It is a widely known fact that the real estate sector is one of the most beneficial avenues for generating income and building your wealth.
When it comes to investing in real estate, there are common misconceptions that to get involved as a real estate investor means, actively owning and managing real estate properties. Many investors fail to realize the opportunity they have to get involved in lucrative and cash-flowing real estate deals, passively by partnering with a real estate syndication company!
Real estate syndication companies are expert investors in the industry who work to find and operate lucrative investment opportunities on behalf of passive investors.
By partnering with a real estate syndication company, investors can take advantage of the many benefits real estate has to offer (appreciation, tax advantages, cash flow, etc.) without taking on the stress and hassle of managing real estate properties.
In this post, we will walk through the real estate syndication process, and what it would look like to partner up with a real syndication company on your next investment!
What are Real estate Syndication Companies?
The word syndication means a partnership, so real estate syndication companies are composed of real estate syndicator(s) who partner up with investors to buy large commercial real estate transactions.
Real estate syndication companies are responsible for finding and underwriting real estate investment opportunities, raising equity for the property, and making sure the property is run profitably for investors upon close.
The Benefits of Investing in a Real Estate Syndication?
Instead of buying just one property individually with your own limited resources, by passively investing in a real estate syndication you can get access to great real estate opportunities and are able to utilize the combined skills, expertise, knowledge, and network of your real estate syndication company to ensure a successful investment.
Another benefit to investing in a real estate syndication is the fact that it is completely passive. Instead of spending hours working with the property management team, managing tenants, handling maintenance requests, you have a dedicated team managing the day-to-day operations and working to execute the business plan.
What returns can you expect from a real estate syndication company?
Below are the overall industry average returns on real estate syndication offerings.
Average annualized return: 15+%
Internal rate of return: 10-15%
Cash on cash: 7-12%
Total Return: 100% return in 5 years
Preferred Returns: 6-10%
Returns on real estate syndications are will be dependent on the type of business strategy, the market, and the asset class (apartments, self-storage, new development, etc), you are looking to invest in.
With that being said, before researching a real estate syndication company to partner with, it’s important to outline your investment criteria and get an idea of the deals you would be interested in. That way you partner with a syndication company that aligns with the type of offerings you are interested in investing in.
How To Find Real Estate Syndication Companies
If you are interested in investing in a real estate syndication, the most crucial decision an investor makes is selecting a trustworthy, capable, and professional real estate syndication company.
Find a real estate syndication company that you like, know and trust is, unfortunately, not a straightforward task.
To help you along your journey we put together a list that will help you in your process of finding real estate syndication companies.
- The best way is to find real estate syndication companies is to network with others in the real estate syndication space. Joining real estate networking groups on Facebook and meetup.com will allow you to connect with other real estate syndicators and passive investors to get a gauge of which syndication companies are offering real estate opportunities that you would be interested in. This will allow you to connect with passive investors to help identify trustworthy real estate syndication companies in the industry.
- Another time-consuming but result-oriented way to look for the best real estate syndication companies is to look in public records such as costar. From these listings, you can look at who owns properties that are similar to those you are interested to invest in. Make sure to disregard the properties owned by individuals because obviously, those aren’t real estate syndication companies. Properties owned by real estate syndicators are the ones owned by obscure LLC names that might be 2 or 3 letters followed by the property name. Once you have a well-researched list of the companies, the next step is to look at the owner’s address on Google to source information and vet the real estate syndication company.
- Real estate conferences are a great way for you to network and build relationships with other investors in the
How to Vet a Real Estate Syndication Company
Choosing who you invest with is the most important decision you can make as a passive real estate investor. Please look at a few quality control questions below that will help you properly vet your real estate syndication company.
Questions you should be asking your real estate syndication company:
- What is your background in the industry? How many years of experience do you have underwriting and operating deals?
- What type of deals do you have experience with? How many have gone full-cycle?
- What have been the investor returns on your previous syndications?
- Have any of your real estate syndications underperformed? If so, why?
- Who’s on your team to ensure this deal is successful (legal, property management, asset management, financing, construction, etc.).
- What is your business plan for the syndication, and has this been implemented in your prior deals (repurpose, value add, etc.)?
- Can you provide referrals of investors that have participated in your previous deals?
Only after you have researched the background and experience of a particular real estate syndication company, it’s time to examine their real estate offerings.
When examining a potentially good deal, here are some of the aspects that you should dig into in the offering memorandum:
- Real Estate Syndication Structure: There are different types of splits when returning profits to investors. As an investor, it’s important to take a look at exactly how profit returns are being paid out. To learn more about how real estate syndications are structured, access our full guide here- real estate syndication structures
- Fees, Charges & Taxes: It is crucial to study in detail any and every expense at all stages of the investment (joining, development, selling, etc.) – All fees, deducted at any point in the future, should be explicitly conveyed before the signing of the deal. Typical fees in real estate syndication companies include the Acquisition fees (which range between 1% and 5% depending upon the size of the project), Asset Management fees (1% to 5% of the monthly income), and Loan Guarantor fee, etc. For a complete guide on fee’s that occur in real estate syndications check out our article here – Real Estate Syndication Fees
When examining offerings from real estate syndication companies, it’s important to have an idea of some red flags that you should look out for as an investor. To make it easy we put together a list of warning signs you should look out for below.
Warning Signs on Real Estate Syndication Offerings
- Decreasing population growth
- Low absorption rates
- Decreasing rental growth
- Comps are not near the subject property
- No disclosed distribution split details
- No GP fee disclosure
- There should never be a guarantee of returns in real estate investing
- No set aside reserves budgeted
- Unrealistic + aggressive revenue growth (natural revenue growth of 2% to 3% )
- Exit cap rate should not be equal to or less than the in-place cap rate
Good real estate syndication companies always keep the interests of their investors/partners ahead of everything else.
Investing in apartments and multi-family real estate properties is one of the lucrative investment opportunity out there.
Finding the most appropriate avenue for your investment in real estate syndications is a job that requires full focus, detailed knowledge, and good connections in the industry. But once you have found a good syndication company, consider yourself set for, earning attractive returns on your capital!