15 Aug What Exactly Is A Real Estate Syndication?
What Exactly is a Real Estate Syndication?
A syndication, in simple terms, is a group investment whereby a group of investors pools their resources (capital, knowledge, or expertise) to invest in a particular project together.
Real estate syndication entails the concept of investors who pool their resources to invest in commercial real estate assets, such as apartment communities, self-storage facilities, and mobile home parks.
The real value of investing in a real estate syndication is that you are able to leverage other people’s time, knowledge, energy, and extensive expertise.
In a real estate syndication, the deal sponsors are the general partners or the active investors. These are the individuals who have the expertise and the knowledge of that particular real estate market. They take the time to vet the real estate brokers and they conduct due diligence on the projects. They walk the units and perform extensive inspections, they pore over various legal documents and contracts, and they oversee the business plan execution and the day-to-day management of the investment. They do it all.
As a passive investor who invests in a real estate syndication, I am able to invest in an amazing real estate asset alongside a solid deal sponsor team who has a strong track record of success while I collect great returns all while I do little to no work.
So, let me just repeat that, because it bears repeating. I am able to invest in a commercial real estate asset without having to do any work on the project, and I get returns and a percentage of the profits. Yep, you heard that right. Pretty slick deal.
The deal sponsor team (or general partners) take care of everything, and I receive a tidy monthly report on the progress of the project. I just collect the monthly distributions so that I can spend more time doing the things I want to do and not the things I have to do.
That’s the value of passive investing.
So, you might be wondering, what’s the catch?
Right, I get it. I thought the same thing when I first learned about real estate syndications. Do you mean I can be a real estate investor without EVER having to be a landlord? I’ll take it!
So, simply put, there is no catch when it comes to investing in commercial real estate syndications.
A great analogy of a real estate syndication is sort of like an airplane trip. The deal sponsors act as the pilots directing the flight plan (or in this case the business plan). They conduct all of the work to see to it that the plane lands safely (or that the investment is managed well). If there is an emergency, the pilots take care of everything on our behalf.
The passive investors are like the passengers on the flight. They get to sit back, relax, and enjoy a safe flight while the pilots bring us to our destination. The passengers (like the passive investors) don’t have any work, they have no responsibilities in making sure the plane (or the project) arrives safely at its destination.
For their time commitment, hard work, experience, and knowledge, the deal sponsors get a cut of the deal just like a pilot would get paid for flying the plane. The larger part of the returns, however, go to the passive investors, even though the passive investors aren’t doing any of the work.
In a syndication, it is a community of passive investors who contribute the lion’s share of the equity capital and the active investors who do the lion’s share of the work. These two groups of investors come together so that everyone can safely land at their destination…together. Everybody wins.
What do returns look like in a real estate syndication?
Real estate syndication returns can vary just as they do when you make any other real estate investment. There are factors like the asset class, asset type, the real estate market and submarket, and the proposed business plan that will all determine what type of returns you will receive in a syndication among many other factors.
We look for deals that have a cash-on-cash return of somewhere between 7 to 10 percent per year with a projected hold term of between 5 – 7 years. These are the deals that we like to invest in, and these are the type of deals we typically present to our investors.
Remember, in a syndication you also receive a portion of the equity when the property sells. When we also factor in the profits from the sale of the property, say in 5 years, we typically have average returns for our investors of around 20 percent per year. Of course, returns are never guaranteed.
So, if you invested $100,000 in a real estate syndication that we offered, and if there was say, an 8% preferred return, you could expect to earn about $8,000 a year in cash flow distributions. So, over 5 years you could receive $40,000 in distributions. Add to that a portion of the profits when the asset sells in 5 years and you might expect to receive say another $60,000.
So in 5 years, after the asset sells, you could likely receive $200,000. You would receive your $100,000 initial capital back and you could receive an additional $100,000 in distributions and profit to double your investment. All while doing no work at all.
How Do You Invest in a Real Estate Syndication?
The process of investing in real estate syndications is not the same as buying a rental property. You can’t just call a real estate broker and ask about a syndication. It’s not quite that easy.
To find great real estate syndication opportunities, you will need to locate good, solid sponsors who are under contract to purchase a commercial real estate asset. The SEC has strict guidelines about publicly advertising deals, so sponsors aren’t out there advertising them unless they are a certain type of offering. As a result, it’s likely you won’t know about the real estate syndication opportunities unless you have networked with other sponsors or networked with people who know other sponsors.
Luckily, now you know us at PCRP Group, and we can help you learn more about great syndication opportunities.
At PCRP Group, we specialize in working with passive investors in connecting them to experienced sponsors in fast-growing markets who invest in prime real estate assets usually much-needed, safe, and affordable residential apartment communities. We, at PCRP Group, do all of the heavy lifting of locating and vetting the sponsors and the deals. We find the best deals in the best markets, and we help to make them available to our investors.
We’re investors first and foremost. So we’re always looking for great real estate deals that we want to invest in ourselves. When a deal meets our strict guidelines then we bring those investment opportunities to our group of investors and we invest right alongside them.
So, we don’t present a deal to our investors that we aren’t willing to invest in ourselves.
What does PCRP Group get out of it?
We’re in the business of helping people. We’ve seen firsthand the positive outcomes that great sponsors and investors working together through real estate syndications can make within a community. We have the power collectively with other investors to turn residential communities into thriving, safe, clean, and affordable places for our residents to live.
As for how we earn our keep, that comes from the relationship we have with our sponsor partners as part of the general partnership. We work hard to locate great deals with great sponsors. We then partner up with those sponsors and work alongside them to become a part of the general partnership.
As a part of the general partnership, we receive a portion of the sponsors’ fees and equity in the deal at sale. What this means for you is that, as a passive investor, you invest your capital directly into the syndication; you never pay us any extra fees. We’re paid directly through the general partnership for our share of the work that we put into the deal.
And that’s it, pretty simple, right? In a nutshell, we provide amazing investment opportunities for our passive investors while creating an impact on the people that we serve (our residents and neighbors) when we purchase an affordable housing community. It’s truly a win/win for everyone.
Hope this helped you to learn a little something more about real estate syndications. Until next time, Earn Passively & Live Abundantly!
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!