When you invest in real estate syndications, you pool your money with other investors to buy properties that you can’t or are unwilling to buy on your own. For instance, imagine that you have $60,000 to invest. Instead of buying one property for $60,000, you buy into a group asset structure for a total of 10 people, each investing $60,000.
That means that instead of owning 100% of a particular property, you own 10% of the real estate syndication. This type of asset structure usually includes large multifamily apartments, manufactured home parks, and self-storage facilities.
Surprisingly, most people don’t think about investing in these types of real estate. Sometimes, it’s because of the higher prices. But more often, it’s lack of knowledge about how to get involved in a real estate syndication. So, let’s explore this further and I will explain a few things you need to know to make good decisions about your financial future.
HOW DO REAL ESTATE SYNDICATIONS WORK?
Real estate syndications give you the opportunity to pool your capital and partner with other investors to buy more properties at higher prices than is otherwise possible.
A good reason for you to investigate this asset structure is that it gives you better deal flow without spending your valuable time researching hundreds of properties. The term deal flow speaks to the number of investments you can make at one time.
WHAT ARE THE SYNDICATOR’S RESPONSIBILITIES?
You and other partners play the role of a passive investor while at the same time, there is a designated fund syndicator (sponsor). The role of the syndicator is to find and underwrite the property, apply for financing, and oversee property management.
WHAT ARE THE SYNDICATOR’S RESPONSIBILITIES?
You and other partners play the role of a passive investor while at the same time, there is a designated fund syndicator (sponsor). The role of the syndicator is to find and underwrite the property, apply for financing, and oversee property management.
WHAT IS YOUR ROLE AS AN INVESTOR?
Your role as the investor (limited or passive partner) is to supply the capital to fund the syndication. You then earn a percentage of the profits from the project. The amount you earn depends on a predetermined rate which is paid to all partners and the sponsor of the syndication.
Now that you know about your role and the syndicator’s role, I’d like to go into more detail about the benefits you may expect from participation as an investor. Here are 10 solid reasons for you to invest in real estate syndications.
1. DIVERSITY IN INVESTMENT IS IMPORTANT
The biggest reason for portfolio diversity is to balance your risk. That’s why the phrase “don’t put all your eggs in one basket” is an important concept in the world of real estate investments.
By its structure, real estate syndication offers you a greater diversity of income. However, you will also find there are distinct types of diversification that give you even better results.
• NICHE DIVERSITY
Sponsors often specialize in specific types of property classes. The idea of this specialization is to give them a competitive edge that brings superior results for their investors. Moreover, if they clearly understand their chosen asset cycles and trends, you as the investor benefit from their knowledge.
As an investor, you get a diversity of properties for a more stable return on your money. For instance, in some areas, office buildings might not do well in an economic recession, while apartments, self-storage, and manufactured home parks will bring better results.
• GEOGRAPHIC DIVERSITY
If the best-growing markets are outside your state then, geographic diversity is an excellent choice. Real estate syndication is perfect for this, especially when it comes to making decisions about a particular region. If this interests you, I encourage you to do your research to find a reputable syndicator who specializes in a location with a booming market and get on board.
• SPONSOR DIVERSITY
Because sponsors often specialize in specific types of property classes, it’s a smart idea to work with more than one.
This tactic gives you the ability to find better deals because then you get more deal flow and therefore, increased experience and knowledge to make better decisions.
2. ACCESS TO LARGE INVESTMENT PROPERTIES
Of course, commercial properties are the most desired investments, but they can range in price from the low millions to high millions. However, because you pool your money with other investors, you can invest in these properties without a million dollar income.
3. PASSIVE PARTICIPATION
One of the most attractive features is that there is a sponsor or syndicator who handles the investment, which leaves you free of the horrendous stress of property management.
Syndicators find properties, oversee property managers, send out quarterly reports, handle investor relations, and many other important tasks. Sponsors also author the PPM (Private Placement Memorandum) that details the investment opportunity, disclaims legal liabilities and explains the risk of losses.
The sponsor fee is paid by the investors with a predetermined amount of a split of the cash flow and appreciation. At this point, all you have to do is sit back, relax, and cash your monthly or quarterly checks. Download full report here.