A Real Estate Syndication is when a group of people put together their capital to buy a property.
Real Estate syndications tend to primarily focus on large assets that are normally out of reach for individual investors. The biggest benefit to investing in Real Estate syndications and funds is that as an investor, you get the ability to deploy your capital into assets that you normally would not be able to buy on your own due to the price range.
You also get the benefit of being able to become a completely passive investor, meaning investing in Real Estate could be as easy as investing in stocks, with the full benefits of investing in Real Estate such as having cash flow, appreciation, and even tax benefits without having to search for properties on your own, deal with the tenants, and so forth that you otherwise would have to do.
In every Real Estate syndication, you primarily have two types of investors: The General Partners, and the Limited Partners.
The General Partner (GP) is the person/company that is responsible for sourcing deals, evaluating properties, writing offers, conducting due diligence, negotiating, sourcing debt, raising funds from different investors, and finally managing the deal for the duration of the holding period to implement the business plan and maximize investor returns.
The Limited Partners (LPs) are the passive investors that choose to invest in the Real Estate Syndications or funds that the General Partners put together. Limited partners have the ability to passively invest in large assets and get the benefits of cash flow, appreciation, and tax savings (check with a CPA).
An example of how a Real Estate syndication might play out is as follows:
A General Partner (sponsor) goes out and evaluates deals in their target market. After finding a property they like, they would submit an offer, usually with a non-refundable deposit up front, fronted by the sponsor directly until the deal closes. After the Sponsor’s offer gets accepted, they perform in-depth due diligence on the deal both physically and financially by auditing leases, contracts etc.
After that’s all done and the business plan is fully set in place, the sponsor would then bring the investment opportunity to investors. Usually investors are informed of projected returns both in cash flow and total returns, as well as depreciation, among other things through a video webinar. Afterwards, investors could choose to join the investment opportunity by investing their funds passively, or passing on and waiting for the next one.
During the holding period the General Partner takes care of the execution of the business plan, distributes cash flow to investors, then after a 3 year period, the property gets sold and investors get any capital gain returns/profits pro rata based on their percent of ownership. Investors are likely to receive depreciation losses to offset gains, but that depends on the investment structure. We highly recommend speaking to a qualified CPA about depreciation and how that can affect you.
It is important to understand that every investment opportunity is different, and the sponsor may or not perform as well as promised. It’s important to vet out the sponsor and doing your due diligence on the investment opportunity. It’s also important to realize that investing in Real Estate does not guarantee returns. There are risks just as with any other real investment opportunity.
If you are interested in looking at future Real Estate investment opportunities to invest passively in deals, click the link here to schedule a call to be added to our Model Equity Investor Club where you will get private access to limited investment opportunities as they become available! We have nothing to sell you on the call, it will be completely free with the intent of answering any questions you may have.