Real estate syndication is no longer the elusive and lucrative private collaboration between the ultra-rich that it once was. It has now become an attainable collaboration between regular people who want to become ultra-rich.
But don’t be fooled into thinking you’ve stumbled upon an easy process. With high stakes at play, the game demands palpable responsibility. This guide will show you how to syndicate real estate deals and tap into higher earning potential the smart way.
Before we begin, let me tell you the easy way to start investing.
By the end of this article you will have a good understanding of the scope of work involved in syndicating a real estate deal.
For those who possess the competency and experience to manage a high-end deal, but not the funds, forming a syndication and partnering with investors can be the Ace of Spades to achieving financial freedom.
But that doesn’t mean it’s an easy job.
Forming syndications can be riddled with potential issues to work through in every step of the process.
If your investor team is not a carefully hand-selected group of trustworthy individuals, the entire syndicate may be compromised down the line. It’s not hard to find honest partners, but you need to be aware of who is out there.
If you have any doubts about your competencies, or you’re not committed to following through with the project in the face of a few rough challenges, our advice is to search for an alternative way to get involved with syndication.
Syndicating with Holdfolio’s crowdfunding platform gives you the same high-returns with none of the responsibility that comes from running your own venture
From finding exclusive investment properties, to vetting all potential investors in the syndicate, and taking care of the day-to-day management of the property – Holdfolio takes care of everything so that you don’t have to.
Simply choose your investment, deposit your stake, and then sit back and enjoy your newest revenue stream.
Investing with Holdfolio is a safe and smart choice thanks to their ‘winning together’ policy.
Holdfolio is so confident their crowdfunding listings will be a financial success, they purchase a stake in every property. Meaning that your interests are aligned and you can trust Holdfolio to make the right choices to improve your ROI throughout the partnership.
Not only do you get healthy returns on your passive investment – currently around 19% – you gain a more in-depth understanding of syndication from the front line.
Many of Holdfolio’s investors hold accredited status, but the portal is also open to non-accredited people who can join up with as little as $20k.
To grow your wealth with decreased risk and increased returns, partner with Holdfolio today.
Investing Made Accessible
Syndication through crowdfunding brings deals that would be otherwise unattainable to individual investors within the syndicate’s financial horizons, through the power of collective resources.
Let’s compare an individual’s project scope during an investment’s lifespan, versus the work involved in collaboration.
Independent investors must first conduct research to locate a slice of real estate within their financial means. They produce all the funds upfront, renovate and maintain the property themselves (or at least foot the bill for it), and exert time and energy on the day-to-day operational tasks.
When it comes time to exit, the individual sells the property for profit, based on appreciation minus operative costs.
When growing an investment as a team, the compounding financial and intellectual benefits are greater than the sum of their individual parts.
The sponsor delivering the project and each investing partner can take advantage of scalable, more profitable assets which bring two immediate financial benefits:
- greater monthly cash flow dividends
- a higher resale profit margin
How about the advantages of shared intellectual resources?
When parties bring an array of knowledge, skills, networks, and experience to a joint venture, they each input their best offerings to ensure the project is as effective, streamlined, and profitable as possible.
The pooled intellectual resources of a syndicate guides the investment strategy, and can significantly affect the outcome for all partners at the end of the investment term.
Any investor will confirm that experiential wisdom is as much an asset to your business as the asset itself.
Let’s Syndicate Real Estate Deals
It’s clear to see why people get involved with syndication. The road to achieving success is a steep learning curve even for those who have done it before, and the benefits are worth it if you can pull it off.
Let’s take a look at what it takes to be a real estate syndicator, and learn how to approach the path in bite-sized steps.
Use this guide as an opportunity to explore whether you have the competency and expertise to handle the job of a real estate syndicator – if you do, it could be a big win for you.
1. Research and More Research
Syndicators need to constantly and effectively learn and adapt their game to provide the best outcomes for the syndicate.
We can’t stress this enough: as you learn how to syndicate a real estate deal, keep upskilling.
A passive investor has one role: providing cash upfront for a solicited deal in syndication.
Sponsors, on the other hand, shoulder the burden of hunting for the right deal, relying on their network, inbound and outbound lead generation, as well as experience in due diligence. Then when the right deal comes up, sponsors crowdfund with limited partners to provide the required capital for the purchase.
