Syndication of a property is a way for a real estate syndicator to pool resources to buy properties as an investment opportunity for investors (including non accredited investors).
A real estate syndication deal is an investment strategy that provides real estate investors a unique investment vehicle with benefits such as passive income, cash flow, rental income, tax benefits, protecting your own cash, and elevating net worth.
Can YOU participate in a syndication?
Syndication is a great way to get into real estate investing without having to go at it alone or have any of your own money. Whether it is a commercial real estate syndication or not, in its most simplistic form, syndication works like this:
- A group of investors pool their money to acquire a property.
- A professional property management company then manages the property.
- The company collects rent from the tenants and investors receive their share of the profits (or losses).
The best part about syndication is that you can get into real estate investments with minimal investment, depending on the syndication you decide on joining. You don’t have to be a millionaire to invest in real estate or buy commercial properties.
How to get started with a Syndicate
If you want to participate in a syndicate, there are a few things you need to do:
Find a syndicate that’s right for you.
There are many different syndicates, each with its investment strategies. Do your research to find one that best fits your goals and risk tolerance.
Perform due diligence on the syndicate and the property they’re planning to purchase.
This is critical! You need to make sure you’re comfortable with the investment and that it meets your criteria for a good deal.
Review the real estate syndication agreement carefully.
This document outlines the rights and responsibilities of both the syndicate and the investors. Make sure you understand everything before you sign anything.
Funding the real estate syndication
Once you’ve decided to join a syndicate, you’ll need to fund your investment. This can be done through a variety of methods.
A Real Estate Syndication Example
Real estate syndications are organized with a deal sponsor leading the operation with a team to ensure that all investors are satisfied with the real estate investment.
General and limited partners are involved, a business plan is laid out with specifics on the deal structure, preferred returns, annual income, insight into the management fee, an accounting of investor capital, and other details are ironed out during the process.
An Involved Process
Syndicating real estate is very involved. From a property management team to other investors, whether a passive investor gets in on the deal or an accredited investor participating there are many moving pieces. But this also contributes to why real estate syndication deals are exciting to be a part of.
Real estate syndication basics
Real estate syndication involves the sale of assets from sponsoring entities to investors. The sponsor will invest in sweat equity to run the transaction on a specific property.
Real estate syndicators will raise money as investors provide the capital for the real estate property, whether it’s an apartment building or other commercial property.
Difference between general and limited partners
Passive investors are often referred to as limited partners. Their limited partnership role typically plays out in that they are not taking an active part in the management of the property but benefit from the passive income from the rental property and the appreciation value in the future appraisal.
Active investors, also known as general partners, have a different role which allows them to be more involved with the real estate syndication. General partners usually set up the limited liability company or real estate syndication company to manage the operations.
As a general partner, you play an active day-to-day role, as the cash flows in one of the general partners handle that, while the others manage other aspects of the business.
Real estate investing can make a big difference
Real estate syndications are more than real estate investing, you’re a part of a group that’s changing the way people live in their community. A real estate syndication can have a significant impact on the quality of life in a community, not just through the property itself, but also the way it’s managed.
The syndicate model allows for more control over how the property is run and how it affects the surrounding area. It’s important to remember that when you’re syndicating, you’re not just an investor, you’re a community member.
Real estate investors as a syndication
One key to success with syndicating is having a group of investors that have different skillsets in order to make sure the deal gets done.
This begins with the investor pool, which oftentimes should be accredited and have some knowledge about real estate or investing. You’ll also want to have a deal sponsor, someone responsible for investor relations, a management team, and other service providers in place to get the deal managed adequately.
When bringing on an investor, always remember that you’re not just selling an investment, you’re selling an experience, and it’s essential to make sure everyone is taken care of.
Real estate syndications are possible for anyone
Real estate syndications are a great way to get involved in the real estate market, whether you’re accredited or not.
Depending on the syndication, you can get started with very little. Personal preferences on your investment will be vital as you decide who to work with.
