To be successful investing in real estate syndications requires no small amount of skill and savviness.
Every top-producing real estate agent or broker gets to the point in their career where they are forced to answer one critical question: Am I going to spend the next 10-15 years of my life running to listing appointments, or am I going to finally start investing in real estate myself?
If you haven’t hit that point in your career yet, take it from someone who has brokered more than 2,000 homes—you’ll get there.
You know better than most people the kind of wealth that real estate can create. But for some reason, most of the real estate agent crowd falls a few steps short of ever investing themselves.
If you’ve hit the point in your career where you know you don’t want to be herding sellers and buyers until you’re 70, but you have no desire to deal with delinquent tenants, broken toilets, or ornery city inspectors, what can you do?
Let’s unpack how you can use real estate syndications to design your agent optional life—while you continue being a top producer. You can lay the foundation for a future of real estate ownership without the headaches of property management.
What Are Syndications?
First, how can you own a part of a commercial property and earn income without being actively involved in tenant management or ownership duties?
Syndications are a well-proven legal structure that give real estate agents the chance to be real estate investors in large commercial properties as “passive” owners.
Without getting into the weeds, a syndication is a group of investors that pool their money to jointly purchase large commercial properties like warehouses or apartments.
There are two main parties involved:
- Limited partners (who are passive)
- General partner (who is active)
Investments from the limited partners usually make up most of the equity (down payment) needed to purchase the commercial property. From finding the deal to lending, closing, tenant management, and active management, the general partner takes care of everything. The limited partners do nothing active. They receive updates, earn distributions, and file their tax returns.
This isn’t a perfect analogy, but being part of a syndication is like owning stock in a company. You invest (i.e., buy shares of the company), but you don’t have anything to do with operations.
Limited Partners
Investing in syndications isn’t a fit for every real estate agent. The Securities and Exchange Commission (SEC) regulates this process of buying commercial real estate. The SEC is a government entity, so it has lots of rules, regulations, and restrictions about who has access to syndications. Agents who meet certain criteria (net worth over $1 million, income of $200,000 solo or $300,000 married, or extensive experience in real estate and business) are granted access to investing in syndications.
Because the investment is in commercial real estate, we aren’t talking about small investment minimums. Most syndications have investment minimums in the $50,000-$100,000 range.
This threshold isn’t a problem for the right real estate agent or broker; in fact, it’s a benefit. The higher investment minimums draw investors (not just agents, but doctors, business owners, etc.) who are high-income earners. These high-achievers are a natural circle for top-producing real estate agents to associate with. Nobody in this crowd will try to sell you on an MLM. Investors in syndications are often country club members with multiple homes, and they are looking for access to commercial real estate without adding more responsibilities to their full plates.
When you invest in a syndication with an experienced operator who aligns with your financial goals and risk criteria, you get access to real estate ownership without the duties, tax benefits to offset your passive income, and diversity in properties across a variety of markets.
General Partner
As discussed, you and other limited partners aren’t active in the operations. The general partner takes care of those responsibilities. You may hear the general partner referred to as an operator, sponsor, or GP. So, what exactly is the GP responsible for?
In essence, everything.
The GP finds investment properties; analyzes deals; builds relationships with brokers; puts deals under contract; takes care of due diligence; works with an SEC attorney for compliance; manages more emails than you can imagine; coordinates attorneys, lenders, appraisers, inspectors, and contractors; handles legal, financial, and property evaluations; works with all the limited partners (investors); manages the tenants; and provides property management, leasing, repairs or rehab. A GP should also put skin in the game—they should invest right alongside the limited partners.
Being a GP is a full-time real estate investment business that involves staff, resources, and a load of expertise. The GP and their team handle the deal from start to finish. They also take care of investors, presenting investment opportunities, putting together the legal documents, presentations, investments, tax returns, investor distributions, reports, and all communication.
Is Syndication for You?
So, should you just invest with the first GP or in the first deal you come across?
Absolutely not. There is work involved for “passive investors.”
If investing in syndications is right for you, you have two primary responsibilities:
- Invest in deals you like.
- Pass on deals you don’t like.
There’s a lot that goes into those two responsibilities. You need to define your criteria for vetting GP teams, define your risk criteria, know your financial goals, be able to make decisions, evaluate possible deals, stick to a long-term strategy, monitor all communication for deals you are invested in, and be able to account for your returns and losses.
To be successful investing in real estate syndications requires no small amount of skill and savviness. You must ask yourself this question: Is it worth taking the time now to design an investment strategy that serves me so I don’t have to keep showing homes when I’m 75?
Most of us would answer that question with a resounding yes.
So, what’s holding you back?
