Real estate investing can be lucrative, but it often requires significant capital and expertise. That’s where real estate syndication comes in—a strategy that allows investors to pool their money to buy properties they couldn’t afford or manage on their own.
How It Works
A real estate syndication is a partnership between two key players:
- The Sponsor (or Syndicator): This is the person or company that finds the deal, secures financing, manages the property, and executes the business plan. They handle the heavy lifting.
- Passive Investors: These are individuals who contribute capital to the deal but take no active role in management. They earn a return on their investment without having to be hands-on. They also receive depreciation to shield their taxes.
Why Investors Like Syndications
- Access to Bigger Deals: Syndications allow investors to buy into large apartment complexes, shopping centers, or office buildings that would be out of reach individually.
- Passive Income: Investors can earn returns without dealing with tenants, maintenance, or property management.
- Diversification: Investors can spread their money across multiple syndications to reduce risk.
The Financial Structure
Most syndications follow a preferred return model, where passive investors receive a set percentage (e.g., 6-7%) before the sponsor gets paid. Profits beyond that are split, often in favor of investors. Passive Investors have a share of ownership, and therefore enjoy appreciation on the real estate asset.
Is It Right for You?
If you want exposure to real estate investments but don’t have the time, expertise, or desire to manage properties, syndications offer a way to invest passively.
Real estate syndications provide a hands-off way to invest in large-scale properties while benefiting from experienced management. If you’re looking for a passive way to build wealth through real estate, this could be a strategy worth exploring.
Doug Kline, PhD, has held income properties in North Carolina for more than 20 years. He holds a North Carolina broker’s license, and is a member of the National Association of Realtors and the Triangle Real Estate Investors Association. A lifelong learner, he holds an MBA and a PhD in business, and continues his education by attending meetings of the Society of Exchange Counselors and the National Counsel of Exchangors. In addition to his extensive real estate activities, Doug enjoyed a successful career in academia, achieving the rank of Full Professor in the Cameron School of Business at UNC Wilmington. He was honored with research and teaching awards, served as Director of the MS Computer Science and Information Systems program, and was awarded the endowed position Distinguished Professor of Information Systems.