What is Real Estate Syndication? A Guide for Investors

Key Takeaways


If your real estate investment portfolio consists only of single-family homes, you might consider investing in an apartment building or commercial property.

Here’s the downside: these properties are expensive and often require a very high level of management expertise.

But don’t let that deter you. If you want to invest in bigger, better properties—and you lack the necessary capital or experience—then you might consider participating in real estate syndication.


[ Need money to invest in real estate? Attend our FREE online real estate class to learn how to fund real estate deals with little to no money of your own. ]



real estate syndication

Team of Investors, Developers and Engineers Discuss Future of the Major Real Estate Project with Major Contractor while Consulting Drafts and Plans. In the Background Big City with Skyscrapers.

What is Real Estate Syndication

Real estate syndication (also known as “property syndication”) is a partnership between several different investors to tackle a real estate project.

The investors combine their capital and resources to purchase a property that they wouldn’t be able to purchase individually. They also work together to manage the property if the property will be held as a rental.

In short, real estate syndication is just a fancy way of saying “real estate partnership.”

There are usually two types of roles in a real estate syndicate:

  • Syndicator: Also known as the “sponsor.” The syndicator is tasked with acquiring the property, renovating it, and/or managing it.

  • Investor: Investors provide the capital to purchase a property, but they have a mostly passive role.

  • Strategize the strengths and weaknesses of the company.

There’s often a third party involved, known as a joint venture partner (JV partner) or “equity partner.”

The JV partner makes sure that there is strong communication and transparency between the syndicator and investors. Sometimes, the JV partner may assist the syndicator with reporting and taxes.

Why Participate in Real Estate Syndication

Here are the top reasons why you might participate in real estate syndication:

  • You don’t have enough capital to buy a certain type of property

  • You have money to purchase a property, but you don’t have the expertise to manage it

  • You want to acquire more properties and build your wealth

Any real estate investor, beginning or seasoned, can benefit from real estate syndication—so long as you know how it works.

How Does Real Estate Syndication Work?

When you participate in real estate syndication, you need to determine whether you will be the syndicator or an investor. Your skillset, experience, and capital will determine which role you’re better suited for.

The syndicator has the most demanding and involved job. As the syndicator, you’ll be tasked with acquiring the property (which means completing all the steps required to complete the transaction). If the property is a fix-and-flip or a rental, then the syndicator must oversee the renovations and property management, respectively.

You’ll have a considerable amount of responsibility as the syndicator. The investors have a mostly passive role—once all the money is invested, they’ll take a back seat and let you handle everything else. You’ll have to communicate with them regularly about the progress of the investment.

The syndicator might be a good role for you if:

  • You’re great at scouting and finding suitable properties

  • You’re experienced in property management

  • You’re knowledgeable about house flipping

  • You understand how to do accounting and reporting for real estate

On the other hand, you might be better suited for an investor role if:

  • You have sufficient capital to invest, but you’re not experienced in property management or acquisition

  • You participate in real estate investment as a passive income

There’s a predetermined exit strategy in a real estate syndicate. In some cases, the exit strategy is to renovate and sell the property for a profit. In the case of a rental property, the exit strategy is usually to “stabilize” the property or make it produce a steady cash flow from tenants.

When the exit strategy is accomplished, the syndication is complete.

real estate syndication

Choosing A Real Estate Syndication Structure

At the beginning of a real estate syndication, all the participating investors must decide how to structure the company for tax purposes.

Syndications are most often structured as limited liability companies (LLCs) or limited partnerships. Investors, for that matter, are members or limited partners, respectively.

The investors then work out a syndication agreement. The syndication agreement outlines:

  • Communication Practices: The agreement stipulates communication terms between the syndicator and investors (it might, for instance, mandate monthly or quarterly meetings). The purpose is to ensure transparency about the progress of a syndication and the overall performance of a property.

  • Voting Rights: Investors may be able to vote on what to do with the property once it’s acquired. Voting practices are outlined in the agreement.

