the specific offering.