Real Estate Syndication: What It Is & How To Do It Right

Are you a real estate agent who wants to yield more leads and property sales to your fund sources?

Are you an investor who wants to maximize the investment opportunities coming your way?

Real estate syndication is an excellent source of additional revenue. However, it can be challenging.

This guide will walk you through these quick and easy steps to help you. Take advantage of cash assistance software and ensure success in this rewarding business model.

Real estate syndication simplified

A real estate syndication is software that pools investors together to buy a property. It’s called a “syndication” because the group of investors shares the risk and reward of ownership.

The real estate investor finds a piece of property they want to buy (or have already purchased). They then solicit other investors to fund the purchase.

The investor takes care of all the legal paperwork involved with acquiring the property and divides any profits made on resale among those who invested in it.

Real estate syndication is generally done through two different structures: direct and indirect.

Direct

In direct real estate syndication, each investor owns part of the actual property.

Direct real estate syndication involves multiple investors pooling their money to purchase a property and then sharing any profits or losses.

It’s not a new concept—real estate developers have been doing it for years.

But direct real estate syndication has become more popular as an alternative to traditional investments like stocks and bonds because it offers higher returns and allows investors to diversify their portfolios with less risk than other types of investments.

Indirect

In indirect real estate syndication, each investor owns shares in a corporation that owns part of an actual piece of property (or multiple pieces).

Indirect real estate syndication works the same way as direct real estate syndication but has one main difference.

Instead of investing directly into a single property, you’ll invest in an entire portfolio of properties managed by other investors or companies specializing in real estate investment.

How does real estate syndication work?

To understand how real estate syndication works, you first need to know that there are two main syndications: debt and equity.

Debt Syndication

Debt syndications involve borrowing money from banks and other lenders to purchase an asset.

The borrower then pays back the bank over time with interest rates set at market value rates the bank charges.

To simplify, you borrow money to purchase an asset and then pay back that debt with interest added to your loan amount each year until the loan has been paid off completely (or almost entirely).

Equity Syndication

Equity syndications involve selling shares in a project or business venture to raise capital for growth opportunities or to fund a new project or business.

Equity syndication is similar to an IPO (initial public offering) in that you sell shares of ownership in your company.

But unlike an IPO, the primary benefit of equity syndication is not to raise capital for growth but to generate additional income for yourself and other shareholders by selling shares in your company.

Is real estate syndication the same as crowdfunding?

A real estate syndication also takes the same principle as crowdfunding, but it’s not the same as crowdfunding. The most significant difference between real estate syndication and crowdfunding is that real estate syndication is a direct investment opportunity in a property rather than a business or project.

Real estate syndication is also different from crowdfunding because it requires you to be an accredited investor.

Under the SEC’s definition, an accredited investor has more than $1 million in net worth (excluding primary residence) or has a net income of at least $200,000 for two out of three years.

If you’re not already an accredited investor, your options for real estate investing are limited.

You can work with an investment advisor specializing in real estate or find an investment club where members pool their money to buy properties.

Are there any regulations for real estate syndication?

The answer is yes and no. There are regulations on the federal level, but they’re pretty lax.

The Federal Trade Commission (FTC) has rules about advertising your business and what you can say about it.

For example, if someone asks what kind of income you make from real estate investing, you have to tell them that it’s not always steady or predictable.

But beyond that, there aren’t many rules governing how you do your business.

However, laws in your state may govern how properties are purchased and sold, so be sure to check with an attorney before proceeding with your plan.

How to find passive investors for your real estate syndicate

Once you’re ready to start looking for passive investors, there are several ways that you can go about doing so. Here are some tips:

Meet in person with your potential funding partners. Not only will this help build trust between you, but it will also allow them to ask you questions and get more information about your business plan.

Use social media sites such as Twitter or Facebook to contact potential partners who may be interested in joining your syndicate. You can also advertise on websites, especially if they’re relevant in your area of operations.

Send personalized emails or letters explaining what your syndicate offers and how it works. Make sure that this information is clear and easy to digest so that people can decide whether or not they want to join you quickly.

Final Thoughts

For first-time investors, this is an excellent strategy for diversifying your portfolio.

For those with experience under their belts, Real Estate Syndication can provide some much-needed capital to get projects up and running.

While risks are still involved, the benefits far outweigh the potential downside—and any experienced investor will tell you that nothing in life is risk-free.

So if it’s time to raise more money for your investments, consider it an option to add to the list of funding strategies at your disposal.