Before getting into real estate, I assumed all apartment buildings, office buildings and malls were owned by huge corporations or really rich people. I would drive around town, content to live with that thought in my head.
As I started to learn more, I found out about real estate syndications. A syndication, when you boil it down, is really a group real estate investment. This can be a “group” of 2 to hundreds of investors. The popularity of syndications has grown over the last few years as the laws have been updated to encourage more investment. These laws have also given real estate investors, who would normally only place capital in Real Estate Investment Trusts (REITs), other options to make their money grow.
In a syndication you combine your funds with other real estate investors and invest in larger assets (like an apartment building) rather than investing in smaller properties, such as single-family rental properties. The group then owns and operates the property, with each limited partner (LP) having a share in the profits or losses generated.
Because it is a passive investment, you don’t have to worry about renters, bathrooms, or termites when you invest in commercial real estate syndications. You have access to real estate markets and opportunities through each syndication deal that you as an individual investor might not otherwise have access to or be able to afford.
You may participate in these kinds of ventures for a lot less money by investing through a limited partnership in a real estate syndication. Real estate developers or sponsors with a proven track record and knowledge in commercial real estate often serve as the syndicate’s leaders.
Investors contribute the money required to buy and renovate the property. The sponsor is in charge of acquiring the property, supervising its development or renovation, property management, and carrying out the pre-planned exit strategy.
In return for your contribution, you will be given equity units or shares that represent a portion of ownership. These units entitle you to a part of the profits if and when the property is sold, as well as your portion of the rental revenue the property generates.
The advantages of investing in a real estate syndication include:
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- Cash flow
- Appreciation
- Equity
- Tax advantages
All of this, without having to deal with the headaches and time obligations associated with being a landlord.
Additionally, collective real estate investments have the potential to provide substantial returns. Real estate syndication investors frequently experience average annual returns of 8%–12%, and occasionally even higher. As with any investment, there are risks so you should never risk more than you can afford to lose.
This is one of the many ways to invest in Real Estate. This model may or may not work for you. It all depends on how involved you want to be in the real estate world, your risk tolerance and finding a good sponsor or general partner (GP).
Let us know how you invest.
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Bryan Escudero
President and Co-Founder, First Gen Foundations
Proud to be a First Gen Investor
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