Real estate syndication makes large-scale real estate investments available to a broader pool of potential investors. A longstanding investment technique, syndication allows investors to participate in much larger projects than they usually could if operating on their own. This means the potential for profit is much greater than with conventional real estate investment opportunities.
How Real Estate Syndication Works
As mentioned previously, real estate syndication brings together capital from a pool of investors to purchase a large-scale property. Examples include commercial real estate such as massive apartment complexes, trailer parks, storage facilities and office buildings. Some real estate syndicates also buy land and erect structures from which they profit.
In legal terms, a syndicate is formed between the syndicator and the investors.
Syndicators — also known as sponsors and general partners — structure and operate the syndicate. Among their responsibilities are underwriting the deal and conducting due diligence on potential investment properties. They craft the business plan and arrange financing, too.
The syndicator also conducts negotiations with the seller / sellers of the property, raises needed capital, locates potential investors, and manages relations with those investors. Asset management and the guidance of the property management team fall under the purview of the syndicator as well.
A typical syndicator’s cash investment will be between 5% and 20% of the capital required to finance the deal. Investors supply the rest. As might be imagined, the more capital the syndicator has invested in the deal, the better it is likely to be managed. In other words, investors would do well to seek opportunities in which the syndicator is as much at risk as the investors.
Investors – also sometimes referred to as limited partners — are largely passive in real estate syndicates. Their primary function is to provide part of the capital required to purchase the property. In return, they receive income distributions from the property while the syndicate owns it. These usually occur on either a monthly or a quarterly basis. They also get a percentage of the sale price when the property is sold. Equity pay-down, appreciation, and capital gains tax benefits accrue to investors as well.
Meet Jim Lee
Jim Lee received his Bachelor of Science degree in
Economics from UCLA in 2010, and started his career as an inside sales representative for LoopNet/Costar. Now through real estate syndication, he is invested in over 600 units in the past 2 years where he has participated as a general partner/limited partner.
By being the top LoopNet/Costar sales rep and winning a $50k sales incentive bonus, I used that savings to purchase my first 2 bed/1 bath condo and learn the importance of having multiple streams of income.
Later, I pursue being a realtor to source my own deals but hit some roadblocks and realize it was not a great fit.
During lockdown is when I explored other potential avenues to make money with real estate and I discovered syndication.
Now my mission is to educate and bring value in the form of syndication. It’s the safest and fastest track to reach the reality of financial freedom.
This is a link to download my free E-Book from my website. It’s a short 20 pages E-Book of all the mistakes I’ve made as a real estate investor and how by overcoming these challenges, created a path for me to become a syndicator.
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