Without some knowledge concerning real estate syndication basics, you might be missing out on some incredible profit-generating opportunities. For instance, if you’ve ever been in a position where you weren’t able to fund or finance an investment property on your own, then real estate syndication might have been the answer. I recently interviewed Vinney Chopra – someone who has facilitated more than 20 successful syndication deals – to gain insight on the basics of crowdfunded real estate syndication investing for listeners. Below, I’ve put together some information on the basics of real estate syndication.
Real Estate Syndication Basics: What Is It?
Before skimming over some of the other syndication basics, I want to answer the most fundamental question on real estate syndication: what is it? Essentially, real estate syndication is the collection of capital from various investors for the purpose of putting these joint funds into a property project.
Since the property projects requiring syndication can be quite expensive to fund, it’s not uncommon for real estate syndication to be used in conjunction with commercial mortgages.
Real Estate Syndication Basics: How Does It Work?
In order for real estate syndication to work, it’s necessary to have a person or organization serving as the syndicator. The syndicator organizes and manages all aspects of the property purchase, and this person often continues to assist with property management following successful deals.
If the property is later resold, the resale is typically handled by the original syndicator as well. Of course, without the capital to make large property purchases, the syndicator is no good on their own which is where investors come in.
Real Estate Syndication Basics: What Are the Benefits?
As an investor, you typically benefit from syndication deals by earning a percentage of rental profits over time. As a syndicator, however, you have the potential to benefit from a successful deal in other ways as well. Your acquisition fees, for instance, will serve as compensation for the time and effort you invest in making the deal a success.
If you also elect to manage property following a successful purchase, you can generate additional money on an ongoing basis. Another common way for you to benefit from a deal as a syndicator is to invest some of your own capital in the pool. Depending on how much you invest and the details of the deal, this could provide your largest payoff in the end.
Real Estate Syndication Basics: What Are the Risks?
Once a real estate syndication deal goes through, one risk for investors is that it won’t generate enough money for them to make a profit. If things really don’t go well, real estate investors can take significant losses. As a syndicator, you have certain ethical and legal obligations to your investors. If you fail to meet these obligations, due to either ignorance or negligence, there can be severe legal consequences.
With the help of a seasoned SEC attorney, the majority of the risks associated with real estate syndication can be mitigated. For this reason, consider hiring an SEC attorney if you don’t have enough experience to handle the legal requirements of these deals confidently.