When we syndicate real estate and begin looking for real estate investors, it is helpful to look through the eyes of our investors so we can understand why they would want to invest in the first place. Generally, it can be more profitable than traditional investing methods like stocks or bonds while giving you greater control over your investment portfolio.
When a real estate syndication has been set up, a number of investors pool their money together to purchase at least one commercial property. The investor can then participate in the process of renting out and managing that commercial property while being able to benefit from the income it provides money.
Some key factors include:
- Syndications offer ready cash flow, which means investors get instant access to the investment, so you don’t have to wait months or even years before they start seeing any returns on their investment.
- Synergy is another factor offered by real estate syndications because you are sharing resources with other small investors who each bring capital to the table that benefits everyone involved. One advantage of this arrangement is that it offers more opportunities for lower investing costs because they share in the costs of management and upkeep responsibilities with other investors.
- Property Syndications are additional ways to diversify their investment portfolio because real estate syndication investments offer a high return on investment (ROI) and low volatility.
- Syndicated properties are often given preferential treatment by banks, making it easier for them to be purchased or refinanced if necessary.
Real estate syndications offer an excellent way for individual investors, such as your investors, to diversify their investment portfolio and enjoy greater liquidity than traditional methods like stocks and bonds.
Why your investors would be interested in investing in a syndication
Real estate syndication is one of the best ways to gain access to quality, reliable properties. Syndication offers many benefits, including lower investment costs and higher returns than traditional investments.
A real-life example of the benefits of syndicating is explained thus: “An investor can spend $50,000 on a property that returns only $3,000 in annual rental income. Investing in a syndication could spend just $2,500 for an initial investment that would net an investor at least $3,700 in annual rental income.”
Syndicating allows investors to spread the risk among multiple investors putting in a small amount of money in exchange for their fair share of returns. For example, if an investor contributes $10,000 towards a property that was eventually worth $20 million after investment, the yield on investment would be very rewarding at 100%. However, if a syndication purchased another real estate asset, and it instead yielded a return of $10 million after investment, the same rate of return would be achieved with a much smaller initial investment. The benefit to your investors is that they can earn a yield on their investment without needing to have large amounts of capital at their disposal, which vastly increases the number of potential investors from whom you can gain capital.
In many cases, real estate investments generate high returns and create productive assets that bring additional value into an economy. In turn, these assets generate employment opportunities and allow economic growth within communities. By investing in a syndication, other parties can make returns from investing in these real-life assets, and this is an excellent way to give your investors the chance to earn high returns on their investment.
The syndication is responsible for collecting rent and any maintenance fees that may be required over the course of ownership. In addition, they are also accountable for covering the costs of servicing loans and paying management fees and property taxes – all at a discount, frequently less than what an individual investor would have to pay. Investors rely on the syndicator for day-to-day operations and reporting, whether financial or otherwise, and the syndicator earns fees by putting the deal together, underwriting, and managing the asset.
Benefits that come with real investment property syndications
The benefits of real estate syndications include greater responsibility, ownership, and the ability to manage a property from afar. Another advantage is that investors can get a better investment return on their investment because the property rental rates will be higher not only from the tenants but also from the investors in the syndication. The larger a syndication, the more substantial these benefits become.
If they are looking for a better investment, then they consider real estate syndications. Through real estate syndication, syndicators will be able to get the necessary funds required to purchase the investment properties. The investors receive a solid return while enjoying other benefits such as greater responsibility and more freedom while managing the property.
In general, alternative investment opportunities only appeal to people who have a certain amount of funds available because these investments are costly compared to others like stocks, bonds, mutual funds, etc. However, when investors are getting a greater return on the acquisition, it might be worth it to invest in alternative opportunities.
Real estate syndication is one of the best ways for investors to gain access to quality, reliable properties. Syndication offers several benefits, including lower investment costs and higher returns than traditional investments. Therefore if your investors are interested in real estate or feel that syndications would still be able to provide them with the returns they require, then this type of investment may be right for them.
The importance of diversifying one’s investment portfolio, which can be done through real estate syndications
One of the main components of a real estate investment portfolio is diversification. Investors can perform this by investing in several different properties, presenting them with a lower risk. In doing so, they will be able to gain access to a broader range of benefits and opportunities, leading to greater returns on their investment.
Syndications are one way of gaining access to diversified investments. The investment is diversified because investors will gain access to several properties while owning only small pieces of the total potential property portfolio. This means that each investor is less at risk if any particular property doesn’t work out as planned.
Another way that syndications prepare one’s investment portfolio for diversification is through real estate agents who handle all of the properties and help manage them. One advantage to these types of investment is that syndicators and investors alike gain access to a large pool of investment opportunities without doing anything.
While syndications offer more diversification than traditional real estate investments, it does not guarantee higher returns on one’s investment. Suppose your investors are interested in diversifying their portfolio through property investments but don’t want as much risk as investing in individual properties. In that case, it might be right for them and is a pivotal point to discuss.
Investors who want to diversify their investment portfolio and lower the risk of investing will find real estate syndications an attractive opportunity. With a wide range of properties, investors can enjoy greater responsibility and freedom while managing a property from afar, thanks to investor support. Additionally, as long as they are willing to do some research on their own, it’s worth considering this type of alternative investment for those looking for high returns with low risk.
So consider these points when discussing real estate syndication with your potential investors because they will want to know that you understand where they are coming from:
- They can get into the real estate asset class without having to buy a whole building.
- They don’t have to manage the property; instead, they will have an investor who knows what they are doing (you or the property manager you choose).
- They can diversify their portfolio.
When putting together a real estate syndication and the Reg D documents, the experienced help of a syndication attorney can give you a leg up. Looking at the ‘why’ of investment with a third-party (such as a lawyer who sees lots of deals) can help you frame your offer into something an investor wants to invest into.
Tilden Moschetti, Esq., is a highly sought-after syndication attorney with nearly two decades of experience. His clientele ranges from real estate developers and startups to established businesses and private equity funds. Tilden’s expertise in syndication law comes not only from his knowledge of syndication and securities law but from real, hands-on experience as an active syndicator himself in every real estate product type and nearly all markets in the US. His knowledge and experience set him apart and established him as the Reg D legal services leader.