Interested in maximizing your wealth? Let’s take a look at the powerful wealth creation vehicle- real estate syndication.
In this article, we will walk you through the types of real estate syndication structures you will see, provide you insight on how you can analyze and vet real estate syndication companies, and give you a guideline into the returns you can expect when investing in a real estate syndication!
What is a Real Estate Syndication?
So what exactly is a real estate syndication? Put simply, the word syndicate refers to a group of people or companies working together to achieve a mutually beneficial goal.
In terms of real estate, when various investors pool their resources to purchase a particular property, this is referred to as a Real Estate Syndication!
In summary, Real estate syndications is a business where investors pool their money in order to make a profit
When you are alone, there is a limit of capabilities, resources, and opportunities.
But when a few of these individuals get together, the cumulative effect of their combined power becomes powerful. As the number of partners or investors keeps growing, even the seemingly impossible tasks seem conveniently achievable!
Imagine for a moment that being a real estate investor, you own a single-family rental property that can generate a limited capacity of income for you.
As you examine the market, you encounter a lucrative opportunity to buy an apartment that can generate four times the amount of returns you are already earning but is also four times as expensive.
Unfortunately, you do not currently possess the capital to secure the opportunity and thus, would lose the chance of increasing your returns.
On the other hand, if you have a trusted connection with a real estate syndication company, you (along with other investors) can combine your resources to acquire the apartment complex.
This way, you can end up earning two-times more for the same investment, along with a reduction of stress and hassle of tenant management. Not to mention the best part, that your risk has also reduced by half!
Let’s get into how this works.
How to Get Started?
If you are already investing in real estate or have started thinking about it, you are on the right path.
You only need to imagine the countless possibilities that may open for you if you allow yourself to be immersed in a pool of other like-minded investors, thus securing better dividends and achieving more security for your investment.
Although there are many types of real estate syndication to choose from research and statistics reflect that the most popular option is to aim towards is apartments and multifamily properties.
Top real estate syndicators consider this asset class one of the most lucrative and stable investment opportunities available.
When beginning to get involved in real estate investments, you have at least two distinct options: Active Investing & Passive Investing.
As the name suggests, in Active Investing, you get the responsibility to make decisions directly regarding which property you want to choose.
Not only this but, as an active investor, you have control over how and when you want to make money from the property.
With this additional burden of managing everything, you also get the chance of making more profit, given that all goes well and according to plan.
Passive Investing, however, relieves you from all these headaches, so you can conveniently invest under the guidance of a real estate syndicator, commonly referred to as the Sponsor.
This Sponsor manages everything while you kick back, relax, and enjoy the dividends.
Passive investing is like investing in mutual funds, but with much higher returns and cash flow. The real estate syndicator company is responsible for keeping the deal lucrative for the deals passive investors.
As a passive investor in real estate syndications, your role is to complete due diligence on the investment and collect your returns.
Being a passive investor you can ask for any financial statements, dividend records, etc throughout the course of the real estate syndication.
The points described in the rest of the article below will help provide direction on how you can get started investing in a real estate syndication.
How to Find Real Estate Syndication Companies?
The best way of finding suitable deals/offers when looking to invest as a part of a real estate syndication is to increase your network with other successful investors in the real estate industry.
Most Americans are unaware of the incredibly lucrative opportunity real estate syndications offer to investors. Its because many real estate syndications are exclusive investment opportunities only offered to a select number of investors.
As a new investor, you must understand that to get aboard this lucrative investment vehicle, you need to build relationships.
Attending popular real estate networking meetups and conferences can enhance the potential of meeting big real estate syndication companies.
In 2021, where virtual meetings, online conferences, and webinars are more popular, this new normal has also provided a much more comfortable option for investors and syndicators to connect and interact with each other.
Some of the best online options available for networking with real estate syndication companies are:
- Facebook groups
- LinkedIn Groups
- Meetup.com
- Nationalreia.org
- MultifamilyMasters.com
- Biggerpockets.com
- ConnectedInvestors.com
- Mfinvestornetwork.com
The forums mentioned above will serve as a way for you to plugin to the industry and meet other active and passive investors as well as find real estate syndication companies.