Here are a few points about the research phase:
The Securities and Exchange Commission (SEC) will mandate you form a syndicate when piecing together a deal with passive investors. This is because investors trust you to manage the fund in the same way as they would trust a fund manager when investing in a publicly-traded stock.
Under certain conditions, ‘Regulation D’ provides exemptions from the costly and timely process of filing a ‘Registration statement,’ allowing issuers to raise money from accredited investors, and in rare cases, non-accredited investors.
To provide partners with reassurance, syndications require a government-regulated Private Placement Memorandum. This is how the agreement is set up, as well as the returns and risks involved.
It’s best to hire a syndication attorney to protect assets and limited partners from litigious sharks, and to establish the agreement within a legal framework.
Syndication lawyers can cost between $450-$1000 per hour, so buckle up and tap your network.
Always seek advice from a professional when investing money and taking part in a syndicate. A good place to start is with Holdfolio. They offer investors and newbie sponsors invaluable guidance throughout the journey.
Now you’ve polished up your knowledge of syndication, how do you know who makes a worthy and legitimate partner?
Sponsors need to become effective at building a network of pure, passive accredited investors, and learn to get around other people. It’s time to start building your investor team.
2. Create your Investor Team
Sponsors use mature and well-developed networking skills to their advantage when forming syndicates.
Mutually trusting and beneficial connections built throughout a career, or through various life paths can yield great limited partners, lawyers, accountants, property management, and friends to pool together to ensure the venture’s success.
Ideally, relationships that foster trust between individuals would be at the forefront of joint proposals like real estate syndication, mainly because of the liability a sponsor holds towards their passive investors.
Look out for truthfulness, good business sense, and proficiency in potential partners.
Find people you can meet with at least quarterly for updates. With a rise in virtual meeting channels available, it shouldn’t be considered a roadblock if partners are not in close physical proximity.
To build a network of like-minded and experienced investors, professional networking sites such as LinkedIn are great resources to source skills, networks, and the capital you seek.
Another practical option is a website called Meetup, designed to organize local gatherings fx interested in undertaking similar projects. By embracing these tools, sponsors can also watch out for meetings in their area that add value to their business dealings.
Bark is a great website to link professionals with people who require their services. This can stimulate your inbound and outbound network to connect you with the right people.
The most powerful platforms yet are undoubtedly online crowdfunding communities like Holdfolio. They are uniquely created for passive investors and sponsors alike who show an active interest in pursuing real estate syndications.
Through professional syndicators like Holdfolio, you have a far greater chance of securing accredited investors – those who are serious and are backed by the capital to make the project a success.
For first-time sponsors, it’s advised to partner with experienced investors who can provide mentorship and offer their expertise as you make your own way as a syndicator.
When assembling a team, consider which skill sets, proficiencies, and networks are going to complement those that you offer. Use these to align interests toward the syndication deal and shape a tight strategy outline.
3. Locate and Analyze Properties
Once a healthy team with synergetic qualities has been assembled, and a preferred investment strategy has been identified for consideration, the sponsor will scour deals until they have found “the one.”
The nucleus of this stage is property location and analysis.
Depending on state laws, accessibility requirements (most likely gauged by whether the sponsor will undertake operational responsibilities, or whether the syndicate has voted to outsource), you may search for in-state or out-of-state opportunities.
The important components of location searches include the following:
- local employment rates
- population growth
- location desirability (proximity to education faculties, public transport, a central business district or noisy roads, as well as neighborhood crime rate, can all affect property appeal)
These factors impact occupancy during the investment term, and will often affect the resale value of an asset.
For example, in regions that encounter mass exodus, sprawled populations in the outskirts of the central business district are the first to leave. This lowers the demand and therefore the resale value of commercial real estate assets.
Similarly, because land is a finite commodity larger lots appreciate more steadily than comparable assets on a smaller plot of land.
Development plans in any given place can influence future location desirability and can be used to forecast resale projections at the end of the investment term. This should be thoroughly weighted within your strategy.
Match the deal with the syndicate’s goals and chosen investment strategy.
The flexibility available when you syndicate real estate deals means you can select a unique approach aligned with the group’s interests.
Multifamily properties are optimal for beginning commercial real estate syndications because they are less complex operations than retail or office space.
Moreover, they vary so greatly in size and scope. From the smallest duplex condominiums to multiple hundreds of units under the same roof, multifamily offers the freedom to choose what works best for the syndicate.
If the goal is to maximize return on investment (ROI) in minimal time through forced appreciation, select a deal suitable for property flipping.
