You want to invest in real estate but you lack the time, experience or skills to do it on your own – is that you? Investing via a syndicate can solve all of these problems by giving you access experienced team members and deals, allowing you to invest in a way that maximizes your returns whilst reducing your risk.
Let’s start by defining what a syndication is
Put simply, a syndicate is a group of individuals who agree to pool their skills and capital to enable them to purchase real estate that they could not afford on their own. The main players in a syndicate are the General Partners or Sponsors who typically provide the deal and the Limited Partners who typically provide the capital. The General Partner will find the asset, get it under contract, define and execute a business plan and manage the property manager, all in return for a fee and a split of any profit above a certain hurdle. The Limited Partners provide the capital required to fund the equity portion of the deal and are entirely passive. Limited Partners typically receive a preferred return and the majority of any equity upside.
A syndication can be a good fit for you if…
- You want to earn passive income – investing as a Limited Partner allows you to generate entirely passive income
- You want to invest in real estate but you lack some combination of time or skill – real estate is a good investment on a standalone basis but when you add in the tax breaks it becomes a great investment. You don’t have to miss out just because you aren’t a real estate expert or because you have a full time job that you wish to keep
- You believe in leveraging the relative strengths of a group of people to achieve more than any individual could on their own – by investing via a syndicate you can invest alongside experienced professionals, whose interests are aligned with yours. Your profit and safety are a sponsors incentive because they earn the bulk of their money only after investors have been paid
- You wish to diversify across asset classes and geographies – There are a number of excellent sponsors available across geographies and asset classes. Partnering with someone who can help provide due diligence on markets, sponsors and specific deals enables you to diversify and reduce your risk
- You wish to get access to better terms than you could as an individual – with a syndicate you can get access to off-market deals and economies of scale that you could not easily access on your own
Here are some of the reasons why a syndicate may not be a fit for you
- You are looking for an active role – investing in a syndicate as a Limited Partner is a passive investment. You provide capital upfront and receive regular checks and your money back at the end of the deal, along with a share in any appreciation (the equity)
- You are not an accredited investor – you need to have an income greater than $200,000 if you are single, $300,000 if married or a net worth excluding the value of your primary residence greater than $1,000,000
- You are only interested in short-term investments – syndication business plans typically run from 3-7 years, so you must be willing to have your funds tied up for that period of time. This is the amount of time typically required to renovate the units and improve the asset which will enable the syndicate to sell at a profit
- You want 100% control – one of the benefits of syndication is that it allows you to invest with an experienced team. If you would prefer to have 100% control yourself, then syndications likely aren’t a fit for you
- You want all of the returns – if you want to keep 100% of the returns, and do all of the work yourself then a syndication likely isn’t a fit. Syndications work by enabling an exchange of skills and labor in return for capital. The compensation structure (promote) establishes the relative value of each contribution by allowing the GP’s to charge the LP’s fees and a split of the profits above a certain level
In 2014 I concluded that I could not scale my portfolio of single family homes without making it a full time job. Investing in syndicates has enabled me to scale dramatically, with significantly less work and risk and as a result I have now partnered to invest in over $200m of real estate and 1,900 units
If you want to get the superior returns available from real estate investing whilst reducing your risk and freeing up a lot of your time, you can, by unleashing the power of syndication.