For any real estate investor, the main aim is always to make a lucrative income from the venture. Several strategies can make you achieve this objective. One of these strategies is real estate syndication. But what exactly is real estate syndication, and how can it make you more money?
This article aims to explain how it works, how to join, and guide you in deciding if it is a practical investment for you or not.
What Is Real Estate Syndication?
Real estate syndication is a partnership between different investors who pull financial resources together to acquire a larger property that they would not have done individually due to the high purchasing cost.
How Does Real Estate Syndication Work?
The transaction is normally between a syndicator, also known as a sponsor, and a group of investors. The investors are responsible for raising the finances required. Investors can be a few people or hundreds, depending on your agreement. They enjoy a percentage of the ownership benefits while letting someone else run the investment.
On the other hand, the sponsor’s role is to look for investors, conduct an investment property search, and work on property acquisition, management, and running once purchased.
All these should comply with Securities and Exchange Commission (SEC) regulations. While people may view SEC as restricting, all it does is regulate the syndication sector and protect investors’ interests.
If you are looking for a trusted syndicator, you may check out some great resources to learn more about what they do.
Advantages Of Joining A Real Estate Syndication
1. Investment Opportunities
Real estate syndication introduces you to some of the most incredible investment opportunities available in the market that you would have otherwise not managed to invest in alone due to the costs involved. This is possible because you are all pooling your resources. It allows you to invest without exposing you to any credit risk.
One of the ways we reduce financial risks and loss is through investment diversification. Commercial assets remain a good investment option, but the downside is the high property prices. Joining this asset class with limited resources is generally easily done by joining a real estate syndication organization.
3. Shared Risks
Investing in real estate comes with risks. You can minimize these risks with a syndicate because the stakes are shared instead of shouldering all the risks alone.
4. Passive Investing
Real estate syndication allows you to be a passive investor. Sometimes, you are interested in a particular real estate investment but do not have the time to run the venture or have the technical know-how to go about it. This part is where the sponsor comes in. They will find legit and lucrative investment opportunities, do a background check, and handle any investor relations on your behalf. As an investor, once you’ve submitted your financial investment, you only have to wait for the checks to come in.
Disadvantages Of Real Estate Syndication
- You do not have complete autonomy concerning the property because you co-own it with many other partners.
- It is impossible to cash out your investment as fast as you want when liquidating.
How To Join Real Estate Syndication
Identify Your Investment Objectives
You will need to take time and assess your long-term and short-term investment goals. Have you set funds aside for investing, and are you willing to forfeit that money for a long period? Real estate deals may take a while before you realize any return on investment. After that, pick a niche that suits your goals.
Choose Lucrative Projects
Ask your deal sponsor to provide a comprehensive investor and executive summary that clearly shows the projected financials, the syndicator team, and their business plan. Most sponsors will organize webinars to discuss the same. Use the chance to ask about anything you may need clarification on so you’ll completely understand everything.
Book A Spot On The Deal
Syndicators will always reserve spots on a first-come, first-served basis. So, if this is a deal you want to invest in, book a spot as early as possible. If the deal comes with a ‘soft reserve,’ it may buy you a little time to decide if this is indeed what you are interested in, so you’ll be sure by the time the deal goes live. Hopefully, you will have done every research and due diligence on the company.
Go Through The Private Placement Memorandum (PPM)
The PPM is a legally binding document that gives you a clear understanding of your duty as an investor, the risks involved in the deal, and the specifications of the investment, including your profit payment mode, subscription, and operating agreement.
Seal The Deal
Once you agree with the PPM’s terms, you are ready to sign the custom-drafted agreement. Remit the funds and inform the syndicator of the same. You are now a part of the real estate syndicate.
Before making your final decision, you must shop for a syndicate that perfectly meets your requirements and investment goals. If in doubt, talk to an investment professional for further deliberations.