Real Estate Syndication: The Basics

Real estate syndication is an effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.

Although real estate syndication has been around for decades, until recently and before the advent of crowdfunding, syndicated investments were difficult for individual investors to access. Real estate crowdfunding gives access to the financial fundamentals of a deal and makes it easy for accredited investors to purchase shares without using the old model of country-club small talk and caddy fees.

Real Estate Syndication Principles

How, exactly, does a syndicated deal work?

Real estate syndication is a simple transaction between a Sponsor and a group of investors. You know how when two guys open up a bar together, one has more money to invest and the other has a lot of experience working in and managing bars? The guy with the bar experience (the Sponsor) finds a bar to open and arranges everything, while the other guy (the investor) simply invests his money. The guy with the bar experience naturally runs the bar, and, as a result, gets a paycheck for his work. Both get a share of the profits based on time and money invested.

Real estate syndication is an effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.

The basics of real estate syndication aren’t all that different from two guys opening a bar together. As the manager and operator of the deal, the Sponsor invests the sweat equity, including scouting out the property, raising funds and acquiring and managing the investment property’s day-to-day operations, while the investors provide most of the financial equity. The Sponsor is usually responsible for investing anywhere from 5-20% of the total required equity capital, while investors put in between 80-95% of the total.