Daniel Stewart

What Is Syndication In Real Estate and How Does It Work?

If you've ventured into multifamily investment properties and you have big dreams, real estate syndication may help you reach your loftiest goals. But what is syndication, and how does it work? Here's a quick explanation that may help open up a new world of possibilities for you.

What is real estate syndication?

According to Investopedia, a real estate syndication is "a temporary alliance of businesses that joins together to manage a large transaction, which would be difficult, or impossible, to effect individually." Essentially, syndication makes it easy for companies to pool resources and share risks instead of taking on that burden alone.

One of the biggest perks of syndication is that you can pool your money with others and invest in bigger deals than you'd be able to afford on your own. If you have limited capital to invest in larger multifamily deals, syndication is a great way to get started!

How does it work?

Typically, there are two distinct roles in real estate syndication: a syndicator (also known as the sponsor) and an investor. Your skills, abilities, and the amount of capital you have will determine which role you are best suited for.

For example, if you don't have a lot of capital, but you're great at finding profitable properties to invest in, you may be a great syndicator. The syndicator usually also earns a commission fee, which is typically around 1%. On the other hand, the sponsor would secure the contract and manage the investment. They may put down about 5-10% to do so.

Other members of the syndication supply the funds to buy, renovate, or operate the multifamily property. Once the property has reached ideal occupancy, and the improvements are completed, or it has sold as predetermined by an organized strategy, members of the syndication receive a return that's either monthly or quarterly. Whether The sponsor will get a cut of the deal, too, whether they initially put down money or not.

Who can help facilitate real estate syndication?

If you're interested in being a part of a syndication deal, it would be wise to find a real estate investment mentor who can help guide you through the process. That way, you mitigate as much risk as possible and, preferably, have a successful experience with your first syndication.

Author Resource:-

Daniel Stewart advises people about real estate, property investment, property management and affordable housing schemes. You can find his thoughts at property investment blog.