At Wealthward Capital, we define distributions completely differently. For us, distributions are regular profits obtained through real estate investing during the investment's lifecycle. Essentially, for it to count as a distribution, you should be getting a monthly or quarterly paycheck in your pocket because the real estate investment is actually generating wealth.
Getting real estate to generate revenue is not complicated. It requires good property management, rental income, and proper offsetting of passive losses against passive gains. A real estate syndication that is run by an expert syndicator will take care of all of these things for you so that the investment generates wealth.
At Wealthward Capital, we have focused our investments so that they bring regular returns during the investment's lifecycle and also after the property has been sold — which results in capital gains.
We believe strongly in regular profitable returns because of my history as a tech employee. And tech employees are the primary demographic that we cater to.
Let me explain: I worked at two tech companies that I helped take to IPO. The IPOs were great. But what was I supposed to do with the tech equity I had built up? I was earning well but I was also working like mad. So I decided I was going to look into solutions that would get my money to work for me. Wealthward Capital is the culmination of years of research into what are the best investment opportunities for hard-working tech employees who want to live a better life through intelligent investing.
We wanted to educate people and eventually have them ask the question, "What are my regular distributions?" Is it caused by the sale of an asset or is it caused by the fact that the asset is generating profit? These are key things that investors should really dig into.
So let's take a look at some common questions that might help you understand Real Estate Syndication distributions better.
What is a distribution in real estate?
We define a real estate distribution as a regular payout on a monthly or quarterly basis that is a result of profitable activities that have produced a return on investment.
This concept is quite different from the idea that a distribution is only possible after the sale of an asset. At Wealthward Capital, we want tech employees' money to make more money. The way to do that is to invest in a real estate syndication that generates profit from its investments and so provides a cash-flowing investment.
A distribution is not the same as a dividend, either. Dividends are used exclusively in the world of portfolio income and dividends get taxed less favorably than the passive income that real estate distributions bring in.
More FAQs About How Distribution Works in Real Estate Syndication
How are syndication distributions taxed?
Wealthward Capital's regular distributions are taxed as passive income and so can benefit from passive loss offsets such as depreciation which lower your overall tax bill.
It works like this: A typical real estate syndication is set up as an LLC (a Limited Liability Company). It contains General Partners (GPs) or active members who receive fees and equity returns when the property is sold. This income is called active income.
The other side of the LLC is the Limited Partners (LPs). These are usually accredited investors who have pooled their funds to help the syndicate invest in much more valuable properties than if they had tried to do it without pooled income. LPs are passive members of the LLC and do not take a material role in the syndication's day-to-day business. As a result, income earned as distributions from the performance of the property is taxed as passive income.
How do real estate syndicators get paid?
Syndications typically get paid through fees related to sourcing, acquiring, and managing an investment property. The percentages of these vary from syndication to syndication.
For example, let's say a syndicator was looking to invest in a commercial property. They would do all the necessary due diligence on that property before signing up for it and before any equity was turned over to obtain the property. For this service, the syndicator would charge the Limited Investors a fee.
There would likely also be a fee for Asset Management — taking care of the asset so that it produces regular cash returns for investors. Other fees might include loan guarantor and underwriting fees because of the risk involved. There might be other fees and these would all be covered in the investment's prospectus which would give you all the necessary information regarding the investment.
A properly managed syndication should be well worth the fees because it brings in a much higher percentage in returns than the fees themselves.
How does a real estate syndicate work?
A real estate syndicate will bring together a group of people to invest in a large property that each person would not otherwise be able to acquire individually. A syndication typically has a Limited Liability Company (LLC) structure.
There are General Partners (GPs) and Limited Partners (LPs) in a syndication. Generally speaking, the LPs earn passive income from their investment and GPs earn active income because they are involved in the day-to-day running of the property.
Ownership of the property is shared, unlike in a REIT (Real Estate Investment Trust) where investors own a piece of the company (shares) instead of a piece of the property.
Real Estate Syndicates allow companies to build a portfolio of commercial real estate, multi-family homes, and other types of property that are usually out of reach of the individual investor because they are difficult to finance.
What are the three phases of real estate syndication?
Every real estate syndication has an origination, operation, and liquidation phase. These phases cover the full cycle of obtaining a property, managing it, and then selling it at a profit.
#1 The Origination Phase is when the organizer looks for and does due diligence on potential investment properties.
#2 The Operation Phase is all about the property management that must be done so the investment brings in distribution returns.
#3 The Liquidation Phase is when the property is sold and capital gains are distributed. Sometimes, the organizer decides to refinance the property and go back into the operation phase for a bit to make the property more financially lucrative at the liquidation phase.
How do multifamily syndicators make money?
Multifamily real estate syndications make money the same way as other syndications but also through rental income. That rental income is generally passive income.
