Ultimate Guide on How to Start in Real Estate Syndication

After deciding that a real estate syndication is a good fit for your investing goals, the space between that decision and actually committing your money may seem nebulous. In this article, we walk through each step needed to get from decided to invested. 

Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.

Find an Investment Opportunity

For first-time syndication investors, finding an open, appealing project is usually the most challenging piece of the process, but several options exist. Here are some for you to consider as you start your journey. 

Many real estate investors rely on networking and personal connections to find deals. Meeting those in the industry who live in the same area as you is a good starting point. The introverts among us will rejoice that meaningful real estate networking can also happen online; through online, investment-focused forums like Bigger Pockets. But those forums can connect you with local real estate groups in your area—where you may find in-person meetups. 

Next, reaching out to syndicators is never amiss. Even if there are no open deals, syndications almost always have investor lists which potential investors can join to be notified of upcoming projects. 

While the timing sometimes works out perfectly, new syndication investors should be prepared to be patient to find the right deal at the right time; rather than rushing into something that isn’t a good fit just because it’s available. Ultimately, syndications require large, long-term commitment of your money, so be sure to choose one that instills confidence.

Evaluate Available Syndications

After finding a possible syndication, thoroughly evaluating it is a critical step for a potential investor. In addition to learning more about the property, the sponsor, and their plans to generate profit, some of the most complex parts of the vetting process are understanding the syndication legal documents. 

Syndications offer a collection of four documents: 

  • The “private placement memorandum” discloses the offering’s risks and details;
  • The investors sign a “subscription agreement” to affirm their eligibility and investment amount;
  • The “operating agreement” acts as a contract between the syndication company and the investor. And it details the rights and responsibilities of each party;
  • Lastly, the “business plan” provides details about the subject property and the trajectory of the project.

These documents not only describe the project’s framework, but also define the rights and responsibilities of investors. Don’t hesitate to review these documents with an attorney before committing. 

What to Expect After Investing

After a limited partner makes their initial contribution to the syndication, the lion’s share of their work is done. For the most part, this is the point where they can start enjoying the passive nature of being a limited partner, but there are a few housekeeping items to stay aware of.

Subsequent Capital Contributions

During a syndication project, the sponsor may request additional funds from the limited partners. Known as capital calls, this part of the process should not be a major surprise to savvy investors. This is also the part of the process that can give syndications a less-than favorable reputation.

The capital calls happen as syndications plan for additional contributions. Doing so allows investors to hold on to their funds for longer or have more time to move investments around to free up the second portion. The second, smaller contribution, may be earmarked for major building renovations or other substantial projects. 

Failing to respond to capital calls can lead to financial consequences, including termination, from the syndication. Remember, the syndication plans for and relies on investor funds for the operation of the project. 

Tax Reporting Requirements

Tax time isn’t all bad news as a syndication limited partner. In addition to receiving tax documents that record earnings, limited partners also get a Schedule K-1 with their portion of the syndication’s deductions. Be sure not to overlook this, as it will drastically reduce your tax burden.

Ongoing Project Operations and Distributions

Limited partners can look forward to project updates—and then profit distributions—according to the syndication’s operating documents. Often, this happens through an online portal so that investors can receive secure documents and messages. 

Project Termination

Investors’ involvement with a syndication usually ends with the sale of the property. Estimates vary by project, but syndications rarely want to hold a property for over five years. 

Final Thoughts

While syndications offer fantastic options for passive income, we know starting can be a challenge. Life Bridge Capital can make the process easier. Let us help you reach your investment goals.

Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.

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