- Eric Garber
What is a Syndication?
Updated: 18 hours ago
A syndication is simply a real estate deal in which several investors combine their funds to buy a property.
A sponsor or group of sponsors (also referred to as general partners) is responsible for locating the deal, coordinating the transaction and funding, and managing the investment once the transaction has been completed. The sponsors then tell potential investors about the deal to see if they’d like to invest. In exchange for ownership in the real estate, passive investors (also referred to as limited partners) provide the majority of the funds needed to buy the property.
While a syndication transaction can be made with any sort of real estate investment, Regency Investment Group specializes exclusively in multifamily residential (i.e., apartment buildings). Many real estate investors like multifamily investing because it often provides steady income and is regarded as one of the safer forms of real estate investments since people always need a place to live.
How investing in a multifamily syndication as a limited partner differs from buying your own investment property:
Limited Partner in Syndication
Direct Owner of Investment Property
Finding the property
Sponsor: Locates, underwrites, secures financing, performs due diligence and provides you with a detailed investment package.
You: Review, ask the sponsor questions, and decide if you’d like to invest.
You are responsible for working with real estate agents, home inspectors, banks or mortgage brokers, insurance agents, attorneys, etc. in order to locate, analyze, perform due diligence, negotiate items found during inspection, etc. for the property
Closing on the property
Sponsor: Signs for everything and the debt is against an LLC.
You: Sign documents online and wire your investment to the sponsor. Financing does not impact your personal credit, nor are you liable for the loan on this property.
You personally sit at the closing table, signing the closing documents. The mortgage loan is most likely contingent on your personal credit and you are personally liable should the debt go into collections.
Managing the property
Sponsor: Makes all decisions, manages all maintenance and upgrades, manages the property manager(s) to ensure property performs optimally, sends monthly communication to you, deposits quarterly distributions into your account, etc.
You: Read short monthly reports and enjoy quarterly distributions
You are responsible for managing the property directly or managing the property manager. Regardless you need to make decisions on maintenance and capital expenditures, ensure that units are leased quickly, bookkeep or hire that out, shop property insurance each year, fight property tax increases, maintain cash reserves for unexpected repairs and vacancies, etc. In other words, everything is up to you!
Selling the property
Sponsor: Works with a broker to get the best possible price, deals with all showings, negotiations, due diligence paperwork and financials, closing, and distributes profits after successful closing.
You: Read a few short emails along the way and enjoy a large distribution that automatically hits your account.
You are responsible for finding a good agent, coordinating any repairs or upgrades needed for sale between agent, property manager and contractors (or if self-managing, then you are coordinating everything including with tenants), then coordinating showings, providing due diligence paperwork and financials, and showing up at closing to sign the closing documents.
As you can see from the table above, the sponsor of a real estate syndication takes on the majority of the responsibility to ensure a project’s success. You as the investor get to share in the profits of the investment while not having to get involved with operating the property. If you’re a direct owner of a property, you will have more control and much more responsibility as well.
Direct ownership and syndications both can be lucrative investment strategies, and we hope this short article helps you determine which might be best for you.
*If you’d like to discuss this topic or anything related to investing in multifamily syndications, please reach out to Eric@regencyinvestmentgroup.com or click here to set up a meeting directly.
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