Real estate syndication gives investors a chance to spend their own money on properties for which there are no other sources of funding. It has been a well-liked way to finance the purchase and selling of expensive real estate.
The world of real estate investing can be a challenging one. It takes time, patience, knowledge, and, most importantly, a lot of money to invest in real estate. Due to the high cost of investment properties, most first-time investors choose either of two strategies when considering investing: buy a fund or invest in a syndication deal.
This is an excellent method of diversifying your real estate portfolio, boosting its liquidity, and generating regular cash flow. Plus, it’s a low-cost way to invest your money. After all, private funds make investing in real estate even more difficult.
Real estate is known for its great benefits, including cash flow, tax deductions, leverage, and inflation hedges. However, what happens when a property sits vacant for an extended period of time? What if something you want to invest in is too large for your portfolio?
All these potential problems and more have been addressed with ease over the years with real estate syndications.
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Why Invest in Real Estate Syndication?
With real estate syndication, you can diversify your real estate portfolio, increase its liquidity, and generate regular cash flows. As an extra benefit, it’s also a low-cost investment.
Let’s examine more closely the six most important benefits of real estate syndication:
1. Portfolio Diversification
Syndication has the advantage of avoiding complicated legal agreements between multiple partners requiring financial and legal expertise. You can start your syndicate with as few as two investors. Last but not least, there is often little to no management fee required. Which is why it is easy to invest in it for portfolio diversification.
In real estate syndication, an agent, broker, or software manages the process, which is as follows: investors buy a property, split the equity with many other investors, and then sell it at a profit. Therefore, property syndication helps you diversify your investments across different properties, reducing your exposure to any single property only.
Additionally, there is no need for a lot of capital to get started. You can start your syndicate with as few as two syndicators. Last but not least, there is often little to no management fee required.
2. Tax Advantages
Tax-advantaged investors can take advantage of the robust real estate market by investing in real estate syndication companies. Returns on real estate syndication investments are expressed as annual percentage rates, which provides tax benefits for syndicators.
Furthermore, capital gain distributions are generally tax-free, as opposed to interest and dividend income. As with income taxes, capital gains are taxed at a lower rate. There are a variety of deductions available, including:
- Depreciation or accelerated
- Mortgage interest
- Property tax
- Operating expenses and repairs
3. Securities Exchange Liquidity and Transparency
Real estate syndication allows for greater control and predictable returns due to the separation of investment tactics and management. The real estate syndication model delivers liquidity and transparency that are not available in some private real estate funds.
A company’s audited financial statements and other required information are included here.
4. Lower Investing Minimum
It is common for private real estate funds to require investors to put down a substantial amount of cash upfront. A private real estate fund that requires $1 million of capital may be out of your reach. In general, real estate syndication fees require a smaller minimum investment amount. This is their inexpensive way to gain exposure to the real estate market.
Small amounts of money can be invested in real estate syndication, making it a more manageable venture. Investments in real estate are typically stable, so syndication makes sense for long-term investments.
5. Reduced Volatility Risk
The volatility risk associated with syndication is lower. They are long-term investments worth holding for decades. You won’t be forced to sell them in the event of a decline in property values, and you will have time to wait for the market to recover. With this strategy, you can keep your investment for extended periods without selling it at a loss.
Returns are also more predictable and tax-efficient due to the structure of the scheme. When you invest in real estate syndication, you get a share of the property income generated from the pool of similar assets. An administrator oversees the property and distributes profits to investors.
6. Operational Versatility
Several private real estate funds operate on a self-dealing basis, favoring themselves over shareholders. On the other hand, shareholders are required to be the main focus of real estate syndications. By choosing the latter strategy, you can ensure that your investment is maximized.
Participating in a Real Estate Syndication as an Investor
Real estate syndication can be an attractive investment opportunity for those seeking portfolio diversification and access to larger investment opportunities. To participate in a real estate syndication, it is important to grasp the process and requirements involved.
To participate in a real estate syndication, you must first identify a sponsor with a solid track record in managing and investing in real estate. Sponsors are accountable for locating and managing the property, assembling the investment offering, and raising capital from investors.
Once you’ve found a sponsor that you’re comfortable working with, you’ll need to review the investment offering, conduct due diligence, and decide on the amount of capital you’re comfortable investing. After investing, you’ll typically receive regular updates on the investment’s performance and returns. Overall, participating in a real estate syndication can be a lucrative investment opportunity, but it’s essential to do your due diligence and work with experienced professionals to ensure a successful investment.
Generate Solid Returns from Real Estate Syndication
Investing passively in real estate syndications is one of the best ways to build wealth for you and your family. A real estate syndication fund could be a great option for accredited investors that want a stable investment vehicle with solid returns without the hassle of going through each phase of syndication.Contact us if you are interested in learning more about real estate syndication and its potential benefits for you. Get in touch with us at firstname.lastname@example.org or call us at 949-881-7128 for a free consultation at Saint Investment Group today!
Frequently Asked Questions:
Real estate syndication is a method for investors to pool their funds and resources in order to engage in large-scale real estate ventures.
Real estate syndication reduces risk by pooling capital and sharing responsibility for the property management and investment decisions. This spreads the risk among multiple investors, reducing the potential impact of any individual investor’s mistakes or losses.
Typically, to participate in real estate syndication, you must locate a benefactor who is assembling the syndicate. The sponsor will then use the funds to purchase and manage the property.
Depreciation and tax write-offs are just two of the tax advantages associated with real estate syndication that can be used to lower taxable income and boost profits.
Yes, it is possible to invest in real estate syndication with a self-directed IRA or 401(k) account. However, you will need to work with a custodian who specializes in these types of accounts.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.