When it comes to passive income investments, real estate syndication might be the answer. However, the first question that comes to mind at this point is: How to go about starting a property syndicate as a real estate investor?
Without further ado, let us tell you all you need to know about starting a property syndicate.
Related: What Is Real Estate Syndication and How Can You Take Part in It?
Starting a property syndicate: What is a property syndicate?
The easiest way to describe a property syndicate is a real estate partnership. However, in the case of a property syndicate, we are talking about a larger scale of partnership.
There are two main differences between a property syndicate and a real estate partnership. First of all, in a real estate partnership, all parties are called partners. On the other hand, in a property syndicate, there are two parties: real estate investors and the syndicator. The real estate investors are the ones who invest their money passively, while the syndicator is the initiator of the project and the one who will be directly involved with the investment property.
Starting a property syndicate: The roles of the two parties
When starting a property syndicate, each party plays a specific role. Investors, in this case, are only there to finance the property. As we mentioned already, they are passive investors, which means that they do not get involved with anything regarding the property except for financing it. On the other hand, the syndicator is the one who does the real work. As a syndicator, you will have to find the deal, manage the property, and take care of the due diligence.
Of course, in return for doing all that, you are the one to invest the least amount of money. Not only that, you will also be the one who receives the most profit as the initiator of the property syndication. A syndicator will usually invest somewhere around 5-20% and receive 20-50% of the profits, depending on what the two parties agree upon.
Starting a property syndicate: How to go about it?
Starting a property syndicate is not hard. However, there is a procedure that you must make sure to go through. Otherwise, you are at loss.
Starting a property syndicate begins with the financing process. You have to make sure to find real estate investors who are willing to put their money in your project. Here are the steps to find financing for your property syndicate:
- Put together a business plan: Before starting a property syndicate, it is important that you know what you are doing. Start by deciding what type of property you want to specialize in. The biggest mistake you can make is trying to invest in multiple different properties. After you have found the right property type, you pick the real estate market.
- Put together a list of potential real estate investors: Part of financing a property syndicate is creating a list of potential real estate investors. They do not have to be professionals in real estate. You can even start with your family and friends at first, and then maybe look for professional real estate investors.
- Meet up with these investors: After you have put together your list of potential investors, meet up with them. Tell them about your property syndication and check the ones who agree to invest in it. Only after you have your list of investors, you can start looking for a deal.
Now that you have finished the financing process, go ahead and search for the right deals. However, keep in mind that the process of finding the right deal might take a while. During this time, make sure to keep your real estate investors up-to-date with the process.
Starting a property syndicate: Why start a property syndicate?
Starting a property syndicate comes with many benefits for the syndicator as well as for the real estate investors. However, in this section, we will focus on the advantages of starting a property syndicate for the syndicator.
- Making a profit at a rapid rate: Every real estate investor’s dream is to make money in real estate. This is exactly what starting a property syndicate is great for. Syndicating your real estate business will allow you to make deals in a systematic way. Therefore, you will be able to generate wealth in a very short period.
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- You are your own boss: We all hate to be bossed around by others. When starting a property syndicate, you are the boss. You choose the property, manage it, and make decisions without other real estate investors interfering. Moreover, you can always choose to work whenever you want since it is not a 9-to-5 job that you have to commit to.
- You invest little to receive a lot: The best part of syndication is that you are the person who invests the least amount of money. Sounds great? Of course! But the greatest part is that you are the one making the most out of it. Moreover, starting a property syndicate comes with low risks for you as a syndicator since you are not investing much of your capital.
- No experience required: Starting a property syndicate does not require much experience from you. Moreover, it does not require that you partner up with experienced real estate investors. You can start a property syndicate with your family, friends, or even people you do not know much about.
Starting a property syndicate: The downside of starting a property syndicate
The only major downside of starting a property syndicate is not having enough capital investors. That is exactly why we put this step first when talking about starting a property syndicate. First, you have to make sure that you have enough capital investors and that you are able to raise the funds. Only then you should start looking for the perfect deals in the market.
Other than the financing, there is commitment. Make sure you are willing to commit. After all, you are holding a great responsibility before the real estate investors involved in your property syndicate. You should think of it as a debt that you are gradually paying to a lender. Therefore, you must be willing to do what it takes to keep the business going.
All in all, starting a property syndicate is just like any other business; you start with financing. Once you have secured that, you can go on to the next step.
Related: What Are the Best Ways for Financing Investment Properties?
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