10 THINGS TO LOOK FOR WHEN COMPARING REAL ESTATE SYNDICATIONS TOM WILSON 5) Taxes. Good sponsors will actively work to reduce the amount of taxable income received from real estate deals. Dividends are tax reported on a K1, which has the advantage of reducing the amount of taxable income due to the depreciation of the property. Good sponsors will perform cost segmentation studies, where they bring on a 3rd party to accelerate mitigating depreciation, taxable further obligation on dividends paid out. 6) Reporting Periods. Many sponsors elect to provide progress reports on the status and management of the property during the course of the investment. Some provide extremely detailed tenant by tenant accounting, and others simply provide a cash flow or overview of the property. It is helpful to ask a sponsor for previous reports to see what kind of reports they typically provide. Most of the time these are provided at the same interval as the dividends being paid (monthly or quarterly). 7) Profit Split. A common feature in syndication deals is for the net profits upon sale to be split with a portion going to the sponsors and the balance to the investors. These profits are what is left over after closing costs and fees are paid, preferred returns are paid, and original investor principal is returned. The percent of profits that get split among investors can vary significantly on a deal, based on risk, sponsor involvement, and overall return structure. 8) Sponsor Fees. Syndication sponsors get paid through three main ways, and investors should be aware of t hese when evaluating deals. Sponsors may derive compensation from one or more of these categories. a. Upfront Fees. These fees are built into the amount of money raised and help compensate sponsors for time and money invested to get the deal secured and put together. There is no formal terminology, but this money is commonly called sponsor fees, acquisition fees, or due diligence fees. These are separate from 3rd party fees from entities such as lenders, attorneys, title companies, and inspectors.