  • Profit Distribution: The agreement outlines how much of the profits each investor is entitled to—more on that in the next section.

There’s no one kind of syndication agreement—they vary from one syndicate to the next.

[Pro Tip: When you’re forming a syndicate, it’s important to seek guidance from an experienced real estate attorney.]

How to Profit From Real Estate Syndication

With real estate syndication, your profit is largely dependent on your role and the exit strategy.

Some groups elect to split profits equally, but many real estate syndicates do not. It’s common for passive investors to receive about 70%, while the syndicator gets about 30%.

Investors usually earn more because they put in more money. A syndicator only contributes between 5-10% of the investment or nothing at all.

However, a syndicator may get a higher percentage if he or she manages a fix-and-flip or acts as the property manager for tenants.

Acquisition Fees

Because the syndicator oversees the property transaction, they receive an “acquisition fee” that’s between 1-5% of the transaction value.

If you’re the syndicator, then you may be able to negotiate your acquisition fee on the syndication agreement. Don’t ask for fees that are too high, or else other investors may not want to participate with you. But you also shouldn’t undervalue yourself, especially if you’re tasked with finding the property and structuring the deal.

Asset Management Fees

If the syndicate is purchasing a rental property, all the members could elect to pay a property management company to find tenants, collect rent, perform maintenance, etc.

But the syndicate can also give property management duties to the syndicator. In that scenario, the syndicator will earn a property management fee that’s usually around 10%. The syndicator will earn an even higher share if they’re tasked with conducting a fix-and-flip.

Cash Flow & Appreciation

Whether the syndicator invested money or not, he/she still gets a piece of the pie. The passive investors, however, earn a “preferred return” that’s much higher.

For example, if the passive investors each get 12%, the syndicator will probably get around 5%. But once again, it all depends on the structure and how many responsibilities that syndicator takes on.

Suppose the property is going to be sold. In that case, each investor will get a percentage of the sale’s profits (ideally, the property will have appreciated in some way—many real estate syndicates do house flipping to maximize the return).

But if the property is going to be rented out to tenants, then the investors will all get a percentage of the profits generated by rent.

real estate syndication

Example of Real Estate Syndication

Let’s describe how a real estate syndication might play out.

You join with a group of investors to purchase an apartment building. Since you have the most experience managing properties, everyone agrees that you’ll be the syndicator.

A limited partnership is formed. It’s decided that the six investors will get 15% each. You contribute a smaller amount of capital and receive 5%. But you’ll get an additional 5% because you’re going to be managing the property, and you’ll also earn a 2% acquisition fee. You’ll earn 10% total.

The property is purchased for $1 million. You earn $20,000 just from the acquisition fee.

Now the property is rented out to tenants and generates a profit of $150,000 per year. With your 10% stake, you’ll receive $15,000 per year. Over 10 years, you’ll earn $150,000.

After ten years, the syndicate votes to sell the property for $1.5 million. From the sale, the investors will earn 15% each, and you’ll earn 10%. That’s another $150,000.

The syndication is complete. Your total profits are:

20,000 + 150,000 + 150,000 =

$370,000

Given your 5% investment of $50,000, your return amounts to $320,000. That’s an increase of 640%.

Summary

In real estate syndication, you partner with other investors to purchase a property that you wouldn’t be able to afford otherwise. There are two roles in a real estate syndicate: syndicator and investor. Syndicators are tasked with acquiring the property and may also be charged with renovating or managing the property. Investors contribute more money to the acquisition, but they play a more passive role. Investors will typically earn more money in a real estate syndication, while the syndicator’s earnings may vary depending on their responsibilities.


Interested in learning more about today's most lucrative real estate strategies?

Whether you’re brand new to investing, have closed a few deals, or are a seasoned investor— our new online real estate class reveals the best real estate strategies to get started with real estate investing in today's market. Expert investor Than Merrill explains how these time-tested strategies can help you to profit from the current opportunities in real estate.

Register for our FREE 1-Day Real Estate Webinar and get started learning how to strategically invest in today’s real estate market!

Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies