Syndicating a Real Estate Deal
Real estate syndication is no longer the elusive, lucrative private collaboration between the ultra-rich that it once was. It has become an achievable collaboration between ordinary people who want to get super rich. For those who have the skills and experience to manage high-end deals but don't have the money to form syndications and partner with investors. This thing can be a trump card in spades for achieving financial freedom.
Make your Investment Accessible
Crowdfunded syndicates, through the power of collective resources, bring deals within the financial reach of the syndicate and otherwise out of reach for individual investors. Independent investors should first research to find properties within their financial means. When the time comes to withdraw, the person sells the property based on the gain in value minus operating costs. An integrated intellectual resource of investment strategies in a syndication guide can significantly impact all partners' results at the end of the investment period. Any investor will prove that empirical knowledge is as much an asset to a business as the asset itself. See what it takes to become a real estate syndicate and learn how to approach your journey in bite-sized increments.
1. Research and Further Research
The Securities and Exchange Commission (SEC) requires the formation of syndication when closing deals with passive investors. This is because investors trust them to manage their funds in the same way they trust fund managers when investing in publicly traded stocks. To provide security to partners, syndications require a state-regulated private placement memorandum of understanding. This is how contracts arise, as well as returns and risks. Always seek professional advice when investing in and participating in syndicates.
2. Build your Investor Team
Mutually trustworthy and beneficial connections formed throughout a career or across different walks of life are great such as attorneys, accountants, property managers, and others who join together to ensure business success. Friends can be made. As you assemble your team, consider what complements the skills, knowledge, and networks you offer. Use these to align your profits with syndication deals and create streamlined draft strategies.
3. Property Search and Analysis
Once a healthy team of synergistic qualities has been assembled and a preferred investment strategy to consider has been identified, the sponsor sifts through deals until "the one" is found. At the core of this phase are property location and analysis.
Align your deals with your syndication goals and chosen investment strategy. Multifamily housing is a less complex operation than retail or office space, making it a great place to start a commercial real estate syndicate. If your goal is to maximize your return on investment (ROI) in the shortest amount of time through a compelling valuation, choose the right deal for your real estate reversal.
4. Time to Manage
The sponsor assumes fiduciary responsibility to the passive investor to manage the project's legal framework, accounting, strategy execution, and day-to-day operations. Hiring a property management company is cheaper for multi-family and single-family investments due to higher yields. However, responsibility for overseeing operations remains with the Sponsor. So, make sure your resources and expertise are secure enough to get the job done.
5. Cash Payment
Regular cash flow is an attractive advantage of syndicated real estate investments. Passive investors enjoy healthy cash dividends for the life of the project. The term "cash flow" is derived from the investor's preferred rate of return on the investment. This is usually derived from rental income. All shareholders distribute their monthly profit shares after receiving the rate of return desired by the investor. The number must be agreed upon by each syndication.
Summary of Chapter
Learning how to syndicate a real estate transaction is not a game for the faint of heart. For sponsors who have the expertise, the ability, and the confidence to put their heart and soul into their work, working together can result in incredible wins and successes.
If you're still not sure if you have what it takes to syndicate a real estate deal, your best bet is to take the low-risk options and learn from the experts. Gain valuable first-hand experience in trading and increase your chances of successfully executing such trades in the future.
Real estate syndication is a set-and-forget type of investment, so most of the active involvement is done upfront. Once you decide to invest in syndication, review investor materials (Overview, Full Investment Brief, and Investor Webinar), reserve a spot in the store, review and sign PPM, and submit funds to do so. If it's your first time, it can be a little confusing as to what to expect and what questions to ask. However, the process becomes second nature as you confirm and invest in more trades.