Looking to diversify your portfolio beyond stocks? Explore the world of real estate syndications for higher returns. Our guide walks you through finding the right deals to meet your investment goals, from understanding syndication basics to effective investment strategies. Invest with confidence and maximize your passive income potential today.
Table of Contents
Investing in real estate syndications can be an attractive and lucrative way to diversify your portfolio beyond the stock market, and access higher returns in private.
However, due to regulation and established networks finding syndication deals can be tough, and even when they are found - each requires careful research and due diligence.
In this guide, we will walk you through the steps to find real estate syndication deals that suit your investment goals.
Before we delve into the specifics of finding syndication deals, let's start by understanding what a real estate syndication is.
A real estate syndication involves the pooling capital from multiple investors to invest in larger-scale, normally higher-quality real estate projects such as apartment complexes, office buildings, or industrial properties.
Syndications are led by a General Partner (often referred to as a Sponsor, Operator, or GP) who leads the investment and Limited Partners who contribute capital only. These Limited Partner investors receive a share of the rental income and profits generated from the property.
If you want to know more about the structure of real estate syndications, read our full blog post on what is a real estate syndication.
For passive investors, investing in a real estate syndication offers several advantages:
Now that you understand the basics, let's explore how to find real estate syndication deals:
Before you start searching for syndication opportunities, it's important to define your investment goals and what you’re actually looking for.
Consider factors such as your risk tolerance, desired returns, and investment timeline. Knowing what you want will help you narrow down your options.
Here is a simple framework you could use:
The end result might be something like - I’m looking to invest $100,000 into four different investments in a mix of Core Plus and Value Add investments.
Once you have clarity of your syndication investment goals, you’ll be much better placed to understand which investment managers will be a good fit for your goals.
A real estate is a local game, but thankfully real estate investing is not.
While your local market can be more comfortable to you given proximity - one of the best parts of real estate syndications is being a passive investor - meaning you can invest anywhere.
Most modern private equity real estate companies (i.e. the General Partners leading the syndications) have websites where they will outline their strategy and expertise. By searching markets you’re interested in, such as ‘Phoenix Multifamily Investing’ you will be served with dozens of results for companies that are looking to attract investors like you.
Secondly and largely since regulatory changes in 2012 that made raising capital from the public easier, there are many online platforms that specialize in connecting investors with syndication deals.
These platforms often offer detailed information, including property details, financial projections, and investment minimums, and make money by helping private equity real estate companies access a broader pool of investors.
When you come across a potential syndication deal, conduct thorough research on the opportunity ensuring you understand the market, operator, and underlying investment.
There are many things to look at - but the most important factor is who you are investing with.
A syndicator's track record is a crucial factor in assessing the viability of a syndication deal. Research their past projects and performance. Have they delivered on their promises to investors? A strong track record is a sign of a reliable syndicator.
On the property level, review the property's location, financial projections, and the track record of the syndicator. Pay attention to factors such as vacancy rates, rental income history, and any potential risks associated with the investment.
Before committing your capital, perform due diligence on the syndication deal. This includes reviewing legal documents, such as the private placement memorandum (PPM), operating agreement, and subscription agreement. Seek legal and financial advice if needed to ensure you fully understand the terms and risks involved.
In a real estate syndication, the typical investment strategy involves exiting the investment after a few years to maximize returns and allow syndicators to earn their ‘promote’ or performance fees.
Unlike buy-and-hold strategies, these syndication deals often focus on a shorter three to seven-year horizon, driven by the concept of the "velocity of money."
The velocity of money in a real estate syndication is akin to a well-choreographed dance. It's the concept that your invested capital is not meant to sit idle for extended periods. Instead, it's deployed strategically, continuously moving to create and multiply value where there is an attractive opportunity.
For example, a multifamily investment may focus on acquiring the property, completing renovations, and increasing the quality of the rent roll (tenants and rents). The rationale behind this lies in the pursuit of outperformance by ‘adding-vale’. There is simply not a lot of value to add by buying something that's already performing strongly.
That's what real estate syndications generally focus on; actively creating value to generate higher returns. By diligently executing their business plan over three to seven years, syndicators aim to unlock the full potential of the property, enhancing its value and income-producing capabilities.
Once the value has been captured, it's time to sell and go invest in something else that has more opportunity. The exit strategy is based on assumptions like business plan execution, property appreciation, and financing structure.
In real estate syndication, returns typically come from a mix of income and capital gains over time. Syndication deals offer unique tax advantages, but understanding these is essential.
Real estate syndication can provide tax advantages, including depreciation deductions and pass-through tax treatment. However, these benefits can be complex and vary based on factors like property type and syndication structure.
The legal structure of your investments can significantly impact your tax liability and that of other syndication investors. Seek professional advice to optimize your tax position and make informed decisions.
Realize that tax implications can affect not only your syndication investment but also your overall portfolio. Consider how these implications align with your broader financial strategy.
Consult an accountant or tax advisor to ensure you leverage the tax advantages of real estate syndication wisely while aligning with your financial goals.
Finding real estate syndication deals requires a combination of networking, research, and due diligence.
By identifying your investment goals, building a strong network, and carefully evaluating opportunities, you can increase your chances of finding profitable syndication deals. Remember to work with reputable syndicators and seek professional advice when necessary.
With the right approach, real estate syndication can be a valuable addition to your investment portfolio.