But because this is a comparably new method of investing in real estate, investors have lots of questions about syndication and how it works.
In this article, the syndication experts at Gatsby Investment are answering all your real estate syndication FAQs! Let’s start with the basics.
What is real estate syndication?
Real estate syndication is a way for multiple investors to pool their funds to invest in unique properties and projects that would be difficult for one investor to finance and manage alone. This includes projects like multi-family developments and multi-family rentals. With so many investors appreciating this passive investment approach, some syndication companies are offering smaller projects with faster returns, such as single-family house flips.
Unlike standard real estate crowdfunding, syndication deals offer equity investments. Investors become limited partners in the entity that owns the project, giving them an ownership stake in the underlying real estate and entitling them to a share in the project’s returns.
How does a real estate syndicate work?
A syndicate is typically organized by a sponsor or syndicator who identifies the investment opportunity, organizes the deal, manages the property, and coordinates the day-to-day operations. Investors contribute capital for the equity in the property and share in the profits according to their investment share.
What are the benefits of investing in a real estate syndicate?
Benefits of syndication include:
Access to unique investment opportunities. The syndication company finds deals with strong potential and makes these deals available to the public.
Low investment minimums. By pooling funds, investors can buy into a deal with much less than would be needed to finance the project alone.
Flexibility. You can choose from different project types with different timelines and investment minimums.
Easy investing. Investing in syndication is as easy as choosing from the available pre-vetted deals and wiring your investment funds.
Professional project management. Each deal is expertly managed from start to finish, providing passive returnsto investors.
Mitigated risk. Spreading the funding requirements across multiple investors reduces the financial risk for each investor.
Opportunities for diversification. Syndication can be a simple way to diversify a traditional securities portfolio with real estate holdings.
Tax benefits. Because syndication offers an equity stake in the property, each investor is entitled to the tax benefits of real estate ownership.
Potential for higher returns. Syndication firms have industry relationships and systems in place to reduce expenses and increase return potential.
What are the risks of real estate syndication?
Potential downsides of syndication include:
Lack of direct control. As limited partners, investors do not have direct control over the project. Instead, they rely on the expertise of the syndication sponsor.
Limited exit strategies. Syndication investments typically require investors to commit to the project through conclusion (or until a pre-determined exit window).
Market volatility. As with any real estate investment, changing market conditions can affect return potential. In some cases, conditions may turn favorable, providing higher returns than projected, but there is also a risk of a temporary market decline, which could negatively impact returns.
What is the role of a sponsor in syndication?
The sponsor is responsible for every detail of each syndication project. This includes:
Scouting deals
Analyzing opportunities
Marketing projects to investors and collecting funds
Securing any additional financing (like mortgage loans or construction loans)
Forming ownership LLCs
Facilitating acquisitions
Supervising construction
Managing day-to-day operations of the property
Handing investor relations
Preparing tax forms
Selling the property
Disbursing funds back to the investors
Can anyone invest in a real estate syndicate?
The SEC (Securities and Exchange Commission) generally only allows investment companies to offer syndication opportunities to accredited investors. To qualify as an accredited investor, you must meet one of the following criteria:
$200,000 or more in gross income as an individual, each year, for the past two years. And you expect this level of income to continue.
Combined gross income of $300,000 or more with your spouse, each year, for the past two years. And you expect this level of income to continue.
A net worth of $1 million or more, excluding the value of your primary residence.
At least $5 million in assets as a business. Or all equity owners in the business qualify as accredited investors.
What is the minimum investment for a real estate syndicate?
Minimum investment amounts depend on factors like the scope of the project and the number of investors that will be accepted. The typical minimum investment range is $10,000 - $20,000 for a single-family home and $25,000 - $100,000 for a multi-family project.
How long is the investment period for a real estate syndicate?
The investment period can vary widely by project. Generally, quick fix-and-flips can take 6-18 months while new developments may take 12-24 months. A long-term rental investment is often offered in increments of 5-10 years.
What are the tax implications of investing in a real estate syndicate?
Investors in real estate syndications can benefit from tax deductions like depreciation, mortgage interest, and other operating expenses which can offset income. However, individual tax circumstances can vary, so it's important to consult with a tax advisor before making a decision based on tax implications.
What happens if a property underperforms?
A good sponsor will do everything in their power to make sure the project if profitable. Especially since many syndication sponsors only get paid from the project’s returns. In the unlikely event of an underperforming property, the sponsor might reposition or refinance the property to prevent selling the property at a loss.
What kind of due diligence should I perform before investing in a syndication deal?
Before investing, consider the following:
The property’s financial projections
The investment terms
The overall market conditions
The track record of the sponsor
How do I invest in a syndication opportunity?
Investing in a real estate syndication project is easy with Gatsby Investment. You can invest online in just a few simple steps:
Sign up for free. With a few details, you can create a free account in under 2 minutes.
Get verified as an accredited investor. An impartial third party will review the financial docs and information you submit to confirm that you qualify as an accredited investor to participate in syndication investments.
Choose your project(s). Choose one of our open syndication investment opportunities or spread your investment funds across multiple projects for automatic diversification.
Wire your funds. Send in your investment funds to secure your place in the opportunity.
Track your investment and collect your earnings. You can watch the progress of your project(s) through our online dashboard. We’ll keep you up to date every step of the way and disburse payments back to investors when the project is completed.
Don’t miss out on the impressive benefits offered by syndication. Invest in real estate syndication with Gatsby today!
Welcome to the Gatsby AI assistant. I am here to answer your questions about investing, our investment products or other helpful information about our company.
