Learn how these roles work together to ensure success in your real estate investments
Once you start to learn the ins and outs of investing, you’re sure to hear a lot about the five different roles in the ownership of real estate.
Learning how these five roles work together is key to ensuring success with your real estate investments. Many investors often get these roles confused, underestimate their importance, or even skip some of them entirely.
This can be a big mistake! For smaller investors, you may even be representing every single one of these roles yourself — so it’s essential that you understand them all.
Keep reading as we explain each of the five roles in real estate, what the key duties are, and how each role works together to ensure success in your real estate investments.
The Passive Investor
The passive investor (sometimes referred to as the member) is the person who puts equity into the deal looking for a return on their investment. Their involvement ends when they select their investment; the property and the syndicator.
It’s very similar to investing in a real estate investment trust, except you’re investing in a private investment that will either be a group of properties or one single property, with one syndicator (sometimes referred to as the manager or managing member). Passive investors typically contribute 25–30 percent of the equity to a deal.
For a passive investor, their investment is illiquid. There’s no quick exit, and it’ll be highly expensive if they want to sell out. The typical timeframe for this kind of investment is 3–10 years, but it’s common for them to last much longer.
The syndicator is the active investor. They are the one who actually raises the equity from passive investors, buys the property, puts together the financing, and sets up the property manager. It’s the syndicator who raises the money from the private investors who are looking for passive income, and puts the whole deal together.
The syndicator is responsible for putting the property under contract, going through due diligence, and closing on the property.
The lender provides a big portion of the money needed to buy the property. They typically bring between 70–75 percent of the purchase price to the table, so they’re
a big partner in any leveraged real estate transaction.
It’s important to make sure you’ve got good lenders on your side, and that you understand what they like to see in a property and in a deal as a whole. When the lender’s investment goals align with yours, you have a good probability of a successful investment.
The lender is generally passive after you purchase the property, but they’re very active during the purchase process. They will want to make sure all the third party reports are approved and that the appraisal is within their guidelines. The lender will also be processing all of the loan documentation that the syndicator will be executing on behalf of the partnership or limited liability company.
The Asset Manager
The asset manager is an important and active role during the ownership of a property, but all too often we see it being done badly—or not at all.
The asset manager’s job is to manage the asset overall. First, they manage the property manager, keep an eye on the entire market to see the lending that’s available and what they could sell the property for. They also ensure good communication with the passive investors and the syndicator and property manager.
It’s the asset manager’s job to check that the property manager is fulfilling their role properly, and also to look for ways to improve the performance of the asset. If the property manager is not doing a good job, then it’s the duty of the asset manager to replace them.
The asset manager’s role is also to recommend the right choice for the future of the investment: whether it’s selling, refinancing, or reinvesting in the property through improvements. If for example the property has significantly increased in value, the asset manager needs to review the return that could be achieved by selling the asset and returning all the capital to the passive investors, the syndicator and the lender.
The Property Manager
The property manager’s job is to run the actual property. As the most active role, the property manager handles leases, deals with tenant issues and evictions, organizes maintenance and repairs, and makes sure the utilities are turned on and running. They’re also responsible for tenant placement and actively marketing any available units for rent.
Understanding the responsibilities of the five roles in real estate ownership is essential to ensure that your investment is successful.
When you’re looking to invest in real estate, you should decide which of these roles you’re willing to play. For many, being a passive investor is the best option because you get many of the advantages of real estate investment without having to be hands on. For others, taking on all or most of these roles themselves is the best choice.
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