A real estate syndication is when investors pool their money together to purchase a more significant and more stable asset that they couldn’t have bought individually. 

Real estate syndications are regulated by the SEC (Securities and Exchange Commission) since they’re an investment offering. Therefore, each offering must report to and file documentation with the SEC. 

Syndications don’t only involve commercial real estate; you could syndicate Snickers bars, professional sports teams, and private jets. This article will discuss real estate syndication definition, the benefits of real estate syndication, and roles within real estate syndication.

What is Real Estate Syndication?

Real estate syndication raises capital from private individuals. It’s a productive way of pooling financial resources together from investors to invest in more significant properties than they can afford separately. 

Real estate syndication allows you to seal more deals by providing an avenue to leverage other financial resources and partnerships.

Who is a commercial real estate syndicator? A real estate syndicator is a company or person that pools capital to buy real estate for passive investors or limited partners. A syndicator first finds an investment opportunity and informs passive investors, allowing them to invest in real estate and earn passive income. 

Commercial real estate includes office buildings, marinas, mixed-use property, strip malls, and apartment buildings with five units or more. More significant properties permit investors to own profitable real estate and leverage their capital. After helping people invest money into property, a real estate syndicator earns an acquisition fee.

Benefits of Real Estate Syndication

Generally, investors invest in real estate syndication to generate passive income and build wealth. After answering the question, what is a commercial real estate syndicator? The next question that comes to mind is, what are its benefits? Here are some advantages of real estate syndication. 

1. Passive Real Estate Investing and Profit

Suppose you don’t have the knowledge, desire, or experience to find and operate a real estate syndication deal, but you desire to diversify your portfolio with commercial real estate. In that case, you can give your capital to a trusted sponsor who will do all the work. 

Although you’ll not run the daily management of the project, you’ll still profit from the value appreciation, cash flow, and asset depreciation. 

Moreso, most real estate syndicators will circulate reports to their investment group quarterly, leaving you with the task of reviewing the information. Also, cash distribution is entirely the deal’s sponsor responsibility.

2. Larger Assets and Projects

Another benefit of real estate syndication is that you’ll have access to purchase more significant assets since you pool finances with other investors. That’s, you can expand your prospective investment pool by bringing $100,000 and team up with nine more investors who will get $100,000 each to amount to $1,000,000 in buying power. 

Significant assets are often more liquid and value better than smaller properties because the buyer pool is more capitalized.

3. Less Monetary Investment From the Deal Sponsor/ Syndicator

Purchasing commercial real estate on your own makes you responsible for all pursuit costs and any equity requirement. However, as a commercial real estate syndicator, you’ll not expose yourself to these costs. 

Although you’ll pay the pursuit costs, they will be refunded to you alongside other expenses after you close the deal by the investment group. In other words, you’ll not bear the financial burden alone since the investors will contribute the cash for closing based on the deal terms and structure.

4. More Stability Due to Location and Unit Count

If you’re in the office, retail and multifamily world, larger projects mean more units, resulting in more stability. Investing in a single-family home leaves you with the option of covering all expenses on the property when your tenant moves out until you find a replacement.

But, you’ll hardly see a reduction in your income if a tenant moves out of your 200 unit apartment complex because many other tenants will still pay rent and cover other expenses. 

Also, location is vital in real estate; hence, if you purchase an area in a top, high-demand location, you’ll not struggle to have occupants as when your site is in a low-demand area.

5. Additional Real Estate Benefits

Unlike any other investment vehicle, syndication offers a range of benefits like other real estate investments. Because syndications are not active investments, except for the deal sponsor, the investors pay a lower tax rate since they are passive investors. 

Furthermore, commercial real estate experiences forced appreciation. That is, its value depends on the income you invest. Hence, if you increase the investment income, you’ll substantially increase the value.

Roles within a Real Estate Syndication

Besides getting answers to the question “what is a commercial real estate indicator”, you also need to know the roles within real estate syndication. Depending on your involvement level, there are two separate roles in a real estate syndication, and here’s the responsibility of each party:

1. The Deal Sponsor

In real estate investment, the deal sponsor or syndicator is the active party. The deal sponsor is responsible for performing all underwriting, raising capital and placing debt, searching and sourcing the investment opportunity, and operating the daily management of the asset. 

Also, the syndicator handles all tax returns, investor relations, and K1s. The deal sponsor ensures the deal comes together successfully. Since sponsors increase investor value, they receive payment for their work.

2. The Syndication Investor

In investment, investors or limited partners are the passive parties. The investor is responsible for placing capital in the deal. 

Also, they review the contract personally, accessing the deal sponsor’s ability to make the project successful and check if the project is viable. Furthermore, the investor reviews reports and financials quarterly from the syndicator.

Conclusion

Investing in commercial real estate is a profitable investment for passive investors. Commercial real estate is the best because there’s generally lower risk; managing a more significant asset creates efficiency and allows for more cash flow. 

You can safely leverage capital with high-value properties. Now, the next time you come across the question “what is a commercial real estate syndicator”, you already know what it entails and the benefits. Don’t delay your passive investment journey, start today!