If you’ve been considering real estate syndication as an investment opportunity, you’ve likely come across the term “syndicator.” But what exactly is a syndicator in real estate investment, what do they do, and how can you vet syndicators to determine the best investment opportunities for you? We’ll cover all of these questions in this post.
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What Does a Syndicator Do?
Before defining what a syndicator is, it can help to have a clear understanding of what real estate syndication is. Real estate syndication is a method of real estate investing that allows for a group of individual investors to pool their resources in order to fund a larger project, like a multifamily property redevelopment project. This group funding aspect allows individual investors to participate in larger real estate investment opportunities that otherwise might not be accessible to them due to a lack of funds, experience, or unwillingness to put in the work themselves to develop a project.
The syndicator in a real estate syndication project, also known as the sponsor, is the party who manages the group funds and facilitates the actual work to develop the project. The syndicator performs all the leg work from locating properties to development and management. The syndicator will present investment opportunities to individuals in their network and manage distributions to participating investors based on the terms of the deal. This sponsor-investor relationship makes real estate syndications a great opportunity for those interested in passive investments. Investors simply choose whether or not they want to participate in a syndication project, and the syndicator or sponsor performs all the necessary work to actually manage the project, then pays out returns to investors.
What to Look for in a Commercial Real Estate Syndicator
Choosing the right commercial real estate syndicator is the key to your investment success. The best syndicators bring the experience and intellectual capital required to identify viable opportunities, invest wisely, and deliver positive financial outcomes. So how do you find this ideal syndicator? Here are some of the most important characteristics to look for:
- Market Knowledge. Successful real estate syndication requires that the syndicator is very familiar with the geographic area where they maintain real estate projects. They should understand the basic demographics, plus any economic, regulatory, and market shifts that may be happening in the area. Is there local population growth? Job growth? Diversity in housing needs? Ask the syndicator how they stay on top of news about their investment projects.
- Legal Savvy. Your syndicator doesn’t need to be a lawyer or realtor, but they should be familiar with real estate laws and regulations. They should have a solid real estate background as it relates to investing. This type of investing can involve landlord-tenant laws and contract law. Your syndicator should have a firm grasp of the most relevant rules for commercial real estate.
- Tax Understanding. Real estate investing comes with certain tax implications. There are many tax benefits and you’ll want your syndicator to know how to help you take advantage of them. Investors in real estate syndications have mostly tax-free use of the distributable cash flow from their investments. You could also see significant financial benefits when the property is sold or refinanced.
- Structure. Another important consideration is how the syndicator is structured. The waterfall structure is the gold standard of structures in real estate syndication. Download our whitepaper, A Guide to Passively Investing in Commercial Real Estate, to learn more about this syndication structure.
- Experience Adding Value. Adding value for investors is the primary goal of a commercial real estate syndicator. They should know how to identify opportunities in the marketplace and instantly see potential value in undervalued properties. This requires a special blend of financial knowledge, marketing savvy, and real-estate development skill. Your syndicator should be a champion for the project, building value at every opportunity. Ideally, they will have a methodical approach to value-building that delivers results.
- Multifamily Housing Interest. Multifamily housing provides a huge opportunity for commercial real estate investors. These projects are less affected by economic downturns than other types of investments and can bring huge returns over the long term. This is why it’s worth asking: Does your syndicator handle this type of lucrative project? If not, why not?
- Comprehensive Portfolio. The syndicator should have a large portfolio of successful projects. Ideally, they would share the financial details of their past projects so you can understand how their syndicate works. Review these projects and see if they’re the right match for your investment approach. With the help of the right commercial real estate syndicator, you can develop a passive income that serves you well for years to come.
Life Bridge Capital is a leading commercial real estate syndicator that can fully meet all of the criteria described above. We will help you find success in real estate syndication. Contact Life Bridge Capital to start your real estate investment journey.
Questions to Ask Before Investing with a Real Estate Syndicator
So, you’ve vetted syndicators and have decided on one or a few who you think you might like to invest with. Before signing a deal, however, it can be in your best interest to ask the following questions:
- What is Your Background? Build trust and rapport with a real estate syndicator by asking about their background. What types of projects do they work on? What has worked for them in the past, and what has not worked?
- How Do You Monitor the Market? Ask how they stay informed about the global and local real estate markets and how they look for new investment opportunities. Their answers will tell you a lot about how well they know the marketplace and whether you agree with their investment strategy.
- How Will You Communicate with Investors? Communication is a vital part of a syndication relationship. Ensure they are a good communicator who will provide regular updates at expected intervals. When your syndicator is a great communicator, you always feel informed even as you maintain your status as a passive investor. This means you can invest wisely without being bogged down by the day-to-day details that the syndicator is handling.
- How do You Add Value to Projects? It’s all about building value. Ask how the syndicator finds hidden value and adds it to real estate projects. Any good syndicator should have a clear answer to this question. After all, it’s their bread and butter!
- What Projects Do You Have in the Works? In addition to their portfolio of completed projects, ask about the projects they’re most excited about right now. Current projects can give you an idea about future projects, even if their current projects aren’t open to new investors. A new opportunity can arise any day.
- Could I Have Some References? This is a great time to ask for references and talk to other investors about their experiences. A good syndicator should welcome the chance to share positive testimonials from other happy investors.
- Do I Meet the Requirements? Ensure you meet the investing requirements. The minimum investment to join a real estate syndication is typically $50,000. Investors usually must be accredited or sophisticated, which in the U.S. means financially secure as defined by the Securities and Exchange Commission (SEC).
- What are the Terms and Conditions? Finally, read the contract before you sign it. Talk it over with the syndicator, because it’s in both parties’ best interests to have a meeting of the minds. Read the terms and conditions of the agreement carefully and ask questions about investment terms you don’t understand. This is the best way to become an informed investor who builds a mutually-beneficial relationship with a syndicator.
Get Started with Real Estate Syndication Today
Still have questions? Life Bridge Capital is ready to answer your questions and help you find success in real estate syndication. Contact Life Bridge Capital today.