Is Real Estate Syndication the Right Investment Strategy for You?

By Michelle Clardie on 07/28/2024.

Reviewed by Josefin Gatsby

Real estate syndication has exploded in popularity over the last decade. Investors are quickly moving away from private equity deals and into syndication. So, naturally, you’re probably wondering if real estate syndication could be the right investment strategy for you.

Let’s dig a little deeper into syndication and find out if it’s a good fit for you.

What is Real Estate Syndication?

Real estate syndication is when multiple investors combine funds to purchase a property together (very much like real estate crowdfunding - there are just a few differences between the two models).

The property could be a single-family home, a multi-family development, or any other property type. The group could buy the property as a long-term rental or a short-term flix-and-flip. You could even purchase vacant land and finance the development of a new apartment building on the lot!

The project is professionally managed by a real estate sponsor. The sponsor scouts properties, handles the acquisition, manages any construction, and oversees the sale and disbursement of funds back to the investors. If the property is a rental, the sponsor will also supervise the lease-up and day-to-day operations.

Key Benefits of Real Estate Syndication

The many benefits of syndication are a big part of its appeal to investors. You get:

Access to deals with incredible potential. Sponsors often have industry connections that present unique opportunities with high return potential.

An equity ownership stake in the property. The stable legal ownership structure of syndication means you’ll be a limited partner in the entity that owns the property.

Low minimum investment amounts. By spreading the capital requirements among multiple investors, investors can buy into a deal for as little as $10,000-$25,000.

The tax benefits of real estate ownership. Depreciation, tax deductions, and capital gains tax rates are typically available to syndication investors.

Passive returns. Since the sponsor handles all the details, you get the financial gains of real estate investing without the time and energy required by traditional real estate investing.

Professional expertise. You get to leverage the knowledge, experience, and skill of your sponsor. A good sponsor can increase returns through smart decisions and efficient systems.

Deal-by-deal control. Unlike whole fund investments, where you invest in a general portfolio of properties, with syndication, you get to choose the specific properties you invest in.

How Syndication Compares to Other Real Estate Investments

Syndication is often compared to private equity. Both involve multiple investors pooling funds to purchase real estate. However, syndication has the distinct advantage of being more transparent. Syndication investors get to choose the specific deals they want to invest in and monitor the progress of the project.

Compared to direct property ownership, syndication offers several advantages. When you purchase a property on your own, you are responsible for every aspect of the investment. You have to find the right deal, negotiate favorable terms, fund the project yourself, and invest your own time and energy in managing the property. Syndication allows you to bypass the risk and hassle of direct ownership.

Syndication also compares favorably to passive real estate investments like REITs (Real Estate Investment Trusts). While REITs offer passive returns, they don’t offer deal-by-deal control, ownership stakes, or the tax benefits of ownership.

Are There Reasons Not to Invest in Real Estate Syndication?

The most common reason not to invest in syndication is that syndication is reserved for accredited investors. Accredited investors have to meet income, asset, or professional requirements. Check out the accredited investor requirements to see if you qualify.

Another reason not to invest in syndication is if you prefer complete control. With syndication, you won’t be involved in details like interior design or tenant screening. If you enjoy hands-on management, direct ownership may be a better fit for you.

And finally, the exit strategy is limited for syndication investors. You typically need to commit your funds to the project’s duration (whether it’s a one-year flip or a five-year rental holding). Most syndication sponsors can’t allow investors to cash out early.

How to Know If Real Estate Syndication is the Right Investment Strategy for You

So, is syndication the right fit for you? Here are five signs that you should be investing in real estate syndication:

You are an accredited investor.

You have enough cash available to meet the project’s minimum investment amount (typically between $10k and $25k).

You prefer to save your time and energy for other ventures rather than personally managing your real estate investments hands-on.

You’re comfortable keeping your funds in the investment for the duration of the project (typically 1-5 years, depending on the project type).

You’re looking for strong return potential with lower personal risk than other real estate investments offer.

How to Start Investing in Syndication

Are you ready to start investing in real estate syndication? All you have to do is:

Choose your sponsor. Gatsby Investment, for example, has an impressive track record of successful projects.
Sign up. Create an account online with your chosen sponsor.
Get verified as an accredited investor. You will need to complete an application to confirm your status as an accredited investor.
Choose your project(s). Explore the syndication opportunities offered by your sponsor.
Wire your funds and monitor the progress. Send in your contribution to make your investment official, and watch the project progress until it’s time to collect your proceeds!

Learn more about syndication investing with Gatsby Investment and become a real estate syndication investor today!

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