It is common advice in real estate investing to include a variety of properties in your portfolio to maximize your profits. If all of your real estate assets are single-family homes, it might be wise to invest in a commercial property or apartment complex. 

The disadvantage of such properties is they are pricey and frequently demand a high level of competence in terms of management. The good thing is that you can consider taking part in real estate syndication to venture into better property investments even if you lack the required capital or expertise to do so. 

Learn about real estate syndication, the reasons property investors should consider it, and how to generate profit through it. Read this blog post now!

What is Real Estate Syndication?

Real estate syndication refers to a collaboration between several investors on a real estate venture. The money and resources of these investors are pooled to buy a property they couldn’t afford individually. The investors will also collaborate in managing the property if they choose to rent it out.

This form of real estate partnership is encouraged through the JOBS Act. The law allows non-accredited investors to participate in real estate ventures through the legal structure of either a Limited Partnership (LP) or Limited Liability Company (LLC). Anyone planning to invest in properties can take part in real estate syndication. 

Three Important Roles in Real Estate Syndication

• Syndicator/Sponsor. Mobilizing the real estate syndication and making arrangements for the participation of all legal parties are typically the tasks of a syndicator or sponsor. He will handle the acquisition of the property, renovation, and management. The syndicator should possess the expertise to make the project successful. 

• Investor/Limited Partner. The purchase of the property would not be possible without the investors or limited partners. The main goal of investors is to make profits, but they typically delegate the daily management to the sponsor. 

• Joint Venture Partner. The JV partner is a third party that ensures smooth communication and transparency amongst all legal parties. The tasks may also involve reporting to the syndicator or assisting in tax preparations. The JV partner is often present in real estate syndication involving several investors. 

Reasons to Consider Real Estate Syndication

For folks wanting to generate passive income, opting for real estate syndication is a wise move. Aside from making passive income, you can also save money on tax benefits. If you have experience in property management, it is a big plus since you will be more adept at working with other parties in the partnership. 

Newbie and seasoned property investors can benefit from real estate syndication. Here are some justifications to convince yourself to try real estate syndication. 

• Lack of capital to invest in a real estate property

• Capable of buying a property, but lacking expertise on the management side

• Building wealth through passive income and expanding your investment portfolio

How to Generate Profit?

Making money in real estate syndication depends on your role and exit strategy. Equal sharing of profits may be the rule in some of these real estate partnerships, but it is common to see in many groups that they do not split the profit equally. 

Typically, the syndicator gets 30%, while the investors receive 70% of the profits. The investors take more of the money because they contribute more financially. The syndicator typically invests only 5% to 10%. However, managing a fix-and-flip or serving property manager for renters can help syndicators increase their earnings. 

Both investors and syndicators can make more money from a real estate syndication in several ways, namely: asset management fees, acquisition fees, and cash flow/appreciation. 

• Asset Management Fees. The syndicator can handle the responsibilities of managing the property with a fee. The investors of a real estate syndicate can pay the syndicator for handling property management duties. 

• Acquisition Fees. Syndicators are paid an acquisition fee of around 1% to 5% of the transaction. If you find this fee meager, you can negotiate it. But remember to avoid asking for an exorbitant fee. 

• Cash Flow/Appreciation. Investors always seek for return on their investments. In real estate syndication, 12% of the profit goes to each passive investor. If they choose to rent out the property, the investors depend on the cash flow generated by monthly rent.

  If they prefer to sell the property, each investor takes a part of the sale’s profits. They make more profit from the sale if the property has increased in value over the years. 

Endnote

Real estate syndication is an excellent way to venture into investment properties. It is preferable for investors who lack the capital or expertise to invest their money in real estate. By partnering with other investors, each investor can generate money.

Meanwhile, a syndicator or sponsor can help them to acquire a property and handle management duties.