A real estate syndication company offers a great investment opportunity for people who can’t normally afford ownership of larger priced properties. Historically, these types of ventures were often relegated to wealthy, well-connected, or seasoned real estate professionals. In recent years, however, with opportunities in crowdfunding and other means to gather a group of investors, it has become far easier for people to get involved.
For centuries, real estate has been considered one of the most solid investment options. Today’s financial experts still believe that real estate is one of the best choices for your investment dollars, according to a recent CNBC article.
Real estate syndication can help you invest in larger properties than you’d be able to purchase on your own. For investors, this is a great option because it involves a lower monetary investment and eliminates the red tape involved in closing on a property personally, since the syndicate or business entity handles that. For the syndicator, or person who creates the syndication, this investment model is more work, but it can be exceptionally lucrative.
What Is a Real Estate Syndicate?
A real estate syndicate is when a group pools their funds together to invest in a single property or several properties. The real estate syndicate involves a sponsor or owner and several investors.
The sponsor is tasked with all the work involved in finding and purchasing the property on behalf of the syndicate. This means that they will need to set up the proper business structure for the syndicate, research properties, find and hire the real estate lawyer, deal with the legal paperwork and loans needed to close on the property, and conduct all due diligence before the deal. The sponsor is also in charge of managing the property once it’s under syndication ownership.
Typically, the syndicator invests far less monetarily than the regular investors. They might invest 20%, while the other investors make up the remaining 80%. If it’s a large real estate syndication, the sponsor might invest as little as 5%. The syndicator will also receive compensation for their role in researching and securing the property. This is a front end acquisitions fee. Then the syndicator will also receive compensation for management of the property because this is an ongoing and specialized responsibility.
The way the return on the investment is structured will depend on the property type and business structure, but there is a preferred return that must be made to the investors (5% to 10% of the initial investment annually).
How to Start a Real Estate Syndication Company
Real estate syndication is not complex and offers an excellent way to reap a high return on a property by pooling resources. While it’s not difficult, you do need to be exceptionally organized and hire the right professionals to start your real estate syndication company.
The way you structure your syndication depends on the type of property or properties you’re investing in. A skilled attorney can help you set up a business structure that will make the most sense for your venture. They can also go through all the necessary filings and tax information for the syndication, as well as individual investors.
Structuring your syndication correctly is important and you do need a skilled real estate attorney. If you try to put together a syndication with a DIY model, you’re liable to make costly mistakes, like incorrectly filing paperwork and choosing the wrong structure. Your attorney can help with the structure of the company and the schedule for investment returns, as well as make sure all the filings and legal contracts meet regulatory requirements.
Once you have your syndication in place, you’ll need to complete all the research on the property itself. This is especially true for properties that generate income, such as multi-unit rentals and commercial properties, because you need to make certain that the estimated monthly income from rentals is accurate over time. And lastly, you’ll have to find real estate investors to participate. This might be a combination of going through your own contact list and using modern software like AppFolio Investment Manager.
Ways AppFolio Investment Manager Can Help You Get Started
Starting a real estate syndication is easy with the right technology, here are some ways AppFolio Investment Manager can streamline the process:
- Allows you to track the interest level of prospective investors while communicating with current investors
- A self-service investor portal keeps investors updated, informed, and engaged
- Organizes assets in one central hub with bank-grade security to increase efficiency and mitigate risk
- Enables you to get quick, reliable information 24/7 from any device
- Makes it easier to manage distribution details while making all information readily available to investors