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Real Estate Syndication : A Complete Guide For Passive Investors

Real Estate Syndication : A Complete Guide For Passive Investors

real estate syndication


A real estate syndication is when several people pool their funds to buy real estate, frequently a sizable piece of property like an apartment complex, which would otherwise be challenging or impossible for them to do alone.


Who Is Participating In A Syndication?


In a real estate syndication, the “general partners”—also known as the “sponsors” or “operators”—are often responsible for setting up the syndication and handling tasks including finding the property, obtaining financing, and administering the property.


The group of individuals that provide the cash investment is frequently referred to as “limited partners” or “passive investors.” The limited partners receive cash flow distributions, earnings, and, an equity stake in the syndicate in exchange for their investment.


Who Is Eligible To Invest In Real Estate Syndication?


“Accredited investors” are normally welcome to join a real estate investment syndicate. The Securities and Exchange Commission (SEC) defines an accredited investor as someone with a net worth of at least $1 million, exclusive of their primary residence, or an annual income of $200,000 (or $300,000 for a couple). For further tools and information, go to the SEC website.


Unaccredited investors may invest in some syndication offerings, such as those marketed as “506(b)” offerings. Many multifamily syndications are 506(b) offerings, meaning unaccredited investors may participate, but they must be “sophisticated.”


A sophisticated investor is well-versed in alternative assets, such as real estate, oil, or precious metals, and/or has relevant expertise. They might have invested in the past outside of the stock market or they might have gone to an investing seminar. The person has the capacity to decide intelligently about a specific syndication offering, whether or not they have genuine investing experience.


A “substantive relationship” between the investor and the offer sponsor must already exist in addition to the investor being “sophisticated”. Although the SEC doesn’t explicitly define “substantive relationship,” it gave hints in this letter to a business known as “Citizen VC.”


What Syndications Of Real Estate Are Available For Investment?


Real estate syndications are a form of investment that involves pooling money together from a group of investors in order to buy properties.


There are many different types of real estate syndication for investors to choose from, including those that focus on commercial properties and those that focus on residential properties. Investors can also choose between equity and debt-based investments.


Rather than single-family homes, real estate syndications are more prevalent in more valued commercial real estate, such as multifamily, self-storage, mobile home parks, retail, office, or light industrial.


I suggest multifamily real estate out of all of these varieties of commercial real estate for the reasons listed below.


Why should one invest in real estate syndication?


Investors may favour real estate syndication over the stock market or other assets for the following five reasons:


Additional Tax Benefits:

Real estate syndication offers tax advantages that are not available with other investments. For example, if you invest in your own home and make improvements to it, these improvements can be deducted from your taxes each year.


Below-Average Risk

Real estate is less volatile than stocks and bonds, which means that you can typically earn a steady stream of income over time with less risk.


Above Average Returns:

Real estate tends to appreciate at a faster rate than most other assets. This can provide you with higher returns on your investment, as well as the potential to build wealth.


Hedge against inflation:

As inflation rises, the value of the property also rises, making it the ideal inflation hedge. Lastly, many investors consider real estate to be a hedge against inflation because it tends not to lose value when prices rise. 


The BEST passive investment on the globe under the current tax regulations is investing in U.S.-based real estate syndications, particularly multifamily apartment buildings.


Which Risks Are Involved In Investing In Syndications?


There are several benefits to investing in a multifamily syndicate, but don’t let anyone convince you otherwise. Every investment involves risk. Understanding the probable drawbacks of apartment investing can guide you in making the best decisions and ultimately reducing the risks, starting you on a beautiful little journey to financial freedom. The following are the five dangers and drawbacks of investing in syndications:


Real estate is sensitive to market cycles, just like any other investment. By investing in properties like apartment complexes, which have traditionally outperformed other real estate types, you can reduce this risk. Additionally, avoid the west coast and New England, where your investment may be negatively impacted by significant up and down cycles. We frequently invest in more secure regions, like the South, because of this.


Highly reliant on the Operator : The success of multifamily properties depends on having the correct team in place to manage a property. When working with a novice or unskilled operator, mistakes are likely to occur. You could lose lots of money if you make mistakes. Make sure you invest with the RIGHT sponsor (we’ll explain how to do this later on) to reduce the risk.


Lack of liquidity : The fact that your money is locked up for five years or longer is arguably the largest drawback of investing in syndications. You cannot just sell your position by calling your broker. On the other hand, many syndications have the option of refinancing before the term is up, returning all or a portion of your investment. In the interim, you should be receiving cash flow and getting some of your money back.




Despite these hazards, real estate syndications are the best kind of investment on the globe after researching every other choice. No other investment had such a strong performance during the most recent recession, offered above-average returns (including cash flow), unusual (and legal) tax breaks, and had a built-in inflation hedge.


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