Syndication allows passive investors to earn a return on property income without the risks associated with self-dealing. It also offers tax benefits.
Passive investors in real estate syndication are typically given a membership or ownership share in the syndicator, granting them access to returns on rental income and the eventual sale of the asset. The syndicator will conduct due diligence on the property before its purchase and manage it until resale or repositioning.
Investors can either join a pre-established syndicate or become a Sponsor themselves and seek out other passive investors to participate in their investment. In the latter case, they must be knowledgeable in the market where the property is located and have the full-time time to oversee the project. In both cases, the first step is to request access to the PPM (private placement memorandum) and thoroughly review the offering terms, investment strategy, property details, and risk. Sponsors should provide transparent and well-reasoned projections that avoid exaggerated returns. They should also be able to demonstrate the skill and care used in their underwriting. For more info https://www.helpinghomesrei.com/
In addition to conducting due diligence, it is important for passive investors to consider their own investment goals and time horizons. They should be prepared for a long-term commitment, and they should understand that returns may fluctuate over time. They should also be prepared to diversify their portfolio with other property investments if they do not wish to commit all of their capital to a single project.
The majority of real estate syndications are open only to accredited investors. To be considered an accredited investor, you must have a minimum of $1 million in net worth (not counting your home) or an annual income of $200,000 or more with your spouse.
Investing in a property syndication provides an opportunity to diversify your portfolio, earn passive income, and receive regular cash distributions deposited directly into your bank account. This is an excellent way to generate wealth, especially if you choose a project with a value-add strategy and use cost segregation and accelerated depreciation.
Each syndicate can cater to a different set of investor goals. For example, some investors are primarily concerned with growing their retirement fund and don’t need access to their funds in the short term. Other investors are looking to beat inflation and want to preserve their assets for the long term.
The average syndication agreement lasts from a few years to over a decade, during which time the asset undergoes a value-add strategy and is optimized for occupancy and rental income. Then, when the syndicator is ready to sell, they will earn fees and profits from the sale of the asset. However, it is important to be wary of structures that do not compensate the syndicator until the property is sold – this misaligns the interests of the sponsors and investors.
