The best and easiest guide on how to start a real estate syndication company!
A real estate investment syndicate is one of the most lucrative real estate investment strategies if done right. Even though it is not a complicated process, you must be meticulous about it. However, before we get to the actual steps of forming a real estate syndication company, let’s talk about what it is and what are the pros and cons of it so that you have the basics straight.
What is a real estate syndication company?
So, before you learn how to start a real estate syndication company, it is important you know what it means. To put it simply, a syndication company is one that gathers real estate investors who put together the financial resources to fund a larger scale project. Of course, there are no limitations to the number of investors. It could be ten or a hundred investors. Also, there are no experience limitations. It is a great opportunity for both experienced real estate investors as well as new real estate investors. Moreover, it is beneficial not only on a profit level but also on an investment level. In other words, it allows a new real estate investor to invest in a large-scale project with less capital and therefore grow his/her real estate investment portfolio in no time.
Related: How to Start a Real Estate Business with Little or No Initial Capital
How does a real estate syndication company work?
In order for you to learn exactly how to start a real estate syndication company, you need to learn how it works. However, no worries. The way a syndication works is very simple. First, let’s start off by saying that there are two parties that take part in it: 1) The real estate syndicator and 2) The real estate investors.
The syndicator is the cornerstone for forming the real estate syndication company. Basically, he/she is the one everybody else depends on to make the whole thing happen. His/her duties include finding the income property, getting financing, closing on the property, and property management. Thus, we could safely say that, at least, 85% of the company depends on the syndicator’s role. However, it is important to point out that it takes an experienced real estate investor to pull this off.
As for the real estate investors, their only commitment would be financing. That is to say that they are responsible for funding at least 80% of the capital needed for buying an investment property.
It is important to note that it is very similar to the concept of a real estate investing partnership. But, the partnership is more of a work-in-exchange-to-capital type due to the role distribution in a syndication company.
The pros and cons of a real estate syndication company
Of course, just like any aspect of a business, there are a few advantages and disadvantages to a real estate syndication. Therefore, before we get to the “how to start a real estate syndication company” part, we thought it would be best that we address the pros and cons here.
Even though both parties are like real estate partners, the outcome is different for each. For a syndicator, the biggest advantages come in three forms: 1) Access to more financial resources, 2) Reducing the risks of real estate investing, and 3) Control the property management process. The biggest disadvantage, however, is the financing part. It is not always easy to pool this type of financing and get other investors interested.
Related: Tips For Getting a Mortgage For an Investment Property
On the other side of this partnership, there is the other real estate partner in a syndication: the real estate investor. There are four reasons why a real estate syndication is one of the best real estate investments for an investor:
1) Passive income from income properties.
2) No expertise required.
3) Growing a real estate portfolio faster.
4) Diversification.
However, when it comes to the disadvantages a real estate investor might face, limited control is the only one we could think of. A real estate investor has no control over any of the property management aspects of the income property. He/she is a passive partner and is only there for financing and receiving profits.
Finally, how to start a real estate syndication company
Well, this is the part you’ve been waiting for: How to start a real estate syndication company? Here’s what you need to do:
1) Pick the type of income property you want to invest in. Moreover, pick out the real estate market you find is the best fit for that type of property.
2) Plan properly. Now, the most important part of your plan is the real estate investment strategy you choose. Make sure it compliments the purpose and the goals you have in mind.
3) You must perform an investment property analysis to make sure the property and the strategy are profitable. For example, rental properties require that you analyze the potential rental income as well as the potential rental expenses. Once you have numbers, include them in your plan as they will come in handy for step number 5.
Use the right tools for investment property analysis: Where Can You Find a Rental Property Calculator?
4) Create a list of potential real estate investors. They could be anyone from family members all the way to the most successful real estate investors in your area.
5) Meet with your potential investors and convince them of your real estate syndication company. This is the part where your plan comes into play. Provide them with numbers and reasons for why they should invest their money.
6) The last step would be to create another list of the ones who have agreed to invest. At this point, you want to keep them up-to-date with the project.
The rest, of course, consists of the legal work which requires a real estate attorney. So, make sure you get a legal consultation before you proceed with anything and let your attorney explain to you what you need to do next so that you avoid any legal issues in the future.
Finally,
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