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In this episode, Peter will give you the 101 version of real estate syndication. A real estate syndication is a group of two or more investors or investment companies coming together for a common goal; to raise capital for purchasing real estate or building a new property.
In this episode, Peter will give you the abridged version of everything you need to know about Real Estate Syndication.
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Now, let’s look at what we discussed in this episode:
- What are syndications?
- The history of syndications.
- Who is an accredited investor?
- The framework of a syndication.
- The role of the sponsor and the investor.
- How a syndication differs from a REIT (real estate investment trust).
- How does a syndication make money?
Here’s a breakdown of how this episode unfolds…
[3:02]
The advantage of pooling your money with other investors is that you can invest in a much bigger, more lucrative deal that could be otherwise too expensive for an individual investor.
[3:53]
Historically, a real estate entrepreneur or a sponsor could publicly advertise and solicit private funding from anywhere until the initiation of the Securities Act of 1933. After which, all new private offerings are required to be registered with the Securities Exchange Commission (SEC). The SEC passed this rule to protect the investors from fraud or scam.
The general solicitation rules were further relaxed by the JOBS Act of 2012, which allowed investors to take part as long as they met certain criteria and each investor was accredited.
[8:03]
Real estate syndication is a legal transaction between two parties – the Sponsor / Syndicator / General Partner (GP) and the investors / Limited Partners (LP). Legally, a syndicate can be structured as a Limited Partnership (LP) or Limited Liability Company (LLC).
A sponsor will scout out a good property and the investor will provide most of the financial support. Peter defines the role of the sponsor and what you can expect when scouting out a good syndication to invest in.
[11:35]
On the surface, a real estate syndication might look fairly similar to a real estate trust, but there are quite a few differences between the two. Peter outlines what defines a REIT and syndication.
[14:05]
How does a syndication make money? A sponsor and his limited partners make money through two primary sources—property appreciation and rental income. Peter discusses the role of each.
[19:33]
Syndication allows you to diversify your portfolio, as you’re only investing a small sum at a time and might still have the ability to explore other types of investment opportunities without being tied to a single property. As an investor, a syndication is one of the most passive investment ideas that require little effort upfront for a killer return on investment.
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