Frequently Asked Questions

We believe informed investors make better decisions. Here you’ll find answers to common questions about multifamily real estate syndication, passive investing, and working with Lion Park Capital.

Multifamily Real Estate Syndication Basics

Multifamily Real Estate Syndication Basics

Q1. What is multifamily real estate syndication?
A. Multifamily real estate syndication is a way for multiple investors to pool their capital to purchase larger apartment buildings or complexes that would be difficult to acquire individually. The process is typically led by a sponsor or general partner who sources, analyzes, and manages the investment. The sponsor prepares a legal document called a Private Placement Memorandum (PPM) and a subscription agreement outlining the terms, structure, and risks of the deal. Passive investors contribute the majority of the capital and rely on the sponsor to oversee day-to-day operations and execute the business plan.

Q2. How is passive investing different from active investing?
A. Passive investing means you contribute capital to an investment and let a third party — such as the sponsor in a multifamily syndication — handle all operational and management responsibilities. In active investing, the investor takes on a hands-on role in managing the property, making decisions, and solving problems. Passive investing allows you to enjoy the benefits of real estate ownership without the time commitment or stress of active property management.

Q3. What are the benefits of passive investing in multifamily real estate syndication?
A. Passive investing in syndication offers several advantages:

Access to larger, higher-quality properties.
Diversification across multiple units and tenants, reducing risk.
Professional management by experienced operators.
Potential for higher returns than other passive investments.
Regular distributions from the property’s cash flow, creating passive income.

Q4. What are the risks of passive investing in multifamily real estate syndication?
A. While syndications can be lucrative, they are not risk-free. Risks include:

Market fluctuations affecting property value.
Interest rate changes impacting financing costs.
Tenant turnover or defaults reducing cash flow.
Potential mismanagement or fraud by a sponsor.
At Lion Park Capital, we mitigate these risks through conservative underwriting, rigorous due diligence, and working with proven operators.

Q5. What is a passive investor’s role in a multifamily real estate syndication deal?
A. As a passive investor, your primary role is to provide capital and trust the sponsor to manage the property. You typically have limited decision-making power and are not involved in daily operations. Instead, you receive regular performance updates, financial reports, and periodic distributions according to the agreed-upon schedule.

Q6. How long does a typical multifamily real estate syndication deal last?
A. Most multifamily syndication investments have a hold period of 3–7 years, though this can vary depending on the property, the market, and the business plan. The sponsor aims to execute the investment strategy within this timeframe, generating returns through cash flow distributions and property appreciation.

Q7. What is a private placement memorandum (PPM) and why is it important?
A. The Private Placement Memorandum (PPM) is a legal document outlining the investment’s structure, terms, compensation, and associated risks. It’s essential because it gives potential investors all the details needed to make an informed decision. Reviewing the PPM carefully — and consulting a financial advisor or attorney if needed — is a critical step before committing capital.

Q8. What is a subscription agreement and why is it important?
A. A subscription agreement formalizes your commitment to invest in the syndication. It details your investment amount, the timing of your contribution, and your rights and obligations as an investor. It serves as the binding contract between you (the limited partner) and the sponsor (the general partner).

Understanding Returns

Q9. How is the return from a multifamily real estate syndication deal calculated?
A. Returns are typically calculated using a combination of metrics:

Cash-on-Cash Return – Annual cash flow divided by your initial investment.
Internal Rate of Return (IRR) – The total annualized return over the investment’s life, factoring in the time value of money.
Equity Multiple – The total cash you receive over the life of the investment compared to your original investment amount.
These metrics together provide a full picture of the investment’s profitability.

Q10. What is cash-on-cash return in multifamily real estate syndication?
A. Cash-on-cash return measures the annual return on your invested capital from the property’s cash flow. It’s calculated by dividing the annual pre-tax cash flow you receive by the total amount of your initial investment. For example, if you invest $100,000 and receive $8,000 in annual distributions, your cash-on-cash return is 8%.

Q11. What is internal rate of return (IRR) in multifamily real estate syndication?
A. IRR is a metric used to measure the overall profitability of an investment over time, taking into account the timing and size of cash flows. In syndication, IRR factors in both regular distributions and the profit from the property’s sale. A higher IRR generally indicates a more profitable investment, assuming similar risk levels.

