Questions to Ask the Deal Sponsor Prior to Investing in a Syndication
February 23, 2024
Tax Benefits When Investing in a Syndication
February 23, 2024

February 24, 2024 | read

How Investing in a Real Estate Syndication Works

Brandon Hall

How Investing in a Real Estate Syndication Works

As an accredited investor, you have investment opportunities that are not available to non-accredited investors. One such opportunity is investing in a real estate syndicate.

A syndicate is a form of investing where general partners (the deal’s sponsors) will solicit private investors to raise enough capital in order to buy the building they are targeting. For example, if a syndicate wishes to acquire a $10MM building, they may aim to raise $3MM-$4MM from investors in order to have enough capital to buy the building.

Investors who invest in syndications will receive a stake in the partnership. This stake can be divided up between a capital and profits interest. A capital interest is the investor’s interest in the assets owned by the entity whereas a profits interest is an interest in the entity’s future profits.

This is important to understand because many syndicates will offer multiple classes of shares. For example, a syndicate may offer Class A shares to limited partners and Class B shares to general partners – the difference between the two may be that the Class B shares have a 0% profits interest but do share in the capital via a capital interest.

Syndicates are often structured differently from one another so it’s important to perform your due diligence and review every single page of the offering document.

Investing in syndicates is an excellent way to deploy large amounts of capital and own extremely passive real estate. To find a syndicate, you need to network locally and online. Ask your service providers if they know of anyone putting deals together.

A word of caution: it is often noted that when investing in a syndicate, you are more so investing in the management team rather than the asset itself. The best asset can be poorly managed and investors can lose tons of money as a result. Make sure you perform your due diligence not only on the asset but also on the asset management team.

I recommend you read our other article for a list of questions you should be asking your deal sponsor prior to investing in a syndicate.

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