Make sure as you do your own due diligence, look at the track record, preferred returns amount, capital gains, a straight split or percentage split, is there enough income in the deal for general partners and limited partners, know the acquisition fee percentage, what does the cash flow look like, and all of the common sense questions.
Preferred return is important
As an investor, you want to make sure that you’re getting a preferred return. This is the minimum amount of cash that you will receive back from your investment before the general partners start to see any profit.
This is important because it protects your initial investment, and it also ensures that the general partners are only making money if the deal is doing well.
The management team should also get paid based on performance, so it’s essential to make sure that there is a good incentive structure in place for everyone involved.
Real estate investment profits with syndication
Property appreciation and rental revenue are critical ways for the deal sponsor, general partners, limited partners, and passive investors to earn money through syndication real estate transactions. The acquisition fee and management fee are other ways to make money from real estate syndications.
Of course, as a passive investor and because you invest in real estate, you’re able to participate in tremendous tax benefits which is another way to profit as you save more money than usual.
You don’t need to worry about any securities act or crazy securities exchange commission representative knocking on your door because everything involved in real estate syndication is above board.
Is real estate crowdfunding the same thing?
The way a real estate syndication structures its deals are different from how a crowdfunding deal would work. Real estate syndications are structured in a way that allows for non accredited investors to be involved since it’s not a public offering.
This is why commercial real estate syndication is possible for the regular person. People can be passive investors or get their hands dirty as active participants working to build up cash flow, and increase value to boost the overall appraisal.
Real estate syndication structure
The typical structure for a real estate syndication is 70/30, where the limited partners or passive investors receive 70% of the cash flow and profits, and the general partner or sponsor keeps 30%.
This is to incentivize the sponsors to continue to bring on good deals and make sure that everything is running smoothly.
The sponsor should also have a preferred return, which is the minimum amount of cash that they will receive back from the investment before the limited partners start to see any profit.
Passive investors want to make sure they’re receiving a higher rate of return. This is crucial because it ensures that your first investment is safe, and it also ensures that the general partners are compensated only if the venture succeeds.
The management team should also get paid based on performance, so it’s essential to make sure that there is a good incentive structure in place for everyone involved.
What are the benefits of real estate syndication?
The deal sponsor, general partners, limited partners, and passive investors may all profit from real estate syndication deals by raising property value and renting out space. Other methods to make money through real estate syndications include the acquisition fee and management fee.
Of course, as a passive investor and because you invest in real estate, you’re able to participate in incredible tax benefits which is another way to profit as you save more money than usual. You don’t need to worry about any securities act or crazy securities exchange commission representative knocking on your door because everything involved in real estate syndication is above board.
What are the risks of real estate syndication?
The risks of real estate syndication include costly repairs, vacancies, and tenants not paying rent. The general partner or sponsor may also lose their investment if the property doesn’t appreciate in value or generate enough cash flow to cover the mortgage and other expenses.
As a passive investor, you’re also subject to the same risks as any other kind of real estate investment.
However, you can mitigate these risks by investing in a well-run syndication with an experienced and reputable sponsor. You can also diversify your investments by putting money into multiple syndications to spread out your risk.
Is real estate syndication legal?
Yes, real estate syndication is legal. The SEC updated its rules to make it easier for non-accredited investors to participate in private offerings, which includes real estate syndications.
The new regulations allow sponsors to reach a larger audience and test the waters before any money changes hands.
This makes it easier for sponsors to find limited partners and get deals done without having to worry about running afoul of the SEC.
What are some real estate syndication examples?
Some examples of successful real estate syndications include office buildings, shopping centers, apartments, and hotels.
One example of a successful real estate syndication is the Empire State Building. This iconic skyscraper was purchased by a group of investors in 1961 for $65 million.
The building was then renovated and turned into an office space and retail hub, generating millions of dollars in revenue every year.
