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Real Estate Syndication – Raising Equity From Investors For Properties

By: Tilden Moschetti, Esq.

Investing in real estate syndication has become more and more popular in the last few years. However, the decision to invest in a property shouldn’t be made lightly. Investors should pay attention to several factors before deciding to invest. Some of them are:

  • Qualifications – Check whether the syndication you’re interested in requires you to be an accredited or sophisticated investor.
  • Track record – Reliable sponsors need to have a proven track record and knowledge of the field.
  • Preferred returns – Sponsors often structure preferred returns on the invested amount.
  • Taxes – Sponsors should work on reducing the taxable income from real estate.
  • Sponsors fees – Syndication sponsors derive compensation from several categories. Ensure to check this before deciding on an opportunity.

Real Estate Syndication Attorneys

But, if you’ve found a property that seems like a great opportunity, it’s essential not to rush the decision to invest but consult with a real estate syndication lawyer first. Namely, real estate syndications come with numerous legal and regulatory issues you may not expect. If you want to ensure you’re protected every step of the process, hiring a lawyer is necessary.

First, lawyers will draft and revise all the paperwork, the private placement memorandum, operating agreements, etc, to ensure everything’s in order and there is no conflicting information. They ensure every document is created according to the law. Moreover, lawyers will help you structure the syndication properly and ensure every syndicator is paid out adequate compensation. They also help maximize tax benefits, take advantage of potential exemptions, file correct documentation with the SEC, etc. Essentially, syndication attorneys ensure the smooth operation of every real estate syndication.

What is Real Estate Syndication?

You may be asking, “what is real estate syndication?” A real estate syndication represents a group of investors who pool their capital and purchase real estate property. Every real estate syndication is comprised of two key players: the syndicator(s) and passive investors. The syndicators take on an active role, while passive investors don’t have to do anything except finance the deal and share the profits.

Common targets for these syndications include but aren’t limited to apartments, mobile home parks, self-storage units, retail centers, warehouses, etc.

There are numerous benefits of real estate syndications:

  • Passive income
  • Hassle-free
  • Tax benefits
  • Value appreciation
  • Control

As with any investment, nothing is risk-free. That’s why investors need to be very careful when choosing whom they want to do business with.

How to Syndicate Real Estate

If you want to syndicate your first real estate deal, here’s what you need to do:

  1. Do your research – The real estate syndication market is heavily regulated. You need to get acquainted with numerous laws, regulations, and rules. It’s best to hire an attorney that will help you every step of the way.
  2. Find investors – Finding individuals willing to invest in your idea is crucial for syndicating a deal.
  3. Locate properties – If you haven’t already, find a property you want to invest in.
  4. Manage properties – Depending on the deal you make, you may need to manage the properties.
  5. Disburse funds – Pay out the income based on the deal you made.

How to Start a Real Estate Fund

Starting a real estate fund begins with the creation of an entity that combines its own funds and investors’ contributions to invest in real estate. If you want to start one, you first need to think about its structure. Typically, real estate funds exist in two structures: limited liability company (LLC) or limited partnership (LP). You need to think about whether you want a blind pool or an identified fund. The latter has pre-identified investment opportunities, while the former doesn’t have a stated investment goal.

Then, it’s essential to consider how the investors come and go, i.e., whether you want the fund to be open-ended or closed-ended and define lockout periods. Finally, you need to consider your investment strategy.

The best way to minimize risks and familiarize yourself with the regulations regarding real estate funds is by hiring an attorney.

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