Some investors would pool their funds to finance a real estate project called real estate syndication. These are good for investors who are not ready to bear the risk and handling of real estate investments solely.
Benefits of Real Estate Syndication
There are several upsides to investing in real estate syndication – making it attractive to potential investors. One of the things you would consider when investing is knowing what you will get in return. Here are the highlights of the returns on real estate syndication:
Passive Income
Real estate syndication investments are managed and operated by syndicators. Hence, the investors or the ones financing the property are still gaining returns on their investment without handling the investment personally.
Convenience
As an investor, your responsibility is to finance the property’s capital. The buying of the property, its management, and maintenance are on the syndicators. So, the stress of securing the return of investments is passed unto them.
Value Appreciation. One of the key features of real estate is its appreciation throughout the years. If you own a real estate property, your ROI or return of an investment will undoubtedly be higher than your principal or capital – especially if you landed properties in a newly developed or rising area.
Tax Benefits
Investors in real estate syndication are given several tax benefits, such as tax deductions and tax deferrals. Once you sell your real property, you may also receive capital gains taxed more efficiently than your monthly compensation.
Assessing the Right Syndication Website
The credibility and efficiency of a website lie in numerous factors. These are the things you should consider when looking for real syndication websites:
Clarity
The website must be clear for information to be easily understood. The use of fancy fonts that are hard to read should be avoided. An effective website is clean and not too striking, for they are focused more on how they will get the message across to the users.
Versatility
The website must be user-focused. It should be compatible with different devices that using it either on the phone or a laptop is still effective. A good website must remain uncluttered regardless of what device you are browsing it on.
Navigation
The options or pages on a syndication website must be easily accessible. A well-developed site does not require multiple clicks to navigate from one page to another. It should be simple and hassle-free.
Some of the accredited top real estate syndication companies with online platforms are RealtyMogul, FundRise, CrowdStreet.
RealtyMogul. The chief executive officer of RealtyMogul, Jilliene Helman, established the company based on her definition of a “wealthy” individual. For her, the wealthiest possess three (3) characteristics.
First, those people are fond of investing in the real estate market. Second, they are passive income earners who do not need to spend their entire lives working to make money constantly. They let their money work for them. Lastly, this passive income mainly comes from their real estate investments.
FundRise. The vision of this company’s founder and CEO, Ben Miller, is to build an investment platform educating people on how to find real estate syndication deals that are accessible.
FundRise targets single investors through minimal fees and cost-efficient transactions. The company also focuses on creating a space where there is a direct relationship between investors and FundRise’s team.
CrowdStreet. The idea behind CrowdStreet has been in existence since the Great Depression. The pioneers, Powderly and Steen, saw the concentration of investors on Wall Street. Hence, they wanted to build diversified portfolios through real equity crowdfunding.
CrowdStreet has developed over 600 real estate projects and has around $3.0 billion worth of collective investments from thousands of individuals. These projects have been paying out more than $500 million in returns on investments.
Structure of Real Estate Syndication Investments
Straight or Equity Split
If you are new to real estate syndication investment, you may want to consider a straight split because it is the easiest to comprehend. The division of returns depends on your part or percentage of the ownership of the real estate property. Syndication gains upon selling or disposition of the property are also distributed accordingly.
Waterfall Structure
The main feature of a waterfall syndication structure is its preferred return. This means that there is a guaranteed percentage received during income distributions. For example, in a $50,000 investment with a 5% preferred return, you are secured with $2,500 before paying sponsors or syndicators.
Important Fees Charged by Multifamily Syndication Companies
Acquisition
These are all the fees associated with purchasing or buying the property. These include charges on finding a suitable property down to closing the deal. The acquisition fee is the cost of constructing or setting up a real estate syndication.
The acquisition fees most real estate syndication companies would charge range from 1% to 5% of the property’s total value. This fee is a lump-sum payment paid upon closing the deal on a syndication investment.
Construction
Construction fees are typically billed by third-party companies in charge of renovating and building the property. These costs are up to 10% of the entire construction budget.
Management
Asset management is crucial for transparency and monitoring real estate property. These are the fees paid for the accounting process and operation of the investment.
Asset management fees are capped at up to 3% of the investment’s total gross return or revenue. The investors pay these on either a monthly or yearly basis.
Disposition
This is the fee charged for selling the property. Disposition fees are the cost of marketing and selling the real estate property. These are charged at 1% to 2% of the selling price.
Contributors in Real Estate Syndication
There are two crucial participants in real estate syndication: the general partners and the passive investors.
Syndicator or General Partners
These people are in charge of the operation of the real estate syndication. They are responsible for a couple of tasks such as looking for potential real estate, handling transactions, and operating the investment itself.
They are the management and operations team when investing in real estate syndication. They create and adopt the business plan to ensure that returns will be provided to the investors.
Passive Real Estate Investors
A real estate syndication deal would not be made possible without passive investors. These investors are the ones financing the property.
When you are part of a real estate syndication, you own a portion of the real estate property. As an investor, you will receive returns or monetary distributions from your investments.
Summary
Browsing different websites and researching how to find real estate syndication deals is the key to securing an investment. You have to check and assess the pros and cons of each deal to maximize the return on your investment.
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