How Do General Partners Get Paid in a Real Estate Syndication? #multifamilyinvesting #realestate

Do you know how general partners get paid? Watch this video to learn how the LP's and GP's get compensated - it might just surprise you!

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So a question we get asked quite often is how do the general partners get paid? How are we compensated for everything we do? So let's just go through a deal and I'll show you how. All right, LGPs get paid. Say we bought this property for $12 million. We raised $4 million of equity. It's a 70-30 split. 70% going to limited partners, the equity investors. 30% going us, the general partners. There's $300,000 a year of cash flow. We're gonna refinance year 5 and pull out all this equity and then by year 10 we're going to sell the property. So here's what it looks like. Say you're a general partner in a deal and you own 20% of the general partnership. Generally the general partners, there's three, four, five people involved. Sometimes more, sometimes less and everyone owns a certain percentage of that general partnership. So say I own 20% of this general partnership. I own 6% of the total deal because I own 20% of this 30%. So here's how the cash flow breaks down. If the property makes $300,000 a year, it's about 7.5% cash on cash. $210,000 goes to the limited partners and $90,000 goes to us as the general partners. So how that works out of 20% of the $90,000, I as the general partner will make $18,000 a year of cash flow from that asset. Then by year 5, we refi, we return the $4 million we initially invested of equity, we return that to the LPs. We don't get anything as the GPs, but there's no longer any money into the deal. We're now at infinite returns. What happens is our cash flow goes down because we took on new debt. The general partners are now going to make $60,000 on the $200,000. The limited partners are going to make $140,000 and remember they have nothing left in a deal. So the 20% that I would own gets $12,000 a year of income and by year 10, we sell the property for $4 million of profit. Same split, 70% goes to the limited partners, they make $2.8 million. Us as the general partners make $1.2 million. The 20% that I would own gets $240,000. So the total return for year 1 through 5 on the cash flow is $90,000. We don't get anything from the refi and year 6 through 10, the cash flow number goes down. We're now at infinite returns for the LPs and I would make $60,000 for those five years. Then the sale, $240,000. Total as a GP on this deal, I would make $390,000 over a 10-year term. The LPs would have gotten all of their $4 million back by the fifth year in the property and they'd be at infinite returns. That's how general partners are paid and depending on how much you own of the general partnerships, that returns can go up and down.

Видео How Do General Partners Get Paid in a Real Estate Syndication? #multifamilyinvesting #realestate канала Jesse Di Lillo