The global real estate market, the US inclusive, is gradually becoming a beehive of opportunities. While it might seem as though seasoned investors are the only ones looking to get a “large chunk of the pie,” individuals who aren’t quite vast in the inner workings of real estate are becoming participants also.
That said, what makes the real estate industry so popular, aside from the profit margins involved, is the ease with which transactions are conducted.
Although most people have the notion that real estate requires astronomic funding, there are ways in which investors (professionals & novices) can get ahold of properties.
One of those ways? Real estate syndication. If this seems like a strange term to you now, don’t fret so much since you’re not alone. Most people don’t know about it either. Well, we learn every day.
The common idea of real estate syndication is different individuals pooling resources together to make a real estate plan feasible.
Consequently, if you’ve been looking to expand your real estate portfolio, syndication might be the way to go. Why? There are numerous benefits of syndication to all classes of investors. Here, finding the right set of partners is crucial.
In this article, we’ll be exploring the intricacies associated with real estate syndication and everything in-between. Also, if you’re searching for advantages to suppress your skepticism, we’ll check the top benefits of RE syndication as well as its drawbacks.
Real Estate Syndication: What Does This Relatively New Term Entail?
Before we dwell on the benefits of syndication, it’s essential to have a foundation on the term “real estate syndication” for a degree of context.
Real estate syndication, while being a thing in times past, went under the radar only to resurface recently due to the development of several technological mediums.
That said, real estate syndication refers to a scenario whereby investors come together to pool resources required to build or buy real estate, as the case may be.
Here, instead of one person taking on the burden of starting or acquiring real estate, the financial commitment is shared amongst a group (usually with a common goal) to make things convenient and hassle-free.
With this definition out of the way, let’s examine specifics attached to real estate syndication for a better picture of how things are expected to pan out.
Real Estate Syndication: Is There a Set Process?
It’s almost impossible to get real estate syndication investment opportunities without having the “know-how” of how things work here.
In line with the explicit definition of earlier, think of real estate syndication as crowdfunding. Although they might look like two separate terms on the surface, they share a common aspect – the process!
Two parties must be present to make real estate syndication come to fruition: the sponsor and investor.
The “sponsor,” in this case, is tagged the syndicator. Most times, these are established real estate syndication companies that have lots of seasoned investors in their employ. Their job?
- Search for real estate properties
- Conduct extensive research.
- Managing properties after purchase
- Giving investors timely updates
After crafting a list of unique real estate properties or landscapes, it’s up to the regular “investors” to rally around to finance the purchase and any other added expenses attached to it.
Also, if a syndicate group can’t raise funds in time, they can partner with other interested investors.
Real World Variations of Real Estate Syndications
With the evolution of technology alongside other nifty add-ons in today’s world, real estate syndication is entering a new level with several transaction modes. Therefore, real estate syndications can exist:
- Online Syndication
Online syndication is somewhat reminiscent of crowdfunding – a financing medium available in regular real estate.
Here, rather than syndicators contacting investors known to sponsors, they can reach a greater pool of investors when they engage specific marketing tools on the Internet.
- Offline Syndication
A real estate syndication is tagged “offline” when sponsors look internally to seek alternatives using their connections and ties with other entities.
Incorporating this strategy, it’s achievable for them to rally funds to purchase a real estate property. As the name suggests, this syndication form happens physically or over a phone call.
- Private Syndication
Private syndication is a mix of online and offline syndication. Rather than sponsors using different online sources to seek out investors, they can craft a website and place it on popular real estate crowdfunding sites like Realty Mogul.
Although sponsors are allowed to take advantage of the technology integrated on these sites, leveraging their set techniques is crucial. Here, sponsors can use their connections to make managerial activities seamless from the platform itself.
Real Estate Syndication Pros & Cons: Some Facts to Note
While it might seem as if this article seeks to give credence to the benefits of syndication exclusively, there are certain drawbacks in the mix we’d like you to note. Let’s see how things pan out:
- Diversification of Real Estate Portfolios
Real estate syndication allows investors to expand their real estate horizons.
Since the realtor market features properties with astronomic values attached, coming together with other investors to make a purchase feasible.
Thus, they diversify their real estate portfolio, knowing that they share in the positive returns (mostly rent).
- Add to Your Knowledge
Education is a lifelong process. With real estate syndication, you can add to your knowledge bank as you’re able to get specific pointers from the experiences of other seasoned investors and sponsors.
That way, you can easily weave your way through some challenges in the real estate market.
- The Prospect of Passive Income
Passive income is a massive deal for all real estate investors.
Instead of actively participating in property maintenance and a truckload of other activities that stem from property ownership, you can take a back seat and relax when you’ve keyed into syndication.
- Hidden Charges
Sometimes, getting a hold of the charges and other related fees attached to a real estate syndication might be challenging to understand. Although some expenses might crop up once, others might be a recurring decimal.
- The Issue of Liquidity
Real estate syndications aren’t liquid as you’ll need to wait for a certain period (usually 5 – 7 years) before you start getting returns. Therefore, the possibility of opting out just when you feel like it is next to impossible.
It doesn’t matter whether or not you’re a new or seasoned investor; you’ll need an investment form that’s bound to stand the test of time.
One alternative that accords this luxury is real estate syndications. Although there are certain real estate syndication pros and cons to consider, it’s still a worthy investment solution that guarantees ROIs (Return on Investment after a set period.
If you’re on the lookout for an investment medium that allows you to take the back seat, syndication in real estate might be the perfect fit for you. Well, the ball’s in your court!