Can You Sell Your Real Estate Syndication Investment?

One of the most common questions I get from newer investors, whether we’re discussing a specific deal or syndications in general, is some version of:

“If I need to, can I cash out?”

Most of us (myself included) first learned investing through a brokerage account, where getting your money back means clicking “sell” and waiting a couple days for it to settle.

That expectation holds up in parts of the private world too. My business partner Adam bought shares of SpaceX before it went public, and accredited investors have long had platforms for buying and selling pre-IPO stocks.

So, for someone used to the world of public and private stocks, it’s natural to think a $100K investment in an apartment syndication might come with a similar off-ramp.

But unfortunately that’s not the case, so my answer to this question is always the same:

• No, you can’t really “cash out.”
• You might be able to sell your position to another investor…but you’ll have to go find the buyer.

That second answer sometimes gets a follow-up: “why isn’t there a marketplace for this, the way there is for pre-IPO stock?”

A syndication marketplace is largely impossible

One of the reasons there are plenty of marketplaces for pre-IPO (and similar private investments) is because there’s a never ending stream of demand.

So it’s easy to assume a marketplace for apartment syndication LP interests would exist if there were enough demand. And while lack of demand is part of the issue (a $100K slice of one deal draws no line of bidders), there are larger structural issues in syndication-land that make creating a marketplace nearly impossible:

• The operating agreement usually won’t allow it. Nearly every syndication’s operating agreement (the document governing the LLC you actually invested in) restricts transfers. Some prohibit them outright. Most require the GP’s written approval, which they can withhold for any reason.
• The buyer has to qualify. Your interest was sold under a securities exemption that limits who can buy it (in most deals, accredited investors), and it stays a restricted security after you own it. Whoever buys it has to clear the same bar, and the sale itself has to fit an exemption.
• Nobody can price it. A pre-IPO share of SpaceX had thousands of interested buyers and regular funding rounds to anchor its value. A 4% interest in a single 200-unit apartment deal has no appraisal you can point to and likely no comparable trades.

What happens if you try anyway

Say you’re having a midlife crisis and desperately want that Porsche 911 GT3 RS…and you decide to sell your position in an apartment syndication to fund it.

Step 1 is to find a buyer. In practice, that’s almost always someone else already in the deal: another investor, or occasionally one of the sponsors.

Step 2 is to determine a value for the position, which will be a discount to something. Maybe the fair value of the position (if it can be determined), maybe the present value of its projected future cash flows. Sometimes the operating agreement will specify a method of valuation, though this is rare. Ultimately, you’re asking the buyer to take on an illiquid position with often limited information, and the discount is the “fee” for that.

Then the GP gets involved, because they have to – they approve the transfer and sign the paperwork that legally makes the buyer an owner. That usually means the involvement of a securities attorney, and often a CPA too…and someone has to pay for that. The GP may eat it or may ask you to cover it, and sometimes the operating agreement already says it’s yours.

For the GP, the whole exercise is work and expense with no real benefit to them or to the deal. No new capital comes in. They’re processing paperwork so one investor can be swapped for another.

Which is why the worst way to start this conversation is: “My friend Joe wants to buy my position. Can you take care of that?”

If you ever genuinely need to sell, understand what you’re asking of the GP and complete as much of the work as you can before you ask. Find the buyer yourself and confirm they’re accredited, agree on a price in writing, and read the operating agreement’s transfer section so you know what it requires. Then offer to cover the legal and accounting costs, and ask to time it to a quarter or year end so the accounting is simpler.

You still can’t approve the transfer or complete the process all on your own – but you can make it as easy as possible for the GP to say yes.

Plan as if the answer is no

The fact that most syndications are truly illiquid should shape how much you invest, not just how you feel about the deal.

I’ve written before about matching deals to your liquidity timeline, and this is part of the reason behind that: once you wire the money, you should plan for that money to be in the deal until the sponsor sells the property.