Each portfolio is unique, but investors have similar goals. Your goal is to maximize the value of your portfolio with minimal risk. You don’t want your money to be a gamble. Instead, you want to take calculated risks that will pay off over the long-term. It can feel risky to invest in a new type of investment. This can feel almost like gambling. It is risky to invest in any product without understanding the risks involved. That’s why you are here.
You Have Heard Of Syndications. But What Exactly Are They?
This guide will help you understand real estate syndications and reveal what you need to know.
What’s A Real-Estate Syndication?
A syndication refers to a group of investors who pool their funds together to buy properties. An experienced company or group manages the properties. A single investor might have $50,000 of capital available in their Investment Portfolio. The investment would not go far to buy a home in desirable neighborhoods. They would still need to manage the property, find tenants and act as landlords. It would not be possible to buy a property for rental that generates a steady, consistent income stream with this amount of capital. You could use the $50,000 together with money from other investors for rental properties or commercial properties. Each member of the syndication would own a part of a real-estate portfolio. Each investor in a syndication has a share of all investments made by the syndication based on their investment. A syndication may include a variety of assets. These commercial property types include:
· Apartment communities
· Storage facilities
· Mobile home parks
To purchase the property, the syndication team may take out a commercial loan. This means that they could be able to obtain a property worth $40M for less than $40M. The syndication’s pooled investors are called “Limited Partners” while the operator — also known by “Deal Sponsor” and “General Partnership”- manages the entire project. These are the fundamentals of Real Estate Syndications. There are many things you can do to help syndications become an integral part of your investment portfolio.
What You Don’t Know About Real-Estate Syndication
These 5 facts about real estate syndication will help you understand why they are so popular among goal-oriented investors who want to grow their portfolios.
Monthly And Quarterly Payments — Passive Income
Investors can enjoy a passive income stream through commercial real estate syndication. Each investor receives regular payments over the lifetime of the syndication. They can choose to receive monthly or quarterly payments. Investors find this type of passive income very attractive because they don’t have to manage or perform administrative tasks on an ongoing basis. The operator does all the work. No tax payment is required for income from regular payments of the investment. Talk to your tax professional about anything tax-related. These views are my own opinions. This income, despite receiving regular payments as part of the syndication, is unlikely to be taxed. This is a significant advantage over passive income sources that are taxable for investors who add it to their portfolio.
Syndication Offer Significant Reductions In Individual Risk
An investor buying a Rental Property to rent to a family faces 100% vacancy if a tenant leaves. However, members of a syndicate are less likely to be displaced. The pool of investors spreads the risk. There are hundreds or even thousands of commercial apartment deals. This means that even if two out of 400 units aren’t rented, the syndication still generates income from more than 99% of the units. Instead of losing a month’s rent on one property, it can make a loss on all of them. The vacancy rate increases from 100% to 0% when a single family rental is let go.
Investors Get A Substantial Payout After 5–10 Years.
Structured commercial real estate syndication provide passive income for investors and a long-term return on investment. Later, the commercial properties included in the syndication are sold, and the return is paid back to investors.
Not all investors can join syndication.
Syndication are only open to certain types of investors. We will discuss this below. Some investors are not eligible to join a syndication.
How can I get involved with real estate syndication?
Although it’s not as easy as buying a stock, joining a real-estate syndication can be very simple. However, it is one of the easiest passive income streams you will find. Real estate syndication can be referred to as Private Offerings and are subject to regulation by the SEC. Regulation D requires that investors either be accredited or sophisticated.
To be considered a “Sophisticated” investor, it is important that they clearly understand the risks and benefits of the investment decision.
Accredited Investors have less restrictions on their access to real property syndication. This is because they have an annual income of more than $200,000 or a joint income exceeding $300,000. Other Accredited Investors are those who have a net worth of more than $1,000,000, excluding their primary residence.
Disclaimer: This article is not intended to be an investment advisory. Before you act on any of this advice, it is advisable to consult a registered financial professional. I’m not a financial planner or tax advisor. This article is my opinion.