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What Is Real Estate Syndication?
Before we begin talking about the three phases of real estate syndication, let’s first cover what a real estate syndication is. At its core, a real estate syndication is similar to buying stock in a company to raise funding for the business, but with real estate. Investor risk hinges on the single investment property, but it’s possible to access much larger investment properties and assets than investing alone. Similarly, real estate syndication funds provide access to high-value properties, but investments are a slice of many properties, making them less risky.
How Do Real Estate Syndication Funds Work?
A safer way to invest in real estate syndication is through a syndication fund. Much like a mutual fund, real estate syndication funds enable investors to buy small shares of a corporation that invests in multiple properties, spreading their risk while providing more stability, diversification, and higher-quality returns.
In a one-property real estate syndication deal, multiple investors combine their capital to buy, build, or renovate a commercial property. Comparatively, real estate syndication funds like those offered by Saint Investment Group provide more robust capital preservation and lower volatility than investing in a single property because they hold many different properties.
Perhaps the biggest advantage of real estate syndication funds is that they free your time and energy by removing the work of acquiring individual properties. Funds that hold syndication real estate often include multiple commercial properties, such as offices, retail space, industrial buildings, and even student housing on college campuses, providing greater risk protection than a single syndication investment can.
So now that we’ve covered how real estate syndications and funds that hold syndications work, let’s talk about the three common phases of real estate syndication to better understand the risks and rewards involved for investors.
What Are The Three Phases Of Real Estate Syndication?
Whether you’re investing in a single real estate syndication deal or a fund with a portfolio of real estate syndications, the processes of acquiring, holding, and liquidating the properties still work the same way.
With an individual syndication deal, you may be responsible for a lot of the due diligence and operations of the property, depending on your role. While with a real estate syndication fund, you can sit back and relax while expert fund managers handle all three phases of real estate syndication.
The three phases of real estate syndication are:
The origination phase of real estate syndication deals involves constructing a cohesive plan, finding and acquiring the ideal property for the plan, marketing the property, and taking care of the legal dealings like registrations and disclosures.
In the operation phase, typically, the backer or firm (like Saint Investment Group) handles the day-to-day operations of the syndication as an entity as well as the property or properties that were acquired in the origination phase.
With the final phase, liquidation, the goal for investor’s returns is selling the property for a profit so they can move on to the next syndication deal. For buy and hold investors, it can involve generating monthly rental income and routine property management before eventually selling to move on to another investment property.
What Details Do Each Phase Of Real Estate Syndication Entail?
The origination phase of real estate syndication often lasts several months, from property identification to the closing table.
The deal sponsor can perform some or all of the following tasks in the origination phase:
- Marketing and networking to identify target assets
- Analyzing each opportunity to determine potential profits
- Negotiating a contract for the purchase
- Writing a business plan for the property
- Auditing the financial records of the property
- Performing physical property inspections
- Running a title search and addressing any hurdles to closing
- Finding real estate loans and applying for the best purchase loan
- Gathering loan guarantors when necessary
- Ordering a commercial3 real estate appraisal
- Forming the entity (LLC, corporation, etc.) that will hold the property
- Raising passive investor funds for the down payment, closing costs, and renovations
- Closing on the property
- Implementing the business plan
The operation phase entails executing the business plan, typically with the help of a professional property management company and other real estate contractors.
In the value-add stage of the syndication, the Operation phase can include:
- Addressing any deferred maintenance
- Handling any repair requirements of the lender
- Implementing renovation plans
- Rolling out any lease-up, renewal, or rent-increase plans
After the value-add stage, the Operation phase can last several years, and the focus shifts to the following types of day-to-day tasks:
- Collecting rent
- Contract negotiation
- Marketing and leasing units
- Routine maintenance
- Settling legal disputes such as evictions
- Paying property taxes and insurance
- Paying debt service bills
- Distributing revenue payments to any passive investors
- Regular reporting on the condition of the asset to passive investors
- Prepare tax documents and provide passive investors with Form K-1 for their taxes
Phase 3- The Liquidation Phase
The final phase—liquidation—entails some type of “liquidity event” that returns the initial capital to the investors. This could be the sale of the asset, but it could also be the refinancing of a loan.
In the liquidation phase, the sponsor usually performs the following tasks:
- Performing repairs or upgrades to give the property more marketing appeal
- Preparing necessary financials for buyer due diligence
- Marketing the asset, usually with the help of a broker
- Conducting prospective buyer tours
- Reviewing and considering buyer offers
- Negotiating a purchase contract with the final buyer
- Closing the deal
- Distributing shares of the proceeds to passive investors
- Preparing final tax returns and delivering Form K-1s to investors
In the event of refinancing, the operational phase might continue for several years until the property’s sale, at which time any remaining investors will get their share of the proceeds.
The benefits of real estate syndication: How the three phases can help you achieve your investment goals
For investors who want to diversify their holdings, real estate syndication offers a number of benefits, such as the chance to engage in high-end real estate projects that might not be available to private investors. Investors have a number of ways to accomplish their financial goals thanks to the three phases of real estate syndication, which are the sourcing, operation, and liquidation phases.
During the origination phase, investors can benefit from economies of scale and participate in larger, higher-quality real estate projects. The operation phase provides ongoing cash flow and asset management to maximize the property’s value, and the liquidation phase offers the potential for capital gains and a profitable exit strategy. By participating in real estate syndication, investors can leverage the expertise of experienced professionals and access investment opportunities that may be difficult or impossible to pursue alone.
Earn Solid Returns With Real Estate Syndication Investing
If you’re an accredited investor who wants to diversify your investment portfolio in a stable way that delivers solid returns without the complication of each phase of syndication, real estate syndication funds might be perfect for you!
Saint Investment Group offers you a solid foundation in real estate syndication with our syndication funds. Call (323) 483-0291 today and speak with a member of our seasoned team of real estate syndication investors. Learn how you can access the investment opportunities in real estate syndication now!
Frequently Asked Questions:
Real estate syndication is a way for multiple investors to pool their money together to invest in a real estate project.
The origination, operation, liquidation steps make up the three stages of real estate syndication.
The syndicator locates a prospective real estate venture during the origination phase and performs due research to assess whether it presents a good chance for investors. The syndicator will establish a legal entity, such as a limited liability corporation (LLC), to retain the money after securing it.
Managing the money and carrying out the business plan are the syndicator’s responsibilities during the operation period. For instance, managing expenditures, keeping an eye on property upgrades, and collecting money are all duties that fall under this category.
In the liquidation phase, the syndicator sells the investment property and distributes the profits to investors. This phase can also include refinancing the property to provide additional returns for investors or continuing to hold the property as a long-term investment.
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.