What To Know Going In To A Real Estate Syndication Deal

A real estate syndication deal involves an agreement where investors team up with a general partner to share the profits from a property venture. It's an excellent way to start real estate investing, whether you have funds or time to contribute.

What Is a Real Estate Syndication Deal?

Real estate syndication involves a group of investors pooling their resources to purchase larger properties than they could individually. This partnership typically includes two roles: the syndicator (or general partner) and the investors. The syndicator manages the deal, including finding and securing property investments and overseeing property management, earning fees for their efforts. Investors, who provide most or all of the capital, take a passive role in the investment.

How Is a Real Estate Syndication Deal Structured?

In a syndication deal, participants usually form a limited liability company (LLC) or a limited partnership, with the syndicator acting as the managing member and investors as limited partners. Ownership percentages are assigned based on each party's contribution. Profits from rent and property sales are distributed according to these ownership percentages. Some deals offer preferred returns to investors, ensuring they receive a minimum return before the syndicator profits, adding a level of security for investors.

Advantages of a Syndication Deal

Real estate syndication deals offer several benefits for both syndicators and investors:

• Access to larger assets: Pooling resources allows for the purchase of larger properties, like apartment complexes or office buildings.

• Cost-effective for syndicators: Syndicators can benefit from property investments without using their own funds.

• Passive income for investors: Investors receive passive returns from the property without having to manage it themselves. 4 Tips for Entering a Real Estate Syndication Deal If you're considering a syndication deal as your next investment opportunity, follow these tips:

1. Select the Right Role for You: Determine if you’re better suited to be a passive investor or a syndicator based on your skills, assets, net worth, risk tolerance, and experience.

2. Partner with Trustworthy Individuals: Trust is crucial, especially for investors partnering with a syndicator who will manage the property. Conduct thorough due diligence to find a syndicator with a solid track record in property management.

3. Ensure Contractual Protection: When signing agreements, look for clauses such as preferred returns that offer added security for investors.

4. Evaluate Your Risk: Whether you’re an investor or a syndicator, carefully assess the risks involved in each investment decision. While syndication deals provide a larger safety net, they still come with inherent risks.