For a very long time, real estate syndication has been the best source of passive real estate income.
Therefore, whether you are looking to start a real estate syndicate or invest in one as a passive real estate investment, here is our guide to the fundamentals of a real estate syndication.
Related: The Ultimate Guide to Real Estate Syndication
What is real estate syndication?
Real estate syndication is one of the best real estate investments for many investors. But what is real estate syndication actually? And who is involved in a property syndicate?
Definition of real estate syndication:
The concept of real estate syndication is very similar to the concept of a real estate partnership, except that a real estate partnership consists of a few real estate investors working and investing together. On the other hand, a real estate syndication is a large-scale partnership. It could be between a few to a few hundred real estate investors.
Parties involved in real estate syndication:
In real estate syndication, there are two parties involved: The real estate syndicator and the real estate investors.
A real estate syndicator is the one in charge of the real estate syndicate. He/she is the one who is responsible for connecting with investors to collect the funds for the project. A syndicator is also the one to manage the investment property as a whole. After all, the only thing he/she invests besides a little amount of money is his/her time.
As for a real estate investor as the other party, he/she only puts his/her money in the project. This is actually a form of passive real estate investment. Many real estate investors prefer to invest their money in real estate syndication companies in order to generate a passive real estate income.
The distribution of profit and the parties’ rights
The rights of both parties:
Both the rights and duties of the investors and the real estate syndicator are stated in an agreement. Basically, it consists of the right to voting and decision making as well as the fees that a real estate syndicator receives for managing the property.
The distribution of profits:
The distribution of profit in real estate syndication companies is simple. Basically, if you are a real estate investor, your share is limited to the amount you have invested. However, if you are a real estate syndicator, you get in return for your management plus the amount of money you have put into the project.
The advantages and disadvantages of real estate syndication for the real estate syndicator
For a real estate syndicator, a syndication is great when you have little or no capital at all. Basically, you collect the capital from a number of real estate investors and get to establish a business. It is also great in terms of mitigating the risks of losing your own money. A real estate syndication is like a partnership on a larger scale. Therefore, the risks split between the partners based on each one’s investment capital.
Another advantage of a real estate syndication is management. As a real estate syndicator, you get to be in control of the real estate investments. You are the one responsible for all its daily operations as well as much of the major decision making.
As the real estate business is very demanding, you will have to give up your time. This is especially true in the case of real estate syndication. After all, you are investing in a large-scale project. This means that it will take a large portion of your time as the main person in charge of the daily operations as well as making decisions.
Another disadvantage is that you might have to prepare an initial payment. In some cases, this is important in order to be able to encourage other real estate investors to put their money in your project.
Related: Professional Property Management: A Key to Success or a Waste of Money?
The advantages and disadvantages of real estate syndication for a real estate investor
As a real estate investor in a real estate syndicate, you have several factors that are advantageous. First of all, investing in a real estate syndicate is a great way to generate passive real estate income. You are only investing your money in a project through which you make money relaxing at home. You do not have to get involved in any management or financial planning. Second, you do not have to acquire real estate education. You can choose to invest in real estate syndication companies regardless of your education or profession. Not only that, but you can also choose to invest your money in any type of property.
Finally, in case the syndication company experiences any losses, you only get affected based on the share you have in that project. For example, if you are a Class A member, your chances of losing your own money are higher than a Class B member.
The major disadvantage in a real estate syndicate is control. In other words, you, as a real estate investor, stay out of it, completely. Therefore, you are limited to the amount of money you have invested. The real estate syndicator, as we said before, is the one responsible for the property management. Therefore, you want to make sure you are investing in a project with people you trust.
Real estate crowdfunding
Real estate crowdfunding is a way of pooling together the financial resources for a property syndicate. It is an online platform that connects real estate investors interested in investing in bigger projects. If they succeed in collecting the necessary funding, then the deal continues. If not, a every real estate investor gets a refund.
Related: What Are the Best Ways for Financing Investment Properties?
Before you get into any real estate investments, you should get a proper education. Your ultimate source for such education is, of course, Mashvisor. This blog is a guide on real estate investment for beginners. Check our blog section to learn more about real estate syndication. Not only that, but you could also learn about other real estate investments that are profitable. Most importantly, if you are looking to make passive real estate income, read our blogs on the best passive income investments in real estate investing.