Are you interested in investing in real estate, but you’re after something a little more passive? Due to time constraints, busy work lives, and lack of experience, many hard-working physicians and business professionals are turning to real estate syndication to transform their income into generational wealth and maximize returns.
While it may be a passive opportunity, accredited investors still want to understand what they’re investing in, how the process functions, and when the money will go into the account. A real estate syndication is a unique investment opportunity different from REITs and funds.
Because of this, in this blog, we’re breaking down “what is a syndication in real estate,” how it benefits investors, and how Viking Capital approaches potential syndication opportunities in the market.
What Is a Real Estate Syndication?
Real estate syndication is the purchase of a real estate asset by several investors who pool the capital required to make the purchase. Due to this, the asset is often a larger multifamily-style property, such as an apartment building, offering more attractive returns to the initial investors.
The deal is commonly located, facilitated, and managed by professional real estate specialists such as a capital group (like Viking Capital) or developers.
Real estate syndication is a limited partnership with two separate classes of contributors with different roles. A deal starts when a sponsor team finds a tremendous multifamily real estate asset and puts together a private placement syndication offering to passive investors.
Who Are the Key Players in a Real Estate Syndication?
When real estate investing, it’s essential to understand who the key players are in a syndication. Most investments like this have two types of players: General Partners and Limited Partners.
The Sponsor Team (AKA General Partners)
The sponsor team, also called the General Partners (GPs) or syndicators, generally consists of the real estate developer, property manager, and an experienced real estate attorney (or a team of attorneys).
This group is responsible for all aspects of the real estate investment, including:
- Locating a property for investment
- Maintaining investor relations
- Acquisition fees
- Underwriting the deal and research
- Preparing business plans
- Undertaking necessary updates or upgrades to the property
- Rent increases
- Legal obligations (such as the contract)
GPs assume a much higher risk level than passive investors. Therefore, if you are wondering “what is real estate syndication,” it is the transferring of controlling power from the investors to the managers.
Only Invest With Experienced Syndicators
Opting for experienced syndicators with proven success is paramount for passive investors. In addition, GPs will often put their own money into a deal. Therefore, the more the GPS put into the agreement, the more confident an accredited investor should feel.
GPs are also responsible for putting together the contract (usually through a property attorney) that outlines the fundamentals of the deal, such as distributions, meetings, voting rights, and so on.
The Accredited Investors (AKA Limited Partners)
The accredited investors in the deal are the Limited Partners (LPs), as they are limited in that their only obligation to the syndication is to provide the necessary capital as agreed upon. Limited partners (passive investors) can invest their money alongside the GPs through the real estate syndication offering.
In the deal, LPs essentially function as stock investors in a publically traded company.
What Are the Commitments Involved?
Although there are no duties involved as an LP in a real estate syndication deal, there may be some minimum commitments imposed by the syndicator group. These are often to improve the investor experience and maximize returns.
When you participate in a group investment opportunity as a limited partner, your commitment can last anywhere from a few years to over a decade. However, the average syndication agreement has a lifespan of 5-7 years. Therefore, be sure to research the time commitment of the fund and asses your financial health before diving into a deal.
Many syndicators will impose minimum financial investment amounts on their deals. A standard amount is $50,000, and investors are free to up their investment amount throughout the duration of the fund. For example, you must be an accredited investor to invest in a Viking Capital syndicate deal with a minimum investment of $50,000.
How Do I Make Money in a Real Estate Syndication?
Investors in real estate syndications make money from two primary sources.
The rental income from the property acquired is distributed to investors regularly. This is commonly a monthly payment; however, it will be determined in the agreement.
Investors will receive profits from the sale of the property. The underlying motivation behind the extended time frame of a real estate syndication is that the property will appreciate over time, and investors will make greater profits upon the sale of the property at the end of the deal.
Multifamily syndication can be more recession-resistant than other forms of real estate investment for several reasons:
- Demand for rental units remains stable: During a recession, many people may be unable to afford or hesitant to purchase a home. As a result, the demand for rental units tends to remain stable or even increase as people look for more affordable housing options. This helps to ensure that multifamily syndication investments continue to generate income, even during an economic downturn.
- Diversification: In multifamily syndication, investors pool their resources to purchase a property, which allows for greater diversification than investing in a single-family property. By spreading the risk across multiple units, investors can weather economic downturns better than if they had all their assets tied up in one property.
- Strong cash flow: In most cases, multifamily properties generate consistent and reliable cash flow through rent payments. This steady income stream can help mitigate the impact of market volatility and economic downturns.
- Professional management: Multifamily syndication investments are typically professionally managed, which means that experienced property managers are responsible for overseeing the property and making decisions about maintenance, repairs, and tenant selection. This can help ensure that the property remains profitable, even during challenging economic times.
Overall, while no investment is completely recession-proof, multifamily syndication can be more resilient to economic downturns than other forms of real estate investment due to its stable demand, diversification, strong cash flow, and professional management.
How Viking Capital Manages Deals
Viking Capital does the legwork to find excellent multifamily investments. We focus on value-add assets that maximize returns for the patient investor.
We then manage the assets to deliver exceptional returns to investors. Through the process, we engage in thorough due diligence, including market research of the property, rents, potential upside, capital improvements, tenants, and more. As a result, our investors are open to diversifying their commitment through different markets and assets.
You need to be an accredited investor to qualify for one of our investments. To participate in one (or more) of our investments, connect with us to start the review process. Then, you’ll join our investor club and be able to enter any open or upcoming assets which we offer for real estate syndication.
After getting started in one of our deals, you’ll earn monthly payments and have a stake in an appreciating asset.
What is a Syndication In Real Estate? A Great Option for Accredited Investors!
If you’re an accredited investor looking to get in on the passive action of real estate without purchasing a property, then real estate syndication could be for you! Now that you know the structure, the key players, and how a real estate syndication functions, nothing is stopping you from accessing passive returns through a deal.
The Viking Capital team is always ready to answer any questions or offer advice about real estate syndication deals. Reach out to a member of the team today!