Real estate syndications are simply compromised or contractual partnerships that are set up to purchase the shares of a real estate asset.
The partnership can be from a collaboration of a few people to a massive board of hundreds.
Depending on the structure of operations and the number of investors, a real estate syndicate can take any of the following formats.
- REITs
- LLCs
- LPs
There are other options but these three are the basic formats and the most popular ones.
Now the summary part is done. Let’s get into the benefits for syndicators of Real Estate Syndication.
Advantages for the syndicators
1. You can use “Other People’s Money” (OPM)
The first and most important advantage of real estate syndication is you, a syndicator, can use Other People’s Money and make a living out of it.
Managing the fund to purchase, renovate or redecorate an asset is one of the hardest parts. And the real estate market doesn’t work without money. So, if you don’t have the capital to invest, there is no way you can accomplish amazing ideas and plans.
But when you become a syndicator, you get to invest on properties with other’s money. The reason why it is important is the fact that you are not risking too much. It’s your money plus other’s money plus your strategy.
2. You can go “Big”
If you want to get involved in real estate with little to no money, chances are you won’t have a good start. Even if you get a good deal, the profit won’t make a great contribution to your net worth because small time investments on small assets are not the best money-maker.
But when you act as a syndicator, you will have OPM and the total capital will be 10-50 times or even more than you had. Now, instead of single apartments, you can invest in multistoried complexes.
3. You’ll have the steering
Even though the investors have their capital at stake, you will be the person-in-charge to maintain and manage everything including how things work between you and the investors, which properties to invest in, changing terms with the investors, and everything related to the syndication.
Yes, they will have their say on the decision. But you will have a superiority in addressing any situation or making any important decision.
4. Multiple sources of profits
Being the syndicator, you will have at least three major sources of profit.
- Acquisition Fees
- Asset Management Fees
- Equity participation
The acquisition fee is the small percentage or the flat fee that you get for finding the deal, structuring it, and acquiring the deal.
Asset management fees include the percentage or the amount you get for managing the asset to overseeing the people who are managing it. And lastly, you get the equity participation profits. The percentage could be from 5% to 50% or even more. It depends on what you and your investors agree on.
