In simple terms, real estate syndication is when an experienced real estate operator teams up with a group of investors to buy and manage a real estate property.
The syndicator (a.k.a. operator) is usually the one who has experience in the industry and knows how to find, finance and manage properties. They put together a group of investors (a.k.a. the syndicate) who provide the capital to buy the property. The person or company leading the overall project is commonly referred to as the syndicator, but might also be referred to as the syndication sponsor, general partner, operator, or operating partner.
Bringing together a group of multiple investors can be especially helpful for executing bigger projects where it may be difficult or risky for a single entity to invest all of the necessary capital on their own. For individual real estate investors, it’s a way to participate in big projects without risking the bulk of your capital in one real estate deal.
A syndication structure brings passive investors (limited partners) together with an active syndication operator (general partner). In a limited partnership, the limited partner is only liable for the amount of money they’ve invested, while the general partner is liable for any debts and losses incurred by the syndicate.
This is a different partnership structure than if you just partnered with a friend and agreed to buy and manage a property together with a 50/50 split, in which case you might both be active partners. It is this specific structure that typically defines a real estate investment syndicate.
Role of the Real Estate Syndicator
The syndicator’s role is to find attractive real estate opportunities, conduct due diligence on them, put together a deal, bring in limited partners to invest in the project, manage and oversee the property, and then distribute the profits back to the investors.
Investors in a syndication are passive, meaning they don’t play an active role in decision-making or day-to-day operations. They’re also commonly referred to as limited partners because their liability is limited to the amount of money they’ve invested.
The operator, or general partner, on the other hand, plays an active role in managing the day-to-day operations of the property that the group is investing in. In addition to purchasing, maintaining, and overseeing property management, the general partner also must manage other business items such as finances, accounting, taxes, and distribution of returns to the other investors.
As you might guess, potential investors may have a lot of questions about a syndication deal before moving forward with investing. And even committed passive investors will want to track the progress on the project after investing their money. So raising capital and investor relations is also an important responsibility for the real estate
Other Names for Real Estate Syndications
You might come across real estate syndication deals also being called “private placements”, “private placement memorandums (PPMs)”, “private offerings”, or “passive real estate offerings”. The common word ‘private’ in the terms above is meant to differentiate real estate syndicates from publicly traded securities such as stocks, which are subject to extensive (and expensive) regulatory filing requirements.
In recent years the concept of “crowdfunding” for real estate has grown in popularity. In many cases crowdfunding is just another way to find investors for syndication deals. However, not all crowdfunding deals are structured as syndications, so it’s important not to think of crowdfunding and syndication as interchangeable terms.
Real Estate Investment Syndication vs. Real Estate Listing Syndication
It’s good to be aware that there is another type of “syndication” in real estate. A real estate listing syndication is when a real estate listing is syndicated to multiple different listing portals such as Zillow, Redfin, and Realtor.com. This means that the same real estate listing is linked and shared across multiple sites so it doesn’t have to be recreated in different places.
Investment syndication and real estate listing syndication are two completely different things, so don’t get them confused!
Types of Real Estate Syndication Deals
Pretty much all syndication deals have a similar structure in that investors provide capital and the operator organizes, leads, and manages the deal to completion. That’s what makes a real estate syndication work.
However, the real estate strategies employed by a real estate syndicate can vary significantly. Many real estate syndications focus on multi-family real estate such as an apartment buildings. However, the syndication structure can also be used to organize investments in commercial real estate, land development, or even single-family real estate.
For individual investors, this can be advantageous because it provides the opportunity to invest in types of real estate assets and price points that they might not otherwise have access to. A passive investor can construct a real estate portfolio with a blend of commercial properties, residential properties, or any other desired real estate asset type that might otherwise be difficult to replicate as an individual investor.
From commercial real estate syndication to residential rental property, there are as many different types of deals as there are types of real estate investment strategies. Some syndication deals focus on steady cash flow from regular and predictable rental income, while others may go for a bigger (but potentially riskier) return by rehabbing and flipping larger assets with a predetermined exit strategy.
Who can invest in syndications?
In theory, anyone can! Syndications are a great way for new investors to get started in real estate without having to go through the hassle and expense of buying a property on their own.