The benefit of passive income is that it can be offset by passive losses which means that you can keep more of what you make and so end up with more profit.
In most cases, rental income is always considered passive income except in specific scenarios when the person receiving it is a real estate professional. But in real estate syndication, this income is definitely passive for Limited Partners within the syndication.
How do you calculate the amount of distribution?
The amount of distribution in a real estate syndication is calculated after operating costs, fees, and the relevant taxes are taken off. Each syndicate would have its own percentages.
Wealthward Capital is unique in that it aims to bring regular distributions — meaning profits — to investors instead of waiting 10 or 20 years for a liquidation event where the investor finally gets a capital gain.
Unfortunately, capital gains also don't have the same tax benefits that passive income has.
If a real estate syndication has worked out its distributions properly, investors make passive income and so benefit from passive losses such as depreciation, accelerated depreciation, and other paper losses, to offset those passive earnings.
Can you get rich with real estate syndication?
Investing sensibly and with proper due diligence can lead to a steady accumulation of wealth. But a real estate syndication is definitely not a Get Rich Quick Scheme.
There is always some degree of risk in investing and so many alternative investments are only open to accredited investors — investors whose net earnings give them enough of a cushion to withstand any sudden shock in the markets.
You should never invest more than you are willing to lose.
That being said, Wealthward Capital has multiple properties in its portfolio that offer a high cash-on-cash return at regular intervals — monthly or quarterly. Our ATM fund is currently paying out over 20% in returns!
This is because we do our due diligence and then expertly manage properties so they do turn a profit.
What are typical real estate syndication fees?
There are different types of fees in a real estate syndication and they vary widely. But typical fees would include a 1% or 2% fee for asset management, finance fees, and acquisition. Disposition fees can be up to 3%.
A properly managed real estate syndicate will make up for these fees several times over in distributions.
Unfortunately, not every syndicate is designed with the structure that Wealthward Capital insists on — one that demands regular payouts in hard cash to passive investors every month. These payouts should be actual returns from a profitable underlying asset, not repayments of the initial principal or interest payments.
What is the difference between a REIT and a syndication?
A REIT is a real estate investment trust, a company that sells shares and then invests in various underlying properties. A Real Estate Syndication is a group of investors formed as an LLC who invest directly in an underlying property.
In a REIT, you don't actually own any property. You own shares in a company. You also have little say in what properties will be invested in.
In a syndication, you are given full and accurate information about the real estate you will be passively investing in before putting in any funds. And you do actually own a piece of the property.
How are real estate syndications structured?
Real estate syndications are typically structured as an LLC, a Limited Liability Company. Within that structure, there can be various profit-sharing structures defining what percentage of returns the general and limited partners receive.
Wealthward Capital's returns structure is very simple and covered completely in each investment's prospectus. We aim to empower tech employees to have their money make more money for them and so have structured our investments as closely as possible to that ideal.
I was a tech employee myself and Wealthward Capital is a labor of love where I want to give back to other tech employees in a game where everyone can win.
How do you start a real estate syndication?
To start a syndication, you need a thorough understanding of real estate, investment, tax structures, and other elements. Starting a real estate syndication requires quite a lot of know-how and the easier path would be simply investing in an existing syndication.
The manager of the entire real estate syndication deal is called the sponsor. It can be a company or a person, and this entity is sometimes also called a syndicator, asset manager, or operator. It is a position that requires an enormous depth of understanding of the real estate and investment market.
What is the purpose of forming a real estate syndicate?
The purpose of a real estate syndicate is to pool funds so that investors can invest in high-yield real estate that would otherwise be closed to them, such as commercial property and multi-family homes.
Commercial real estate has numerous tax benefits that can make it a very lucrative investment. But funding such property is only possible for institutional investors. By becoming a part of a real estate syndication, qualifying individual investors can invest in high-yield properties that would normally be too expensive for them.
How do apartment syndications work?
A multi-family real estate syndication is the same as any other syndication except that it invests in apartment buildings or condos that can produce rental income returns.
Renting is a key element in turning any syndication into a vehicle that pays you a regular distribution check.
How Wealthward Capital can help you get regular real estate distributions
I'm sure you've gathered by now that Wealthward Capital is geared to the high-earning tech employee who wants to get out of the Golden Jail (great pay but lots of long hours) and start having their money work for them.
Our investment portfolio has been prepared exactly to meet that need, with cash-on-cash returns of over 10% on many of the properties and as much as 22.4% on one of them!
We do an enormous amount of due diligence on each property we offer as part of our real estate syndications and then we turn that property into a cash generating machine before we execute a successful exit. Everybody walks home with pockets full and laughs all the way to the bank. Just how it should be.
Give us a call today to learn more about how we can make your money work for you.