I remember the first time I heard the word syndication in real estate. I was a 23-year-old newbie agent. I thought syndications were illegal…oops. In the movies you hear of crime syndicates. The young naïve me in my early 20’s starting out as a real estate Agent, I didn’t know any different. Luckily, I quickly learned that not only were they legal, but they were how the majority of commercial real estate deals got done.
A syndication is simply a group of individuals or organizations combined to achieve a common goal. In the real estate world syndications are created to achieve the goal of owning real estate. Syndications are used when a property is too big for any one person to buy themselves, or there is a strategic reason for multiple people to buy a property.
A syndication is created by pooling money among passive investors to buy real estate. A lead investor is in charge of organizing the capital and running the day-to-day operations. A syndication is typically a single property but can be multiple properties. Syndications can be managed in a single property LLC or a limited partner structure depending on the needs of the deal.
Syndications are not formally regulated by the government, yet there are rules to follow. The Securities & Exchange Commission (SEC) does have rules on how a lead investor can raise money and who they can raise the money from. The term accredited and non-accredited are guidelines set forth by the SEC, as well as different classifications and types of deal structures.
A syndication should be governed by documents. If they are not, you might want to think twice about being involved. A syndication will generally have a Private Placement Agreement (PPM) and an Operating Agreement. These two documents will govern who does what and how everyone gets paid. It is very important that a deal have these documents.
Syndications can be a great way to invest in real estate. Just make sure you conduct due diligence before investing your capital.
Want to learn more about real estate Investing? Visit our education section.
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