Another huge tool, as a new investor in real estate syndications, is to learn from others. Set-up meetings with reliable people and stay sharp in the follow-ups to strengthen mutually beneficial relationships.
How can you know which real estate syndication company you can trust?
Let us walk through how you can vet real estate syndication companies in the section below.
Vetting Real Estate Syndication Companies
Trust is the essential foundation upon which every business transaction depends. Therefore, you must choose real estate syndication companies that you completely trust.
It is the most significant step that any investor takes and hence requires utmost due diligence and deliberation. Who you invest with is everything, because your real estate syndication company is directly responsible for the performance of your capital.
There are a few recommended points that are essential in the process of vetting real estate syndication companies:
- Gather information regarding the track record or portfolio of the real estate syndicator(s), like experience (in terms of years), the number of deals (in total and in the last year), and the results of all of them. Ask the real estate syndication company about their best and worst deals. It will help you gain insight into the level of authenticity and experience of a real estate syndication team.
- One of the best ways to vet a real estate syndication company is to ask for feedback from their current investors. Passive investors that have already partnered with the real estate syndication company will speak volumes on how the syndication team operates. Seeking feedback directly or indirectly from their current partners will allow you to build confidence and trust with the firm.
- Although implied, a suitable real estate syndication company would not have any negative publicity in the multifamily real estate industry. Hence, any foreclosures or missed mortgage payments, or lawsuits should be a red flag for a passive investor.
Analyzing Returns & Offerings
After shortlisting the list of real estate syndicator(s), inspect all offers with insight, the deals they are offering, and make necessary calculations to understand all aspects of the deal and the offering documents.
As a passive investor, it can get confusing when numbers are hitting you from all directions. When examining an investment offering, it is imperative to ask questions to your real estate syndication team, as well as experienced passive investors.
As a frame of reference, take a look at our multifamily underwriting guidelines below to understand how to analyze real estate syndication returns!
Real Estate Syndication Returns
- The internal rate of return should be risk-adjusted, 13% or greater
- The average annualized return should be 15% or greater
- The reversion cap rate should be greater than the market cap rate
- Cash on cash should be 8% or greater
- Price per door divided by the purchase price should be close to 1% or greater
Along with returns of the real estate syndication, as a passive investor one needs to understand the real estate syndications Equity Split. An Equity Split will show investors exactly who will get what amount in all circumstances of the syndication.
Lastly, make sure that all kinds of fees are explicitly mentioned and weighed, and accounted for (including Asset Management Fee, Acquisition Fee, Loan Guarantee Fee, Refinancing Fee, Disposition Fee, etc.).
Once you have performed your due diligence, analyzed the returns, and checked the offering from all angles, it’s time to get started in the investment process!
Real Estate Syndication Investment Process
Though every single sponsor may have a different real estate syndication process for investment offerings, as an example to understand things better, 5 simple steps carried out by Disrupt Equity (a leading real estate syndicate company based in Houston) are enumerated below:
- Be notified of the offering, watch the investor webinar and get information about the deal
- Ask questions and understand the terms of the investment
- Complete the ppm and operating agreement of the offering
- Wire your funds
- Receive distributions and investor updates
For more information on investor frequently asked questions visit: https://www.disruptequity.com/invest/
Wrapping Up!
At least 3 out of 10 new billionaires in the world are coming out of this type of real estate syndication. It is potentially the safest money-making machine that a real estate investor could ask for!
More importantly, when you focus on multifamily properties, their demand and revenue generation capability are stronger than any other type of real estate syndication.
So, if you are a serious real estate investor looking for lucrative returns, then you should look no further than multifamily real estate syndications.
At Disrupt Equity, a real estate syndication firm here in Houston, it is our goal is to educate our friends about the lucrative opportunity that real estate syndications offer to those looking to jump into real estate investing and earn strong passive income.
For more information regarding multifamily real estate investing, feel free to watch our educational content, or reach out to us at team@disruptequity.com for any questions