If you’re interested in making some money through real estate but don’t want the headache that comes with being a full-time landlord, real estate syndication could be a good option for you. Real estate syndication lets investors pool their resources together to buy an investment property, which can then generate income through cash flow, appreciation, and tax breaks. This way, you can still make money off of an investment property without having to do any of the work yourself.
A lot of our clients at Disrupt Equity ask us how they can start investing in real estate syndications, so we’ve put together a guide on just that. This guide will go over some of the basics on real estate syndications and how to get started investing in them.
How Does Real Estate Syndication Work?
Real estate syndications are a great way for investors to pool their resources and purchase large real estate properties. This type of investment provides opportunities to invest in apartments, mobile home parks, land, self-storage units and other types of real estate assets and business ideas.
Who is Involved In Real Estate Syndications?
When it comes to real estate syndication investment, there are two key players: the syndicator(s) and the passive investors. The former are usually the ones in charge of putting together the group and handling the paperwork while the latter provides the funding.
The Real Estate Syndicator
Real estate syndicators are primarily responsible for two key areas in a real estate syndication: underwriting the deal and completing due diligence on the property. Underwriting refers to the process of assessing the risk of a potential investment, and due diligence is the investigation of a potential investment.
A real estate syndicator’s job is to find the property, arrange the financing and oversee the transaction. They also work with the property management team and handle investor relations. Their ultimate goal is to deliver strong returns to the passive investors in the real estate syndication.
The Passive Real Estate Investor
As a passive investor in a real estate syndication, your role is to provide some of the capital needed to purchase the property. In exchange, you get ownership shares of the property.
By owning part of the real estate, you get monthly (or quarterly) payments from the asset, as well as a return on your investment when it’s sold — while also getting equity pay down, appreciation and real estate tax benefits.
The Benefits Of Real Estate Syndications
Real estate syndication can offer investors a lot of great benefits. For example, you can earn passive income from your investment, and you don’t have to deal with the hassle of managing tenants or toilets. I think these benefits make real estate syndication a great investment option for a lot of people.
Tax benefits are an important perk for real estate investors. By owning a piece of the property, they can receive tax breaks through their K-1 tax filings.
In addition to this, the value of the property is likely to increase over time, providing a healthy return on investment. And unlike REITs or crowdfunding platforms, investors have the final say on which properties they want to invest in.
Real estate syndications offer a great way to diversify your portfolio and spread your capital across multiple properties.
The Challenges Of Real Estate Syndications
There are many benefits that come with investing in real estate syndications. However, it’s important to remember that no investment is without risk. When it comes to syndication investing, the most difficult and dangerous choice an investor can make is who to invest with.
As an investor, you have to be certain that you’re partnering with a real estate syndication company that is both experienced and reliable. When looking for a real estate syndication firm, it’s crucial that you carefully research and verify the company before making any commitments.
Eligibility Criteria For Investing In Real Estate Syndications
There are certain standards that investors must reach before being able to partake in real estate syndications. The two classifications for eligible investors are accredited and sophisticated.
To be seen as an accredited investor, you must bring in an annual income of at least $200,000. If you’re married, that number goes up to $300,000. Another way to be classified as accredited is by having a net worth that exceeds $1,000,000.
As for sophisticated investors, the requirements are less black and white. To meet this standard, the investor must show some sort of financial literacy or have professional advice to back up their investment decisions.
Depending on the specific regulations set by the U.S. Securities and Exchange Commission (SEC), some real estate syndications may only be open to accredited investors through what’s called a 506(c) offering. However, many other real estate syndications are available to sophisticated investors as well. People who fit into this category have extensive knowledge and experience in the field, allowing them to serve as passive investors by evaluating whether or not a prospective investment is worth pursuing before giving their final approval.
How To Invest In Real Estate Syndication Deals
There are a few key things you can do to increase your chances of finding the perfect real estate syndication deal. First, reach out and network with other investors, especially those who are interested in a similar asset class. Building these relationships can give you some great recommendations for reputable real estate syndication companies. Additionally, be sure to check out each company’s track record in the industry before making any commitments.
There are many great ways to meet other investors, expand your knowledge, and find your first real estate deal. Attending events organized on Meetup.com, interacting in Facebook groups, and going to real estate conferences are all excellent options.
When partnering with a real estate syndicator, it is important to make sure that they are trustworthy and have the necessary credentials. The syndicator will be responsible for finding the deal, structuring the real estate syndication, and executing the business plan. As a passive investor, your primary role is to identify a reputable syndicator to partner with.