Are you interested in real estate investments but have something holding you back? Some may not have the capital to dive into owning a property. Others may not be ready for the additional responsibilities of property ownership, such as property maintenance or being a landlord, yet desire to invest in real estate.
So, you want to add real estate to your investment portfolio but cannot do so for one of the reasons listed above or for any other reason. Real estate syndications allow you to invest in a property without putting up the funds required to become a full owner.
This article will explain what a real estate syndication is, who’s involved, the benefits and why you should consider investing in it.
What Are Real Estate Syndications?
One of the first things you’ll notice when looking at property investments is that real estate is pretty expensive. Even if you’re already a property owner, chances are you’ll come across a property you desire that is out of your price range.
Real estate syndication is essentially a solution to this problem. It’s the process of multiple investors collectively contributing to purchase a property. This is mostly done for commercial properties, such as rental homes, office buildings, apartment complexes, and industrial spaces.
The Roles Involved
There are two main roles in real estate syndications: the lead investor and the investors.
The lead investor, also known as the sponsor or syndicate, is responsible for identifying and managing investment opportunities. This includes planning the investment, finalizing the purchase, sourcing investors, and managing all aspects of the property.
Finances, such as handling income and distributing profits, are also included in these responsibilities. Any work that needs to be done on the property is dealt with by the lead investor, who typically outsources the work. In addition, Moschetti explains in greater detail the role of a syndicate for individuals who want more information or are considering being a syndicate.
Becoming a real estate syndicate may not be for you, particularly if you want to invest without the need to manage properties or if it’s your first time investing in syndication. That said, you might want to be a lead investor on smaller projects involving one to three people, such as purchasing a single apartment to rent it out.
Most people want to be an investor in real estate syndications. As mentioned earlier, investors are individuals who join together to contribute the capital required for the overall investment. In most cases, this is a passive role. However, certain real estate syndications may require investors to share additional responsibilities.
Active Versus Passive Investors In Real Estate Syndications
Active investing refers to investments in which you are a partial property owner. On the other hand, passive investing is when you are one of the multiple financing investors who receive payouts from your investment but don’t actively manage the investment.
Active investments generally have great potential in terms of generating profit. You and several other investors become joint owners of a property and share the responsibilities, expenses, and profits associated with its management. This is referred to as Real Estate Limited Partnership (RELP). However, this strategy demands your time and resources. It’s probably not for you if you’re aiming for a passive role.
Passive investments often follow two primary strategies: crowdfunding and real estate investment trusts (REIT). If you’re considering investing in real estate syndications, your interest may be in one of these strategies.
Crowdfunding is performed primarily by companies working as syndicates in search of a significant number of investors to fund a real estate property—particularly high-value commercial properties. These types of properties frequently require construction or renovation. The syndicate manages everything, and investors receive the benefits.
REITs operate similarly to regular stocks and are possibly the simplest to invest in. A REIT is a company that owns real estate properties and pools funds from investors. These, like other trades, can be bought and sold through brokers. One of the primary advantages of a REIT is that your investment spans multiple properties, similar to an index, making it a relatively low-risk option to invest in.
Real estate syndications must sound appealing at this stage. However, it’s worthwhile to emphasize some of the primary advantages of this investment method. Here are three of the most significant benefits:
- Passive Investing And Rental Income: As previously said, real estate syndications can be low-maintenance for investors. You can successfully invest money and receive the benefits while your sponsor manages the rest. There’s no need to be concerned about tenant requests, contractor negotiations, or engaging with real estate lawyers.
- Portfolio Diversification: Diversifying your portfolio is one of the best ways to manage risk and is one of the primary reasons for investing in real estate. However, real estate isn’t cheap. Real estate syndication often covers many properties at once, allowing you to diversify your portfolio with less risk than if you had invested the same amount in a single property.
- Potential For High Returns: Obviously, everyone who invests in real estate knows that if everything goes perfectly, the returns can be phenomenal. Before investing, you must conduct an extensive study and have a solid grasp of the market, but the effort is worth the long-term returns.
Real estate syndications refer to investments in which a group of investors ‘club together’ to purchase a commercial property. By joining forces, it allows you to invest in real estate with less money than it would take to become the sole owner of a property.
The strategy also has benefits like allowing your investment to be entirely passive. If you’re in a situation where you want to get into real estate but can’t own a property for some reason, this investment may be of interest to you.