Syndication is a great tool in real estate that some do not know about already. By definition, a real estate syndication is the pooling of funds from passive investors to purchase income-producing real estate. A passive investor or limited partner has one role, and that is investing cash in a solicited real estate investment for a specific return, while the general partner executes the business plan and does the asset management of the property.
Which brings us to the main reason why investors prefer real estate syndication instead of going in alone on a project: Access to more great deals in less time. Not everyone has time to search for deals and underwrite hundreds of properties to find the perfect property. Instead, they rely on real estate and investment firms and professionals who take the time to find deals, underwrite, and gather knowledge of the property because that is their full-time occupation.
By getting involved in real estate syndication, investors have access to this deal flow and the ability to invest in real estate without the hassle of finding the deal and then executing the business plan and doing the asset management. All the heavy lifting is carried out by the syndicator general partner.
Many investors like the idea of commercial real estate and want to be involved in it; however, there are barriers to entry, which can include the actual location of entry and the debt or capital required. This can be discouraging and daunting for individuals who are looking for passive income in retirement or have a full time W2. With debt, it is hard for most individuals to qualify for enough debt to purchase a multimillion-dollar loan. Individuals need experience, high net worth, and liquidity to be taken seriously by the broker or seller. Most investors live in very competitive markets as well, such as Southern California or the Sunbelt, and do not have connections in favorable markets that they would like to enter. With syndication, investors can enter those markets confidently and have success without physically being in said market.
Which brings me to my final point: Finding the right syndicator or partnership is crucial. Like every other business practice, finding the right partnership that aligns with your beliefs and vision is important. Some syndicators are focused on cash flow only while others focus on the overall return of the project. Also, some syndicators only target certain areas of the country or a certain style of property. Ultimately, limited partners are more or less investing in the general partner than the actual deal itself, and you need to find a partner that aligns with your strategy and has a track record that you can trust.
William Costello, Investment Associate at Gray Capital, LLC, is committed to helping investor achieve their goals through real estate syndication.