Group real estate investments have risen in popularity, providing opportunity and access to investors looking to get in on the real estate action without becoming landlords. It’s no surprise—as real estate is one of the most stable, profitable, and reliable investments.
For MDs, lawyers, and C-level executives looking to create passive income streams, financial freedom, and long-term generational wealth, two popular options are often considered—real estate syndication and crowdfunding.
This blog will examine the differences between real estate syndications and crowdfunding opportunities, why syndications have the edge over crowdfunding for accredited investors, and how to make sure you choose the perfect syndication for your investment goals.
What’s the Difference Between Real Estate Syndication vs. Crowdfunding?
While they may share some similarities, don’t get confused between real estate and crowdfunding. When it comes to results, many financial advisors choose syndications over crowdfunding.
Real Estate Syndications Explained
A real estate syndication is a group investment in a predetermined asset managed by an executive team.
There are two key parties in real estate syndication: general and limited partners. The general partners are the managers who locate and manage the property and deal, while the limited partners are the investors limited to their input to the agreement. Investors receive passive real estate income through rental payments (paid monthly) and a large deposit upon the sale of the property due to property appreciation.
Generally, real estate syndications are open to accredited investors with regulated investment amounts and set investment times. An experienced investment team closely manages real estate syndications and offers significant benefits such as tax offsetting.
Real Estate Crowdfunding Explained
Crowdfunding is a group investment by several investors who pool their money to invest in real estate investment options. This investment strategy is often organized through an online portal, such as a property-tech or finance-tech platform.
Interested investors can contribute smaller amounts than expected in a real estate syndication. However, similarly, the process is usually initiated by businesses or leading investors. The idea is to give access to the property at a smaller scale, where investors become shareholders. The investors will receive dividend payouts and may receive a payout upon selling the property.
What Are the Key Differences Between the Two Options?
So, if you’re a physician with a goal to become a “passive income MD” from the right investment strategy, what are the differences between syndication and crowdfunding? Here are a few things to consider, keeping your wealth goals in mind.
Percentage of Equity
“Investor Equity” refers to your ownership of the asset. A real estate syndication is an equity-based investment. Due to the minimum investment amount and the number of limited investors, your equity in a real estate syndication will translate to higher returns.
In contrast, crowdfunding investment amounts can be surprisingly low. Some investors can invest as little as $10 into the deal, leading to a wide range of equity disparities in the agreement.
Minimum Investment Terms
Generally speaking, real estate syndication is a longer-term investment (5-10 years), as property appreciation is a crucial component of the strategy. However, investors in syndication are ‘locked in’ to a term, so serious consideration must be given to the deal.
Crowdfunding deals are often much shorter and can last a couple of years with lower returns.
Size and Scale of the Asset
Due to the structure and funding required to establish real estate syndications, the properties within the deal are generally larger multi-family-styled assets such as apartment complexes or significant commercial developments.
A real estate crowdfunding deal may focus on smaller investments such as small-scale commercial spaces (restaurants, bars) or individual residential property. However, when investing in smaller properties, investors lose the potential for more significant returns.
Number of Investors
Due to the smaller minimum investment amount, crowdfunding deals can attract a large number of investors to the deal. With more investors involved, payouts tend to be smaller.
However, syndication often sets parameters such as higher minimum investment amounts ($50-$100k) and is structured to include fewer investors to underwrite the deal. With larger investment amounts and fewer participants, real estate investors have the opportunity to generate much higher returns from this strategy.
Management Style
Real estate crowdfunding is still a relatively new phenomenon, and various platforms are available to future investors. Therefore there is a broader range of experience within the crowdfunding space, and a deal too good to be true might lead to a loss of the investment amount.
However, when investing with a real estate syndication, you’re dealing with a much more specialized and experienced team of real estate professionals (just like Viking Capital) with a public and proven track record of investment success. In addition, real estate syndications are more transparent regarding their justification for the purchase, payout structure, tax benefits, and more.
Tax Benefits
Real estate syndications have several tax-off setting advantages. First, an experienced syndication team will structure the deal to provide depreciation and a lower tax rate on capital gains income opportunities. Then, they will guide investors on the best tax structures ad strategies come tax time.
Investors in a real estate crowdfunding project are usually taxed at the ordinary tax income rate. However, they may have access to capital gains tax rates if invested in the project for a minimum amount of time (one year).
So, Which Is the Right Choice for Physicians?
Ultimately, it’s up to your individual investment’s short-term and long-term goals, financial circumstances, and risk appetite.
If you qualify as an accredited investor with significant long-term wealth goals, most financial specialists will advise that syndication is the better option. This is due to the passive real estate income streams and generational wealth-building potential.
We believe syndication is the ideal investment strategy for busy physicians and professionals for three key reasons:
- Real estate syndicators invest in higher income-generating real estate opportunities, such as multifamily properties that have been heavily researched and backed by a thorough research process.
- They offer substantially higher returns in the form of dividend payouts.
- Real estate syndication is more professionally rewarding and is a recommended strategy for high-income investors by sites such as Passive Income MD.
As physicians, we created Viking Capital to deliver a better investor experience and returns for doctors and others with significant wealth goals. Our track record of successful deals and significant returns makes our investment strategy an ideal solution for physicians.
Physicians Looking for More Passive Real Estate Income Choose Syndications
While crowdfunding and syndications offer access to large-scale real estate investment opportunities, generational wealth-building power, and experience give syndications the edge over crowdfunding regarding accredited investors.
If you’re ready to start your syndication investment journey in thoroughly selected wealth-building assets or are interested in learning more about how syndications will help you access true passive income, reach out to the Viking Capital team today.
