In This Article

  1. What is Real Estate Syndication?
  2. How Does Real Estate Syndication Work?
  3. How Investors Profit in Syndications
  4. A Real Estate Syndication Example
  5. Is Real Estate Syndication Right for You?

Do you want to invest in real estate, but you don’t have the time or desire to find a property, deal with tenants, or rehab a house

If you don’t want to manage these aspects of real estate investing, but you still want the benefits that real estate investing offers, there are several other unique, proven and profitable forms of real estate investing.

One of these is known as real estate syndication. 

What is Real Estate Syndication?

Long before crowdfunding became a viable option for real estate investing and business startups, real estate syndication was operating under the same general premise. 

If you choose real estate syndication as your method of real estate investing, you will be pooling your money with other investors to purchase an investment property under a real estate syndication sponsor. 

Real estate syndication isn’t relegated to a single type of property. It includes investing in: 

How Does Real Estate Syndication Work?

In the world of real estate syndication, there are two roles that must be filled: the syndicator, who is often referred to as the “sponsor” of the investment, and the investor. 

The syndicator is often a company comprised of real estate investors with high level real estate experience and education.  

Because many investors don’t have the time to scout out properties, the syndicator is responsible for scouting out potential investment properties and conducting the market research. 

Investors put capital into the property to help secure the purchase and cover the monthly expenses associated with owning an investment property. 

The syndicator generally doesn’t put much capital into the real estate syndicate. Instead, they take on the role of:

  • finding the property
  • securing it through a contract 
  • may even handle the daily management responsibilities
  • keeps investors informed on property updates 

How Investors Profit in Syndications

A real estate investor who chooses to put his or her money into a syndication receives a percentage of the profits at the designated payout points, often quarterly. 

For instance, if your initial investment is equal to four of the quarterly payouts, you would begin earning a profit with the fifth payout. 

If you invest in a fix and flip property that pays out when the property sells, you will earn a percentage of the profits based on the percentage that you invested on the front end of the deal. 

Or, if it’s a rental property, an investor may receive monthly or quarterly dividends.

A Real Estate Syndication Example

To better understand how real estate syndications can be profitable, let’s look at a simple example.

Let’s assume that a syndicator presents you with an opportunity to invest in a fix and flip property. The property’s purchase price and rehab costs total $100,000. 

You don’t have the funds to purchase the entire property yourself, but you can invest 10% or $10,000. You now own 10% of the property and will be entitled to 10% of the profits.

The property soon sells for over $200,000. Assuming that once the property has sold and all closing costs, realtor fees and other expenses have been paid, the property nets $180,000. 

Since you own 10% of the property, you’re entitled to 10% of the profits which earns you $18,000. 

Once you account for the initial investment of $10,000, you profited $8,000 passively from the deal. 

Is Real Estate Syndication Right for You?

Real estate syndication has a long history of providing investors with an opportunity to earn a large profit on a relatively small investment without being actively involved in the property’s management, marketing and other expenses. 

After you complete your due diligence on the syndicator and the property and put your money into the syndicate, there is nothing that you have to do — no construction, no management, no dealing with tenants. You simply wait for the dividends to start coming in. 

If that sounds like a real estate investing strategy that you’re interested in, we recommend you explore the impressive resume of Equity Street Capital.

Also, we encourage you to grow in your real estate knowledge so that whether you’re investing through real estate syndication or a different form of real estate investing, you can minimize your risk and maximize your profits.