Definition: Real estate syndication refers to a group of investors pooling resources so they can invest in properties worth much more than any individual investor could afford on their own.
What is real estate syndication?
Real estate syndications involve multiple investors coming together, sharing both their financial and intellectual resources, to purchase high-valued properties. In most cases, these investors would not be able to afford individually investing in these properties. Therefore, knowing how to invest in real estate syndications provides those with less capital an opportunity to invest in higher-valued properties.
In essence, real estate syndication is simply a means of “crowdfunding” for real estate. Both syndication and crowdfunding involve the process of pooling capital with other individuals to reach a common goal. Of course, individuals can take part in crowdfunding for any reason, but the goal of real estate syndications is to bring investors together for real estate purchases.
One of the first things that investors should understand about real estate syndications is that there are two parties in the process. One party is the syndicator, and the other party is comprised of the investors.
- Syndicator or Sponsor: In real estate syndications, the syndicator or sponsor is an individual or company charged with finding, acquiring, and managing real estate properties.
- Investor Group: The investor group is made up of individuals who all contribute funding to one of the syndicator’s properties and, in turn, own a percentage of one of these properties.
The following serves as a case study for real estate syndications in action.
- A company owns a large commercial building that’s worth $10 million. In this scenario, the company is the syndicator or sponsor. The company decides they need additional cash flow on this project and offers investors the chance to buy small portions of the property for $20,000. In return, the individuals within the investor group each own a small portion of the building and enjoy small dividends from the building’s tenants’ rent payments. The company still owns most of the building and takes care of all property management duties.
How to invest in real estate syndications in a nutshell
Real estate syndications provide an accessible way for anyone to start investing in the real estate market. Not all investors have the necessary funds to buy a property outright, so they turn to learning how to invest in real estate syndications. Through real estate syndications, these investors can participate in real estate investment by owning percentages of physical properties. Overall, real estate syndications provide a great avenue for anyone looking for a cost-effective way to begin investing in real estate with a small upfront outlay.