Real estate syndication has exploded in popularity over the last decade as one of the best ways to invest in real estate. So you may be hearing a lot of talk about this relatively new investment model. And you may be wondering how to invest in real estate syndication.
If you’re new to the idea of syndication, please check out our article, What is Real Estate Syndication?, for a comprehensive overview of the topic.
Otherwise, read on to learn:
- How syndication works,
- Why so many investors are choosing syndication, and
- How to invest in real estate syndication.
How Does Syndication Work?
Syndication pools capital from multiple investors to finance a specific real estate project. The project could be a quick house flip, a ground-up multi-family development, or anything in between. A syndication sponsor handles the entire project from start to finish, allowing investors to enjoy completely passive returns.
If the project is a flip or development, investors receive their initial capital plus their share of any profits when the property is sold. If the project is an ongoing rental, investors may receive disbursements of rental income on a regular basis, as well as a lump sum when the property is sold.
Real Estate Syndication vs. Crowdfunding vs. Private Equity
If you’re thinking that this sounds a lot like crowdfunding, you’re right! Real estate syndication and crowdfunding are very similar models, with just a few differences. Notably, syndication offers a more stable ownership structure than crowdfunding and is more likely to be reserved for accredited investors (investors who meet the SEC’s income, net worth, or professional experience requirements).
If you’re thinking this sounds a lot like old-school private equity investing, you’re right again! Syndication is like private equity in the way funds are raised from multiple accredited investors. But, unlike private equity, which requires an existing network of insiders with access to deals, syndication can be marketed to the public. This allows more investors to join a deal, which also reduces the minimum investment amounts.
Furthermore, private equity is typically whole-fund investing, in which investors hold a share of a portfolio with no control over which individual assets are included in the portfolio. Syndication, on the other hand, offers deal-by-deal options, allowing investors to choose the specific projects they wish to invest in.
10 Benefits of Investing in Real Estate Syndication
In our article on the pros and cons of real estate syndication, we do a deep dive into the many benefits and the few potential downsides of investing in syndication. Here is a quick recap of the advantages of syndication:
- Access to unique deals that individual investors would likely not be able to find or afford alone.
- Ease of investing, in which you can invest online in just minutes (we’ll show you how to invest in real estate syndication in the next section).
- Flexibility in choosing projects that work with your timeline and investment budget.
- Instant diversification by spreading your funds across multiple projects.
- Passive income potential from rental cash flows and/or profits from the sale of the completed property.
- Professional expertise provided by the project sponsor, which allows investors to minimize risk even with no prior real estate investing experience.
- Bulk-rate pricing for labor and materials, which only comes from partnering with a company that completes many deals each year.
- Tax benefits such as depreciation deductions, mortgage interest rate deductions, and lower capital gains tax rates.
- Competitive return potential, with high-performing syndication companies seeing average annualized returns of over 20%.
- A stable ownership structure, which allows investors to have an equity ownership stake in the underlying real estate (as opposed to debt investments, in which investors act more like lenders than owners).
And, to present a balanced picture, here’s a quick reminder of the potential downsides of real estate syndication:
- No direct control over the direction of the project.
- Limited exit strategies, as investors are typically required to commit to the duration of the project.
- Vulnerability to market shifts such as stagnating housing demand.
- Fewer tax advantages than purchasing properties on your own. For example, syndication firms are typically not equipped to handle 1031 exchanges.
- Risk of financial losses as is possible with all investment types. However, the financial risk of not investing is far worse than the risk of investing in proven real estate ventures, most notably because failing to invest means missing out on compounding returns.
How to Invest in Real Estate Syndication (in 5 Simple Steps)
Now that you know how real estate syndication works and why it’s beneficial, you’re ready to learn how to invest in real estate syndication. And you can do it in just five steps.
Step 1: Choose a Real Estate Syndication Sponsor to Invest With
The criteria for choosing a real estate syndication sponsor are the same as the considerations in choosing a crowdfunding service. Namely, you’re looking for a sponsor who provides:
- A trustworthy team.
- A proven track record.
- Full transparency.
- Solid communication.
- A clear fee structure.
- Adequate legal regulation and investor protection.
California-based Gatsby Investment demonstrably meets each of these criteria, and proudly serves over 15,000 real estate investors. Learn more about Gatsby and find out why so many investors trust Gatsby to manage their real estate investment portfolios.
Step 2: Sign Up with Your Chosen Sponsor
Signing up should be a simple online process. With Gatsby, it takes less than a minute to enter your name and contact information and confirm your email address.
Step 3: Get Verified as an Accredited Investor
Most syndication opportunities are only available to accredited investors. And most sponsors will require investors to be verified through a third-party service of the sponsor’s choosing. This is to ensure compliance with SEC regulations.
Gatsby Investment, for example, uses a service called Verify Investor. You can apply for accreditation online through the Gatsby platform once you sign up. The verification process consists of a brief application and proof of income, assets, or financial licensure (whichever you are using as the basis for your qualification). Verify Investor reviews your application and provides the results via email, typically in just one day.
Step 4: Choose Your Investment Project(s)
Once your status as an accredited investor is verified, you can review the investment opportunities offered by your chosen sponsor and select the project(s) that you wish to invest in.
A good sponsor presents pre-vetted deals, complete with timeline estimates and financial projections to help you choose the project(s) that make sense for you based on your investment goals.
Part of selecting your projects is to digitally sign the paperwork confirming your intention to invest and granting your equity share in the investment.
Step 5: Transfer Funds and Track Your Investment
When you have selected your project(s) through the online platform, you’ll receive wiring instructions so you can submit your investment funds to the sponsor.
At this point, you are officially an investor in the deal! You can kick back and monitor the progress of the project through your online dashboard. When the project is complete, the sponsor will disburse your proceeds.
Invest in Real Estate Syndication Today!
Don’t wait another day to begin enjoying the many benefits of investing in real estate syndication. Sign up with Gatsby today!
