Invest in Syndication Real Estate

Investing in real estate syndicates as a part of alternative investments strategy

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What is the difference between syndication real estate and real estate private equity funds?

Real estate syndicators and private equity funds in the real estate sector share similar capital-raising strategies. Both pool money from private investors for real estate transactions. However, syndications have a single asset structure, and private equity funds have multiple asset fund structures. As a result, real estate private equity funds can provide investors with more protection when an asset experiences adverse conditions.

A private equity fund can use its pooled revenue to help solve problems without making a capital call to investors. Additionally, the fund’s diversification helps protect fund investors from the risks associated with a single asset. However, despite being a little riskier, syndication real estate offers higher ROI potential.

Real estate funds and syndicated real estate investors are passive in property deals. However, the roles of fund investors are more passive. In many situations, they are unaware of the assets that fund managers purchase. This limitation is why fund investors should invest with reputable, trustworthy firms like Paperfree.

How do real estate syndications work?

Syndicate real estate operations rely on syndicate members buying shares in a property at a fixed price. The syndicate members’ total share ownership represents their percentage of ownership in the deal. As such, investors can purchase an unlimited number of shares to increase their position in a real estate deal. However, the proportionate shareholding shifts with every member’s stake in each new acquisition.

The heart of real estate syndication is the real estate syndication agreement. This document is a legal contract between two or more groups agreeing to share the risks and benefits of a real estate deal. With this agreement, syndicators can initiate property deals, negotiate terms of the sale, and sell the property to multiple investors.

One party can write a real estate syndication agreement on behalf of all parties. Also, two parties can enter into a joint syndication real estate agreement. Either way, the document must clearly define the responsibilities and requirements of each party, as well as the rights and benefits they will receive.

What is a lead investor in syndicated real estate?

Syndicated real estate is the primary investment vehicle for commercial investments like shopping centers, hotels, and office buildings. In a standard real estate syndication contract, one investor typically serves as the lead investor. The lead investor is responsible for selecting the property to purchase and overseeing the investment. To support the capital base of the syndicate, the other investors purchase shares in the property proportional to their stake.

In syndicated real estate, there are general and limited partners or investors. Real estate syndications typically operate on a deal-by-deal basis, focusing on one property at a time. Since general partners are responsible for due diligence, acquisitions, negotiations, and asset operations, they typically receive a profit share ranging from 10 to 80%. The limited partners receive the remainder of the net profit, which is the sum remaining after settling all expenses, fees, and investor capital reimbursement.

How to invest in real estate syndications?

When considering investing in real estate syndications, it's essential to educate yourself on their structure and the primary compliance risks associated with them.

Define your investment goals and risk tolerance, and build a network of professionals by joining industry forums.

Determine if you're accredited or if the syndication allows non-accredited investors, and research the track record and reputation of syndicators.

Examine the offering documents and conduct thorough due diligence on the property and the syndicator. Familiarize yourself with profit distribution, fees, and the syndicator's role in the deal structure.

Seek professional advice for legal and tax implications, and once you're ready, sign documents and transfer funds as agreed. Monitor the investment's progress and commit to the long term.

Or, in the form of bullet points:

Educate Yourself.
Build a Network.
Personal Accreditation Check.
Research Syndicators
Review Documents.
Due Diligence.
Understand Deal Structure.
Legal and Tax Advice:
Commit Capital.
Monitor Investment.