Another example is the Walt Disney Concert Hall in Los Angeles. This concert hall was designed by world-renowned architect Frank Gehry and cost $274 million to build.
It was financed through a syndication of private investors, including the Walt Disney Company, which contributed $50 million to the project.
The hall has since become one of the most popular tourist destinations in Los Angeles, generating millions of dollars in revenue each year.
Is a real estate syndication something for you?
If you’re looking for a way to invest in real estate without having to put up all the money yourself, then a real estate syndication may be a good fit for you.
You can participate in these deals without being an accredited investor, and you can choose to invest in multiple syndications to diversify your risk.
When is the best time to join a syndication?
The best time to join a syndication is when the property is in its early stages of development. This allows you to get in at a lower price point and gives you the opportunity to see how the property performs before committing more money.
You should also join a syndication when the sponsor has a good track record and is reputable. This will give you some assurance that your investment is in good hands.
If you’re looking for a hands-off investment that has the potential to generate a lot of income, then real estate syndication may be the right choice for you.
Should I share the syndication opportunity with my family and friends?
It’s up to you whether or not you want to share the syndication opportunity with your family and friends.
Some people choose to do this so they can pool their resources and get a better deal on the property. Others may want to keep the opportunity to themselves so they can maximize their profits.
Be transparent with the risks
If you do decide to share the syndication opportunity with your family and friends, be sure to let them know about the risks involved.
Tell them that there’s no guarantee they’ll make money back and that they could lose their entire investment if the property doesn’t perform well.
You should also remind them that real estate is a long-term investment, so they shouldn’t expect to see any returns for several years.
What is the best way to introduce a syndication to members of my local community?
If you’re looking for a way to introduce a syndication opportunity to members of your local community, the best way to do it is by holding an informational meeting.
At this meeting, you can explain what a syndication is and how it works. You can also tell attendees about the benefits of investing in real estate and outline the risks involved.
Let them decide for themselves
This will give people a better understanding of what’s involved in a real estate syndication and help them decide if it’s something they want to pursue.
You should also provide potential investors with a copy of the offering memorandum, which will give them more information about the property and the terms of the deal.
By hosting an informational meeting, you’ll be able to reach a larger audience and increase the chances that people will invest in the syndication.
Can people out of state invest in your syndication?
Yes, people out of state can invest in our syndication. You should have a very rigorous due diligence process that allows you to vet potential investors and make sure they are a good fit for the deal.
If you’re not located near the property, you can still work the syndication. You’ll just need to be more hands-on with the due diligence process and make sure you have a good understanding of the market.
You should also consider hiring a local property manager to help you keep an eye on the property and handle any repair or maintenance issues that come up.
How fast can I start a syndication?
You can start a syndication as fast as you can find a property and put together a deal.
The process of finding an investment property and putting together a syndication can take several months, so it’s important to be patient.
Don’t rush it
You should also make sure you have a good understanding of the real estate market and the risks involved before moving forward with a syndication.
By doing your homework and taking your time, you’ll be able to put together a syndication that’s right for you and your investors.
Do you need a lawyer to start a syndication?
You don’t need a lawyer to start a syndication, but it’s always a good idea to have one.
A good lawyer can help you with the legal aspects of starting and running a syndication. They can also provide you with advice on how to protect yourself and your investors.
If you’re not sure where to find a good lawyer, ask other real estate investors for recommendations. You can also check out online directories or law firm websites.
How much money do you need to start a syndication?
You don’t need a lot of money to start a syndication. In most cases, you only need enough money to cover the down payment and closing costs on the property.
If you’re looking for a way to raise money for your syndication, you can reach out to family and friends or look for private investors.
You can also use syndicated deal sites to find potential investors.
Real estate syndications can be a great way to invest in property and generate returns for your investors. However, it’s important to understand the risks involved and make sure you have a good plan in place.
If you’re looking to start a syndication, make sure you do your homework and take your time. By planning ahead and doing your due diligence, you’ll be able to put together a syndication that’s right for you and your investors.