Calculating Passive Investor Returns in a Real Estate Syndication
In a real estate syndication, the limited partners (LPs) typically receive their share of the profits in the form of periodic distributions. The return on investment (ROI) for the LPs can be calculated by dividing the total amount of distributions received by the initial capital investment.
For example, if an LP invested $100,000 in a real estate syndication and received total distributions of $30,000 over the course of the investment, their ROI would be 30,000 / 100,000 = 0.3, or 30%.
It's important to note that the ROI calculation only represents the returns received to date and does not take into account the eventual sale of the property. To calculate the total return on investment, the sale proceeds would need to be included in the calculation.
It's also worth noting that the ROI calculation does not take into account the time value of money. In other words, it does not consider the fact that the $100,000 invested in the example above could have been earning a return in an alternative investment. To account for this, it may be useful to compare the ROI of the real estate syndication to a benchmark, such as the return on a risk-free investment such as a U.S. Treasury bond.
