Real Estate
Syndication Structure
SYNDICATE STRUCTURE
How a real estate syndication is structured
First, let’s define what a real estate syndication is. When a real estate investment company organizes a group of individual investors to purchase a property, it’s called a syndication. This type of investment is very attractive to individuals, family offices, trusts, and other investors who do not wish to be the sole owners of a large property. Syndication allows an individual investor to take a passive role in the property investment and avoid the headaches of managing the property. In exchange, each investor receives a percentage of cash flow on a quarterly basis, and a share of the profits when the property is sold.
A real estate syndication differs from a real estate investment fund: with a syndication you’re investing in a specific property; with a fund, you’re investing in the many assets of a real estate company. Besides receiving passive income, the benefit to the investor is they don’t need to be an expert in real estate investing or property management, they have limited liability, and they can invest in multiple properties.
Defining the Roles
The role of the sponsor is to find the investment property and determine if it’s a sound investment with the possibility of substantial returns. The sponsor’s day-to-day experience with property investment and management allows them to identify valuable opportunities.
To determine the viability of the investment, they may do an onsite visit, check property records, check bank statements, examine bookkeeping records of the current owners, check local zoning laws, analyze local market volatility, how the property’s occupancy rate compares to others in the market, a rent roll (list of the property’s tenants and how much rent they pay), and a number of other factors.
Document
If the sponsor decides to move forward with a syndication, they create an offering document for the property.
Acquirement
The sponsor organizes a group of investors. He also acquires the property and manages the property.
Profits
The sponsor disburse quarterly profits and sale profits to investors.
Sell Property
The sponsor also decides on the most favorable time to sell the property.
Who can invest?
By law, investing in real estate syndications is limited to:
Accredited Investors: those who have an income of at least $200,000 individually or $300,000 jointly for each of the past 2 years, or who individually or jointly have a net worth of at least $1 Million, excluding their primary residence.
Sophisticated Investors: those who have some knowledge and experience in financial and business matters and are capable of evaluating the merits and risks of an investment.