The Facts About Projected Returns on Commercial Real Estate Syndication

by | Jul 14, 2022 | Evidence Based Investing, Investing Advice, Multifamily, Syndication Basics | 0 comments

I get asked a lot of questions about real estate syndications. The one that I’m asked most frequently is, “What kinds of gains can I anticipate if I were to invest $50,000 right now?”. 

It’s understandable. How do your returns through other investment channels compare to real estate syndications? How does passive real estate investing measure up?

Remember, we’re discussing projected returns. That is to say, the returns discussed in this article are forecasts. They’re based on research and estimations. Investments always have risks. The examples we will be covering are designed to supply you with ideas to help get you started. 

In this article, let’s explore the three main criteria you should look into when evaluating projected returns on a potential real estate syndication deal:

  1. Projected hold time
  2. Projected cash-on-cash returns
  3. Projected profits at the sale


Projected Hold Time: ~5 Years

Projected hold time, perhaps the most straightforward concept, is the number of years we would hold the asset before selling it. This means that this is the amount of time that your capital would be invested in the deal.

A hold time of around five years is beneficial for a few reasons:

  1. Plenty can change in just five years. You could start and complete a college degree, move, get married – you get the point. You need enough time to earn healthy returns, but not so much that your kids graduate before the sale.
  2. Considering market cycles, five years is a modest stint in which to invest, make improvements, allow appreciation, and exit before it’s time to remodel again.
  3. A five-year projected hold provides a buffer between the estimated sale and the typical seven- to ten-year commercial loan term. If the market softens at the 5-year mark, we can hold the asset for a more extended period, allowing the market to rebound.


Projected Cash-on-Cash Returns: 7-8% Per Year

Next, consider cash-on-cash returns, otherwise known as cash flow or passive income. Cash-on-cash returns are what remain after vacancy costs, mortgage, and expenses. It’s the pot of money that gets distributed to investors. 

If you invested $100,000 and earned eight percent per year, the projected cash flow would be about $8,000 per year or $667 per month. So that’s $40,000 over the five-year hold.

Just for kicks, notice the same value invested in a “high” interest savings account (earning 1%).  That would return $1,000 a year and a measly $5,000 over five years.  

That’s a difference of $35,000 in just five years!


Projected Profit Upon Sale: ~40-60%

Perhaps the most significant puzzle piece is the projected profit upon sale. Typically, we aim for about 60% in profit at the sale in year 5.

In five years, the units have been updated, tenants are strong, and rent accurately reflects market rates. Since commercial property values are based on the amount of income generated, these improvements, along with market appreciation, typically lead to a substantial increase in the asset’s overall value, thus leading to sizable profits upon the sale.


An Overview of the Projected Returns from a Real Estate Syndication Investment

OK, so does making money from a real estate syndication sound easy? I think so! And all of this is without lifting a finger to fix an ac unit, without taking a single call about slow plumbing, and without sorting through a single tenant application!

Generally, here’s what I’m looking for in any real estate syndication deal worth pursuing:

  • 5-year hold
  • 7-8% annual cash-on-cash returns
  • 40-60% profits upon sale 


As shown in the previous example, you’d invest $100,000, hold for five years, collect $8,000 per year in cash flow distributions paid out monthly (a total of $40,000 over five years), and earn $60,000 in profit at the sale. 

This results in $200,000 at the end of 5 years – $100,000 of your initial investment and $100,000 in total returns.

Remember, all real estate syndication deals will be different, and your results may not be exactly as described here, but this gives you a good framework for what is possible. If you’re anything like me, maybe now the prospect of really achieving financial independence soon doesn’t seem so impossible. 

This is why I’ve found syndications to be so powerful – because I can spend my time and energy with family, on vacation, or working if I so choose, all while my investments secure my family’s financial future, our adventures together, and with every step, my beliefs are solidified that I really can live out the adventurous, philanthropic life I always wanted.


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