Real Estate Syndication: What Is It And How Can You Profit?

Real estate syndication offers all the benefits of real estate without needing to be involved in the day to day operations. Today, let us deep dive, into real estate syndication.

What Is A Real Estate Syndication? A real estate syndication is a legal structure for individual investors to pool money together for investing in large real estate deals. The legal structure is either set up as a Limited Liability Company (LLC) or a Limited Partnership (LP).

Real Estate Syndication Vs. Real Estate Investment Trust (REIT) The main difference between a REIT and syndicated real estate is that a REIT consists of several income-producing properties bundled together like a mutual fund.

The real estate syndication structure defines who is involved. Ensure an experienced real estate lawyer creates the contract and is fair to all parties.

Real Estate Syndication Structure

Who Is The Sponsor In Syndicated Real Estate?

The syndicator is also known as a “sponsor.” They are responsible for finding, acquiring, and managing real estate. They have prior real estate experience with underwriting and do due diligence on real estate.

Who Are The Limited Partners?

Investors act as Limited Partners (LP) in the syndication and play a passive investor’s role. They invest with the syndicator and own a percentage of the real estate based on each investor’s amount. Since they are passive investors and not involved in the acquisition or day to day operation or disposal of the investment property, they pay the sponsor fees.

Who Is The Joint Venture (“JV”)/Equity Partner? The Joint Venture (“JV”)/Equity partner is a third party present in some transactions. They assist the syndicator with reporting, communications, and even tax documentation.

What Are The Real Estate Syndication Phases

Origination The origination phase involves planning, making offers, acquiring the investment property, satisfying registration and disclosure rules, and marketing to raise funds from real estate investors.

Operation As part of the operation phase, the sponsor usually manages both the syndicate and the real property. They communicate regularly with real estate investors and regulators. Arranges refinances as needed. Optimizes the operation of the property to lower the cap rate. Distributes income from the property as defined in the PPM.

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