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. Though most real estate investors think that to improve returns on their investments, they need to make bigger purchases single-handedly. They fail to realize their increased potential if they get involved in lucrative and cash-flowing deals through real estate syndication companies and not to mention the opportunity to build wealth through real estate passively.
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 with investors to pool their resources and get exclusive access to lucrative real estate investment opportunities. Real estate syndication companies actively leverage their personal relationships and rely on their professional experiences to unearth the most profitable opportunities and then find investors to participate and raise capital.
Average Returns from Real Estate Syndications
It has been a closely guarded secret for a long time that’s now making its way through the internet to the general population. Instead of buying just one property individually with your own limited resources, you can get access to great real estate opportunities by becoming partners in real estate syndication companies. As an investor in a real estate syndication, you are able to utilize the combined potential of skills, expertise, knowledge, and network and end up earning at least 2 or 3 times more money from the same investment.
As a real estate syndication firm focused on apartments here are the typical returns from our real estate syndication offerings:
Average annualized return: 15+%
Internal rate of return: 10-15%
Cash on cash: 7-12%
Total Return: 100% return in 5-7 years
Preferred Returns: 6-10%
The average hold period for a multifamily real estate syndication company is 5 to 7 years however when great opportunities arise to sell, projects can close fairly quickly.
Finding Real Estate Syndication Companies
Now that you know about real estate syndications, the most crucial point is selecting trustworthy, capable, and professional real estate syndication companies. Just finding any company that offers real estate syndication services is not that difficult nowadays. But searching out a successfully growing syndication that you like, know and trust is, unfortunately, not a straightforward task.
Intelligent and resourceful people who are smart enough to spot and invest in a growing real estate market want to worry less and earn more over time. If you want your money to keep making you more money, you need to look for the right partners and an overseer (real estate syndicator/sponsor) to look over the whole process. Professionally qualified real estate syndication companies give you that.
Finding the best company/deal in the real estate syndication sector is a process that involves multiple factors, including networking and building relationships.
Nowadays, the most important thing you can do is to build your network and knowledge of the real estate syndications so you can make better-informed decisions on who to invest with and what deals to invest in. We aim to enable you to find the best real estate syndication company and opportunities that are right for you!
How To Find Good Real Estate Syndication Companies
a) The best way is to find real estate syndication companies is to network with others in the real estate syndication space. Joining networking groups in the real estate industry allows you to connect with other real estate syndicators and investors to get a gauge of which syndication companies are offering real estate opportunities that you would be interested in. It will also allow you to connect with passive investors to help identify trustworthy members in the industry.
b) Due to covid-19 in-person networking has come to a halt. Joining the online forums to network with successful partners at growing real estate syndication companies is another great way to receive the inside knowledge of transactions with good dividends.
c) Being a part of mentorship programs in real estate syndication will also help you uncover booming investment opportunities and build your network within the industry. A mentorship program we recommend is multifamily masters as it pulls together multiple real estate syndicators to give you a wide range of exposure to the real estate syndication industry.
d) 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.
Vetting Real Estate Syndication Companies & Their Deals
Now, after you have found the names of various real estate syndication companies, you have to keep in mind that well-established syndication companies will have more than just words to prove their worth. Feel free to ask any such company that claims success in this field about their track record and experience. Check their numbers (how many deals, the average profit per transaction, etc.) to understand their experience. Only after you have researched the background and experience of a particular real estate syndication company, its time to examine their offerings.
When examining a potentially good deal, here are some of the notable features that you should look for:
- Equity Split: There are different types of splits when returning profits to the partners. For example, a straight split gives the same amount of dividend to every investor across the board. On the other hand, other splits, like the 80/20 split or the 70/30 split, give 80% or 70% of all profits to limited partners and 20% or 30% to sponsors/general partners of the deal.
- Preferred Return: A method of profit distribution where a certain percentage of the profits goes directly to you, the investor, is called a preferred return. Deals with this method are usually the most promising and reliable ones.
- 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.
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 the latest most and 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 your whole life, earning attractive returns on amazing deals.