Wednesday, April 8, 2015

What is Real Estate Syndication?

Real estate syndication. It sounds like an inaccessible technical term, but simply put, it refers to crowdfunding. In real estate, this means pooling together capital with fellow investors to purchase property. Since real estate is an expensive purchase, with syndication, investors can jointly own property they can’t afford on their own. 

Syndication or crowdfunding involves a real estate company, an investment company, or an individual through which the crowdfunded investment is made. Called the "syndicator" or "sponsor," this party is tasked to search for, acquire, and maintain the property on behalf of the investors. 

Needless to say, this company or individual must have the qualifications and the experience to deliver a sound product and satisfactory service. As the sponsor, the company or individual functions as the property manager, responsible for arranging the financing for the property, doing repairs or refurbishment, advertising and marketing the property, screening tenants, acquiring monthly rent, tax documentation, and attending to upkeep and maintenance. In return, the sponsor takes a certain percentage of the profit generated.

Investment returns come in the form of rental income and property appreciation. Monthly rent from the property's tenants is distributed among the investors on a monthly or quarterly basis. Since property appreciates over time, investors can count on larger returns in the future.

Investors also receive a "preferred return" anually. This return is a yearly payment of about 5 - 10% of the initial money put into the property. The remaining profit, meanwhile, is split between the sponsor and the investors. 

Syndication offers paramount conveniences for investors with little to no experience in real estate. Given this setup, investors need only entrust their capital to the expertise of the sponsor, and eventually, enjoy the returns on a property without having to manage it at all, keeping themselves free of the responsibilities that come with being a landlord or property manager.


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