There are many ways to make money in real estate, each with its own pros and cons. One way that a real estate investor can fast track their career in real estate is through a real estate syndication. When done right, it can be very lucrative. However, for those not familiar with this concept, you may be wondering “What is real estate syndication?” Don’t worry! This blog will provide you with a comprehensive guide to this real estate investment strategy. Read on to learn what it is and how to set one up.
What Is Real Estate Syndication?
Real estate syndication, also referred to as real estate crowdfunding, is an investment model where multiple real estate investors pool their capital for the common objective of financing a property investment. This way, real estate investors can invest in real estate projects that are considerably larger than they could have afforded as individual investors.
Real estate syndications are usually led by a sponsor (or syndicate) who oversees the financing, acquisition, and management of investment properties on behalf of the investors. Therefore, the success of a real estate syndication will greatly depend on how competent the sponsor is. They earn active income through rental property management fees. They may also provide a small portion of the investment capital.
The investors in a real estate syndication can be few or hundreds. They are primarily involved in investing money and their revenue is dependent on their percentage of ownership. They do not play a role in rental property management. This makes real estate syndication a great way to earn passive income for these investors.
Related: Get Into Real Estate with Passive Income Investments
A real estate syndication structure may take the form of a limited partnership, limited liability company, or corporation. Each structure allows for some level of protection for the real estate investors who take part. However, like most other real estate deals, a limited liability company is the most common of the three forms of real estate syndication.
Related: What Is Real Estate Syndication and How Does It Make You Money?
3 Reasons to Start a Real Estate Syndication
Real estate syndications are becoming a popular investment option for real estate investors. However, why should you consider starting one? Here are some of the pros of this real estate investment strategy:
- If you do not have the means to fund the purchase of an investment property, this strategy can help you raise the needed capital
- It helps investors to share real estate risks and lower personal risk
- A property syndicate enables investors to benefit from diversification, which further reduces risk
- Because you would be offering them passive income, you should be able to bring other investors on board with the right investment deal
So, don’t you think that it might be a good idea to start a real estate syndication business? Now that you have answers to “What is real estate syndication?” and why you should consider investing in one, let’s look at how to set up a real estate syndicate.
How to Start a Real Estate Syndication Company
-
Select an investment niche
The first step to starting a real estate syndication is to pick a real estate investing niche. This involves selecting a particular investment property type and the best real estate market for that property type. It’s advisable that you pick a niche you have experience with. Also, consider factors like population growth, public amenities, infrastructure, and crime rate when choosing a location.
-
Brand your real estate company
Pick a name for your real estate syndication company and form it. You may need to work with a real estate attorney to take you through the process and provide legal advice.
-
Set up a business plan
A business plan is the foundation of any business. It helps you to outline your long-term and short-term investment goals and gives you focus. Decide on the best investment strategy that will help you achieve your investment goals. If you don’t know how to develop a good real estate syndication business plan or don’t have time, consider hiring an experienced freelancer to create one for you.
-
Find real estate investors
After developing a real estate syndication business plan, it’s now time to find real estate investors. First, create a list of all potential investors you know. They may be your friends, family, colleagues, business associates, or acquaintances. You should then meet them, show them your business plan, and show them why they should invest their money in your new real estate syndication. Create a final list of those who have agreed to invest and keep them updated on the project.
-
Find and analyze real estate deals
Finding the best investment properties is the most important part of starting a real estate syndication. This is because the investment properties that will be acquired will determine the real estate syndication returns.
To find investment property for sale in the U.S. housing market, be sure to use Mashvisor’s tools for your analysis. You will also need to assess the physical condition of the property and title conditions.
-
Get an investment property under contract
After finding a profitable income property and doing preliminary due diligence, sign a purchase agreement.
-
Close the purchase
Get the real estate investors ready to fund the purchase of the property. The last step will be to do the paperwork.
Related: How to Start a Real Estate Syndication: A Step-by-Step Guide
The Bottom Line
As a beginner real estate investor, it’s important that you have a good understanding of the answer to the question “What is real estate syndication?” This is because it is one of the best strategies for investors to get into real estate and advance their careers. Through syndications, regular investors can get involved in larger-scale real estate deals.
Having the basic knowledge of how real estate syndications work and how to start one will help you make better investment decisions. When done right, rewards can be fantastic. To learn more about real estate syndications and other real estate investment strategies, be sure to check out Mashvisor’s blog.