What is Real Estate Syndication?

To answer the above question, let’s first define syndication. Syndication is the act of assembling a group of people to purchase an asset that would otherwise be unattainable for most individuals. Syndications are used to purchase things such as sports teams, race horses, and real estate. A real estate syndication consists of pooling money from a group of investors to buy real estate.

Within a syndication deal there will typically be two sides; the general partners, also known as sponsors, and the limited partners, also known as passive investors. The general partners are responsible for managing the deals, which includes finding investment opportunities, analyzing them, raising capital from qualified investors, and seeing the deal through to closing. They are also responsible for managing the asset throughout the lifecycle of the deal. For this work general partners receive a fee. On the other hand, the limited partners are passive investors. Limited partners receive the same cash flow and tax benefits that general partners receive, but without having to do all the work.          

The U.S. Securities & Exchanges Committee (SEC) is the governing body for real estate investing via syndication. Per the SEC, there are two types of investors; accredited and sophisticated. An accredited investor is one with a net worth of at least $1 million, not including their personal residence, a single person with an annual income of $200,000, or a married individual with a joint income of $300,000. A sophisticated investor does not meet any of the above criteria but has the knowledge in business and finance that would allow them to understand the risks associated with a given investment opportunity.          

Investing money in a real estate syndication is a big decision. Investors should be diligent about vetting syndicators to ensure they are both knowledgeable and trustworthy. Their job, after all, is to source and manage deals that will give their investors a lucrative return on their investment.          

Disclaimer: The information provided in this post is for educational purposes only and should not be considered as advice. Always consult with a qualified professional before making any financial decisions.

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