However, there are certain government rules that only allow accredited investors to invest in certain types of syndications. These rules were put in place to protect unsophisticated investors from the financial risk of investing their money in deals that aren’t subject to the detailed reporting and registration requirements
As of the publication time for this article, an accredited accredited investor is someone who meets certain criteria, such as having a net worth of over $1 million or an annual income over $200,000. For more details on non-accredited investors vs accredited investors check out our separate article here.
Even if you’re not (yet) an accredited investor, don’t worry! There are still ways to start investing in real estate syndications. You just need to play an active role in seeking out the right deals for your risk profile. At Syndication Scout, we hope to be able to help with this process!
What are the benefits of investing in syndications?
Because it is simply another type of real estate investing, a real estate property syndication shares practically all the benefits that apply to real estate investing in general, including the tax benefits of real estate investments.
However, compared to real estate investing on your own, syndication enables you to stay hands-off and generate fully passive income as an investor. You don’t need to be involved in the day-to-day details of property management, screening tenants, and answering the phone when there is an emergency maintenance issue.
In addition, you are able to rely on the expertise of an experienced operator to come up with a detailed business plan and manage the overall project. If you invest with a sponsor that has a solid track record, they are often able to see around corners and avoid issues that only an experienced investor would know to look out for.
Syndications typically offer higher returns than REITs (real estate investment trusts), especially on an after-tax basis.
For a more complete discussion on the benefits of syndication investing, as well as the pros and cons to think about, check out our detailed article here.
What are the risks of investing in syndications?
Many would put syndications in the category of a high-risk, high-reward type of investment. The potential for higher returns comes with the increased risk that the investment could lose money. However, it’s really important to note that the level of risk is highly dependent on the risks of the specific deal, including the skill of the operator and the real estate market conditions where the property is located.
Before investing in any syndication, it is extremely important to do your own thorough due diligence on both the operator and the specific property or properties being syndicated. You need to feel confident that the operator knows what they’re doing and that the deal makes sense from a financial perspective.
Investing in syndications is also a long-term commitment. You will likely be tied up with the investment for at least five years, and possibly longer depending on market conditions and exit strategy of the deal. This is something to consider if you are hoping to generate quick cash flow or turn around and sell the investment after a few years.
To learn more about the risks involved in syndication investing, as well as how to mitigate them, check out our detailed article here.
Where to find real estate syndication investment deals
If you’re an accredited investor, there are a number of websites that curate and list syndication opportunities.
For non-accredited investors, the process is a bit more manual but certainly not impossible. You’ll need to do your own research to find syndicators that you feel comfortable working with, and then reach out to them to see if they have any upcoming deals that you might be able to participate in.
At Syndication Scout, we aim to make this process a bit easier by providing resources and information on syndicators that both accredited and non-accredited investors can work with.
For more information on syndicators, check out our directory of syndication sponsors and
Important Legal Considerations
At Syndication Scout, we aim to provide education and help you ask the right questions as a real estate investor.
We are not lawyers, accountants, or financial advisors, and the information on this website should not be construed as legal, financial, or tax advice.
Furthermore, at Syndication Scout we highly recommend consulting with an experienced real estate attorney that is familiar with real estate syndication investment opportunities and how they are typically organized and structured.
A real estate syndication is typically structured as a limited liability company, and it’s a very good idea to have your attorney review the operating agreement and other relevant documents to ensure that all parties involved are clear on the relevant details of how the deal will work, and especially what procedures will apply in case the deal doesn’t go as expected.
Some deal structures even involve multiple LLCs to facilitate different types of payouts, risk management, and tax optimization and you’ll likely want a real estate syndication attorney to help you confirm that the legal structure makes sense and protects your interests in a balanced way.
Another bonus of finding a great real estate attorney is that they often have great connections and might be able to introduce you to syndicators and other real estate professionals that you can work with.
If you’re looking for an attorney that specializes in real estate syndication, check out the attorney directory that we are building (click here).
Where to Learn More About Real Estate Syndications
We have covered syndication in a nutshell!
Depending on your financial goals, syndications can be an extremely useful tool in your financial portfolio alongside other investments.
If you’re interested in learning more about investing in real estate syndications, be sure to check out the rest of our website for additional resources.
Our goal is to update the site regularly including links to books, podcasts, syndication sponsors, real estate attorneys, and syndication events where you can connect with other investors.
If you have questions about real estate syndications that you’d like to see covered in future articles, we would love to hear from you. Please contact us here.
