Types of Sponsor Fees Involved in Real Estate Syndications

1. Types of Sponsor Fees Involved in Real Estate Syndications sponsorcloud.io

2. Introduction Starting your real estate journey as a sponsor means understanding the hard work you are going to do and how well you will be compensated for it. The profit potential isn’t only in the success of the deal but also in the sponsor fees you will receive throughout the life of the syndication deal. The sponsor fees you collect will help you conduct your operations. This includes sourcing a lucrative deal, managing the property, and ensuring compliance for both you and the investors. Additionally, you ought to be compensated for steering your investors towards a successful outcome. So, in this blog, I have included all the important fees that sponsors charge in their real estate. By understanding these fees, you'll be well-equipped to evaluate your own profits.

3. Understanding the Types of Sponsor Fees As a fellow sponsor, I was able to identify all the different types of fees involved during my syndication journeys. Here are all the fees you will be charging to ensure the syndication is conducted smoothly: 1. Acquisition Fee This fee compensates you for finding and securing the investment property. It's typically a percentage (1-3%) of the purchase price. As a sponsor, you will conduct thorough due diligence on multiple properties before settling on one. The acquisition fee will essentially compensate you for your time, effort, and expertise invested in sourcing and underwriting the deal. This fee compensates you for the time and effort spent identifying, analyzing, and negotiating the purchase of the property.

4. 2. Development Fee Development fee is a fee that you will charge during the development of the property and after acquisition. In the development phase, you will indulge in many development- related tasks, such as getting permits, securing zoning, getting approvals, etc. You can charge a certain percentage of the total development cost or a flat fee depending on the project’s complexity and size. This fee covers your oversight of the entire development process, ensuring it stays on track. 3. Property Management Fee Some sponsors outsource the property management to a third-party and include that expense in their deal. However, many sponsors choose to manage the property by themselves, meaning that they conduct their in-house property management. In such cases, sponsors have more control over the costs associated with property management, and they can charge a fee accordingly.

5. 4. Construction Management Fee As a sponsor, you will also charge a construction management fee if the property in question is being constructed from scratch or major renovations are being done. This fee is meant to compensate you for overseeing and managing the construction and ensuring timely completion. Typically, the construction management fee is 5-6% of hard construction costs but you can reduce this percentage if the size of the property is small. 5. Disposition Fee This fee is earned when you sell the property. It incentivizes you to achieve a successful exit strategy by taking a percentage (1-3%) of the sale price.

6. Wrapping Up! As a real estate sponsor, a well-defined fee structure is essential for your success. It is important to understand the types of sponsor fees and how you can charge them so you are fairly compensated for the work you are going to do. This compensation plan should reflect your expertise while aligning with your investors' goals. And in this crucial step, transparent communication about these fees is key to building trust and attracting qualified investors. Remember, your interests are ultimately intertwined with those of your investors. So, by structuring fees that incentivize strong performance, you can create a win-win situation for everyone involved.

7. Thank you sponsorcloud.io One-stop shop for sponsors to execute every aspect of their investment syndication project — from start to finish.