Real estate syndication is “crowdfunding for real estate” before crowdfunding for real estate ever existed. In it’s the simplest form, both syndication and crowdfunding involve pooling capital with other individuals or investors for a common purpose or a common goal. In real estate, that common purpose is the purchase of a real property, a physical building you can see and touch.
Why do people engage in real estate syndication?
The leading reason investors participate in real estate syndication or crowdfunding for real estate is access to deal flow. Not every investor has the time to search and underwrite hundreds of properties to find a gem to acquire. There are thousands of real estate companies all over the United States who do this for a living. By getting involved through real estate syndication, investors have access to this deal flow and the ability to invest in real estate without the hassles of property management.
Who is involved with a real estate syndication?
The first factor for a real estate syndication is a “syndicator” or “sponsor”. This individual or company is in charge of acquiring, finding and managing the real estate. They have a history of real estate experience and the ability to underwrite and do due diligence on the real estate. The other party is the investors. These are the individuals who invest with the syndicator and own a percentage of the real estate as a result. They get all the benefits of property ownership, but they are not involved with acquiring the property, arranging financing (if there is a loan on the property) and doing day-to-day management. In many transactions, there is a third party, the Joint Venture (“JV”)/Equity partner. This JV partner typically has access to a large number of investors and serves as a conduit between the syndicator and the investors. In addition to help with financing, they may help the syndicator with reporting, communications and even tax documentation.