A real estate syndication is essentially a group real estate investment.
Commonly referred to as a real estate investment syndicate, this type
of investment involves bringing together a group of individuals usually between 2 and 10 people but sometimes as many as hundreds of investors—to pool their money and purchase a property. A real estate syndication can be a great way to get involved in real estate Investments without having to go it alone. Rather than you investing in, say, a single-family rental property on your own, you get to pool together your money with other real estate investors and invest in larger assets (like an apartment building) together. The property is then owned and managed by the group, with each limited partnership member sharing in the profits (or losses) generated.
When you invest passively through a commercial real estate syndication (sometimes referred to as real estate crowdfunding), you don’t have to deal with the burden of tenants, toilets, termites or leaking roofs.
Through each syndication deal, you get to tap into real estate markets
and opportunities that would otherwise be unavailable or unaffordable
to you as an individual investor. For example, potential investors might not have enough money to buy a large commercial property outright. But by investing through a limited partnership in a real estate syndication, you can get involved with these types of deals for a fraction of the cost.
Real estate syndicates are typically led by real estate developers or
sponsors who have a solid track record and expertise in commercial
real estate.
Investors provide the capital needed to purchase the property and
execute on the intended business plan (which can include renovating
the property, leasing it up, bringing rents to market rates, and
more). In exchange for your investment, you’ll receive a percentage of
ownership in the form of equity units or shares. These units entitle
you to a portion of the rental income generated by the property as
well as a share of the profits if and when the property is sold or refinanced.
You get all the benefits of investing in real estate cash flow,
appreciation, equity, and tax benefits without the hassles and time
commitments needed to be a landlord. What’s more, group investments in commercial real estate offers the
potential for strong risk-adjusted returns and allows you to diversify
outside the stock market. Investors in real estate syndication deals typically receive a combination of cash flow returns during the hold period (often around 8%-10% on average), plus a portion of the profits from the sale or refinance.
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