Q12. What is equity multiple in multifamily real estate syndication?
A. The equity multiple represents the total amount of money returned to you relative to your original investment. For example, an equity multiple of 2.0x means you received twice your initial investment over the life of the deal. If you invested $100,000 and received $200,000 in total (distributions plus profit from sale), your equity multiple is 2.0x.

Q13. How is the return from a multifamily real estate syndication deal distributed to investors?
A. Returns are typically distributed on a quarterly or annual basis, depending on the deal structure. The property’s cash flow is first used to cover operating expenses and debt service. The remaining profit is distributed to investors based on their ownership percentage, as outlined in the PPM and subscription agreement.

Roles & Compensation

Q14. How are the roles of limited partner and general partner different in multifamily real estate syndication?
A. In a syndication, the limited partner (LP) is the passive investor who contributes the majority of the capital but does not manage the property or make operational decisions. The general partner (GP) is responsible for sourcing the deal, securing financing, managing the property, and executing the business plan. GPs also provide investor communications and oversee distributions. LPs benefit from the GP’s expertise without the responsibilities of active management.

Q15. How is the compensation of limited partners and general partners structured?
A. Limited partners earn returns based on their ownership percentage in the property. This includes regular cash flow distributions and their share of profits when the property is sold. General partners typically receive a performance-based share of profits — often referred to as the “promote” — in addition to a smaller ownership stake. The exact structure, including preferred returns and profit splits, is detailed in the Private Placement Memorandum (PPM).

Deal Structure & Timeline

Q16. What is the typical timeline for a multifamily real estate syndication deal?
A. Timelines vary depending on the property, market, and investment strategy. On average:

Acquisition Phase: 3–6 months to identify, analyze, and secure a property.
Capital Raise & Closing: 2–4 months to raise investor funds and finalize financing.
Hold Period: 3–7 years to execute the business plan, improve operations, and increase property value.
Exit: Property is sold, and profits are distributed to investors.
The entire process from sourcing the deal to sale typically spans 6–12 months to start, and several years to complete.

Q17. What are the key metrics to analyze during due diligence for a multifamily real estate syndication deal?
A. During due diligence, investors should carefully review:

Location & Market Data: Job growth, population trends, and local economic health.
Property Condition: Age, maintenance history, and potential repair needs.
Occupancy & Rental Rates: Current occupancy percentage and competitive rental pricing.
Financial Performance: Historical income, expenses, and net operating income (NOI).
Cap Rate & Potential Appreciation: How the property compares to similar assets in the market.
Legal & Regulatory Compliance: Zoning, permits, and property management agreements.
These factors help determine the property’s income potential and long-term investment viability.

Key Real Estate Terms

Q18. What is a cap rate in multifamily real estate syndication?
A. The capitalization rate, or cap rate, is a metric used to estimate the potential return on an investment property. It’s calculated by dividing the property’s net operating income (NOI) by its purchase price. For example, if a property generates $100,000 in annual NOI and is purchased for $1,000,000, the cap rate is 10%.

Q19. How is a cap rate used to evaluate a multifamily real estate syndication deal?
A. Cap rates help investors compare the relative value of different properties and markets. A higher cap rate often indicates higher potential returns (and potentially higher risk), while a lower cap rate may suggest lower returns but potentially more stability. Cap rates can also help estimate how much debt a property’s income can support and determine a fair purchase price.

Q20. What is net operating income (NOI) in multifamily real estate syndication?
A. Net operating income is the property’s income after operating expenses are deducted, but before debt service and taxes. NOI is calculated by subtracting expenses like property taxes, insurance, maintenance, and management fees from the property’s gross income.

Q21. How is NOI used to evaluate a multifamily real estate syndication deal?
A. NOI is a critical measure of a property’s profitability and value. A higher NOI generally means better cash flow and higher potential returns. Investors use NOI to calculate cap rates, determine the property’s fair market value, and estimate its ability to service debt.

Capital Preservation

Q22. Is capital preservation with multifamily investing more secure than stocks?
A. Multifamily real estate is generally considered a more stable and conservative investment compared to stocks, thanks to lower volatility and the tangible nature of the asset. Apartment communities can retain value and generate income even during market downturns, providing a degree of capital protection. Stocks, while an important part of a diversified portfolio, can experience significant price swings based on market conditions and company performance. At Lion Park Capital, we prioritize preserving investor capital over chasing high-risk returns, using conservative underwriting and targeting properties with strong fundamentals in resilient markets.