Alternatively, if the goal is to hold the property long-term and enjoy passive cash flow generated, go for a primed asset so you can easily outsource the operative work to a third party.
4. Time to Manage
Sponsors have a fiduciary responsibility towards passive investors to manage the legal framework, accounting, strategy implementation, and daily duties of the project.
Large-scale property management can be a full-time job and in some cases even a career in itself!
In this role, you have the responsibility of overseeing occupancy, collecting rents, arranging maintenance and repairs, property development, handling complaints, and legal regulations and safety compliance, to name just a few.
Sponsors actively undertaking property management roles can attract a larger portion of the investment shares to compensate for the time and energy they dedicate to ensuring the syndicate’s success.
Hiring property management is more affordable with multifamily and single-family investments because the revenue yield is greater. That said, the onus of overseeing operations still lies in the hands of the sponsor, so make sure your resources and expertise are secure enough to handle the job.
All things considered, real estate syndication can offer sponsors the opportunity to enter the deal with a hands-off approach and get almost as much freedom as passive investors during the investment term.
Everything gets easier once you have a trusted and reliable property management team to handle the daily operations for you. This team could come from your network or someone in your syndicate’s network.
Holdfolio is a great example of how easy syndication can be.
They have a vertically integrated property management team to remove the hassle of daily burdens from the hands of their investors.
If the responsibility of dealing with management sounds too high-energy for you, consider a syndicate with Holdfolio. It’s a great way to learn the ropes without the risk, and experience how effective syndication works.
5. Cash Distribution
Recurring cash flow is an appealing advantage of real estate syndicate investing.
Cash flow is determined by the net operating income of the asset. This number is calculated by adding the monthly gross rental yield of the property and subtracting monthly expenses, including property management, renovations and repairs, insurance, and other levies.
The remaining value shows the revenue distributions for investors.
A passive investor will enjoy healthy cash dividends throughout the life of the project. Cash flow is derived from the investor’s preferred return in the investment, generally streaming from rental income.
Sponsors profit from the acquisition fee – around 1% of the purchase price of the asset – and can charge a property management fee if they choose to take on this responsibility rather than outsourcing.
All shareholders distribute monthly profit shares after investors have received their preferred return. The numbers are up to each syndication to agree on.
Let’s look at an example of how this may work:
- Four investors contribute $250k towards an asset valued at $1 million, with a 5% preferred return.
- The sponsor charges a 1% acquisition fee of $10k.
- Each of the five people owns 20% of the syndicate.
Assuming the building’s NOI is $80k, each investor will get a $12,500 preferred return, or $50k total.
The remaining $30k is divided five ways, so each individual receives an additional $6k.
Passive investors make $18,500 annually, and the sponsor makes $16k.
Profit from the property’s resale value also splits five ways, so if the property appreciated 30% and sold after five years at $1.3 million, each party would gain an additional $60k.
At the end of the investment lifetime, each of the passive investors walks away with $402,500.
Let’s now take a look at how this may work with Holdfolio’s Return on Investment Calculator.
If an investor was to contribute $250k through Holdfolio’s crowdfunding syndication platform, after five years their estimated investment value would be at $410k, with an annual cash flow of $32,800.
Under these circumstances, investors also enjoy entirely passive income because they don’t have to engage with any day-to-day hassles: Holdfolio takes care of the hard work.
Compare this with $250,000 invested in stocks. Even with the same appreciation rate of 30%, investors would only walk away with $325k.
It’s clear that syndicating real estate works harder on the dollar for any partner.
Learning how to syndicate a real estate deal is not a game for the fainthearted. For sponsors with the expertise, competency, and confidence to sink their teeth in, collaboration can lead to unbelievable gains and success.
For those who don’t have the skills and confidence to make it work, syndication comes with risks that should be addressed before embarking on such a pursuit.
If you’re still unsure whether you’ve got what it takes to syndicate a real estate deal, the best way to learn is to take part in a low-risk option and learn from the experts.
By becoming involved as an investor, tomorrow’s sponsors gain invaluable first-hand experience in a syndicated deal, increasing their chances of successfully pulling off these types of deals in the future.
Holdfolio has successfully delivered syndication deals for more than twenty years with a great track record, and the refined process removes the hassle and risk associated with forming syndicates.
It’s easier with Holdfolio. Simply sign into the online portal, select youvr investment asset, then choose the amount you wish to invest.
To learn more about effective syndication, partner with Holdfolio today.