Real estate syndication offers investors an enticing opportunity to pool resources and invest in lucrative properties. However, amid the promise of high returns, there lurk pitfalls in the form of various fees that can eat into profits. Understanding these fees is crucial for investors to make informed decisions and safeguard their investments.
Let’s itemize some, and talk about how Convir.net avoids them all.
Acquisition fees are charged up front and meant to compensate syndicators (or general partners) for finding and acquiring suitable properties. While reasonable fees can be justified for the expertise and effort involved, what we don’t like is that they aren’t rewarding any real performance or good outcome, because it’s only in retrospect that anyone can know that a particular purchase is a good one. Good syndicators should avoid this fee or keep it small.
Once the property is acquired, management fees come into play. These fees cover ongoing operational costs like property management, maintenance, and administrative expenses. For a project with heavy rehab or repairs, these fees make sense. But what about properties that don’t need much work, or have long holding periods after such work is already completed? Are you sure these management fees from the syndicators are really valuable? Or are they just paying more for what the property manager is doing (or should be doing)? Again, these should be slim and scrutinized carefully.
Performance fees comprise the last category and, in our opinion, are the most legitimate. These incentivize the GP/syndicator to deliver the highest returns and, importantly, are tied to an actual deliverable (as opposed to acquisition or management fees).
Part of the reason we built Convir.net is to make real estate investing more “fee simple.” In fact, we’re making it fee-free. We deliver a promised return and don’t nickel and dime over anything. Talk to us and see how that can make a difference.