Syndication of Real Estate
Are you Interested in a career in real estate but don't know where to start? Have you ever considered syndication? Real estate syndication is one of the best and safest ways to enter the financial market. This allows investors to enjoy the benefits of owning an investment property without having to deal with the hassle and stress of the owner.
The concept of real estate syndication isn't new, but until now, access to such opportunities was limited. The implementation of the JOBS Act of 2012 and SEC Rules of 2015 made it easier for investment sponsors to raise capital and create opportunities for the average investor.
What is Syndication of a Real Estate?
A real estate syndication (also called a "property syndication") is a partnership between multiple investors to complete a real estate project. Investors combine their capital and resources to acquire real estate that could not be acquired individually. If the property is held as a rental property, they jointly manage the property. Real estate syndicates typically have two types of roles:
One of the most important parts of the real estate syndication process is the syndicator, also known as the "Sponsor." The syndicator's role is to purchase, renovate, and/or manage properties. Another important player in real estate syndication is the Investor. They are also commonly called limited partners. Investors provide the funds to purchase properties but mostly play a passive role. As passive members of real estate syndicates, they are the source of capital and own a percentage of real estate based on the amount invested and the number of potential parties.
Many real estate syndications often involve third parties known as "Joint Venture Partners" (JVs) or "contributing partners." Trustees and investors benefit from strong and transparent communication between venture partners. When you join a real estate syndication, you have to decide if you want to be a syndicated entity or an investor. Your experience, skills, and capital will determine which role is right for you.
At the start of a real estate syndicate, all involved investors must decide how the company gets structured for tax purposes. Syndication is most often structured as a Limited Liability Company (LLC) or limited partnership. In this scenario, investors are shareholders or limited partners.
Some groups choose to split profits equally, but many real estate syndications do not. Syndicators typically get around 30%, while passive investors get around 70%. Investors usually earn more because they invest more. The syndicator will donate only 5– 10% of an investment, or not at all. Syndicators oversee real estate transactions and receive an "acquisition fee" ranging from 1 to 5% of the transaction value. Investors typically make more money in real estate syndicates than others, but the syndicator's returns vary depending on their responsibilities.
To recap everything you've learned, work with other investors in the real estate syndication industry to buy properties that you couldn't buy otherwise. A real estate syndication is the classic way to describe real estate crowdfunding. It involves the purchase of real estate investments by raising capital from a large group of like-minded investors. Real estate syndication is the raising of capital from individuals. It is an effective way for investors to pool their resources and invest in assets that are too large for them to manage on their own. If you manage to find a pending transaction but don't have the funds to pay the deposit, you can syndicate by finding someone else to fund the transaction. Or, if you have a down payment but don't have the experience or confidence to manage the property on your own, you can use the real estate mix to attract experienced partners to execute the project and help you with other financial resources so that you can close more deals.
You can use real estate syndication for retirement planning as well. Syndicates are used as an annuity by many people, including myself. You may want to consider real estate syndication. The reason is that you can earn a monthly income from asset management and acquisition fees. And if you are an agent, you can sell your business and earn a lot of commission.