Benefits of Being a Passive Investor in a Real Estate Partnership
With Percy Nikora, Co-Founder
So when you're looking at coming into a syndication or a fund, all the finances are arranged by the sponsors. So if you're trying to do this by yourself, chances are you'll have to personally guarantee the loan. You may only be approved to a certain level versus the sponsors would have set the financing up where the limited partners do not have any responsibility in terms of guaranteeing the loan. So there's no personal liability at all. There's no credit checks for the limited partners. All of that is done with the sponsors and the fund managers. So there's no financial responsibility, so to speak, from a loan guaranteeing standpoint, to the investors.
So, the other benefit of being a passive investor is, there is a fair amount of capital that's needed in order to get the deal even to the stage of the closing table. So, before you can actually sign the documents, you need earnest money deposits, you need inspections that are done. You need a lender deposit. You need engineering reports. You need environmental reports.
You need surveys. So you're talking hundreds of thousands of dollars that get put out in the, let's call it the pursuit of the deal. So we call that pursuit capital. And this is all put up by the sponsors. So this, you know, this is money that is at risk from the sponsor standpoint. It's not, it's not from the investor standpoint. So this is the other benefit of being a passive investor is you don't have to worry that at the last minute if the seller decides to move or you get hit with the coronavirus or some something very odd happens that may put the deal in jeopardy, you're not risking your capital or at least the way we structure it, we do not risk the capital of our investors. We put our own capital at risk and make sure that, you know, we bring the deal to the table once we successfully close. That's the day of closing, is when the funds get wired into escrow and that's when the investor's money is applied towards the purchase of the property.
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