A real estate property investment can feel like a daunting undertaking alone, which is why a real estate syndication could be a great option. As an investor, you have plenty of possible investment options at your disposal, so picking the right one is of the utmost importance. With this type of syndication, you will work with a group of investors to purchase and manage an investment property.
Whether you want to set up a rental and earn passive income or flip a property, this arrangement provides security, peace of mind, and an opportunity for beginner investors to learn the ropes.
At mbanc, we have helped self-made people capitalize on the best real estate investment opportunities for years with our interest-only DSCR loans. Read our guide to this arrangement and how you can earn passive income to build generational wealth.
What is a Syndication for Real Estate Property Investments?
A real estate syndication, also referred to as property syndication, is a partnership between multiple investors to take on a real estate endeavor.
In this partnership, a group of investors raises and pools capital and resources to buy a property they couldn’t afford alone. Investors contribute the bulk of the capital. After purchasing the property, these investors typically manage the property together as a rental.
This partnership is often either a Limited Liability Company (LLC) or a Limited Partnership (LP). Syndications can be a great entry point for a real estate property investment and are composed of three primary players:
- A syndicator/sponsor
- An investor/limited partner
- A joint venture partner
For investors, syndication is a great opportunity to create passive income, but syndication can have different goals. For example, some syndications aim to set up a rental property, while others set out with the goal of flipping the property.
What Are the Benefits of Real Estate Syndication?
For those interested in making a real estate property investment, there are considerable benefits for both seasoned and beginner investors. Some examples of real estate syndications include:
- A great source of passive income
- Tax-saving benefits
- A higher return potential
- No need to worry about managing the investment property
- Access to unique investment opportunities
- The opportunity to diversify your portfolio
- Lower minimum investment requirements
- Less liability, and therefore, less risk
- Cash flow
Syndication is a good option if you:
- Have capital to purchase a property but lack expertise in managing it
- Are interested in acquiring more properties to build your portfolio and wealth
- Lack the money to purchase a specific kind of property
“You probably know the saying there’s power in numbers. Well, with this arrangement, the numbers will be on your side. Participating in a real estate syndication can be a great opportunity because it allows investors to share their financial resources and expertise they wouldn’t be able to afford or manage alone.” – Desh Weragoda, mbanc CTO.
How Do You Make Money from Real Estate Syndication?
Because investors put in more money, they often get a “preferred return.” Profits from these arrangements vary, but those looking to generate passive income from a real estate property investment can generally expect to receive about 70% of the profits.
“We usually advise people to look at the investment strategy, property type, associated risk, and other variables to forecast their returns in this endeavor.” – Desh.
A Real Estate Syndication Agreement Checklist
This partnership is, effectively, an agreement. Preparing a legally-binding agreement is essential before you invest. A typical agreement for this kind of real estate property investment should include three key elements:
- Communication practices: When, where, and how you discuss decisions moving forward.
- Profit-sharing procedures: A detailed agreement of how you will share prophets between all syndication members.
- Voting rights: Specific language detailing how you will vote on issues that fall outside of this syndication agreement.
Mortgage Solutions for Real Estate Property Investments
Investing in real estate is an excellent way to build wealth and achieve true financial freedom, which is the foundation of the American Dream. Still, this can be daunting for new and seasoned investors alike. Just as importantly, investors are often prohibited by their available resources, which can result in an inability to capitalize on great opportunities. A real estate syndication is your entry point to unimaginable opportunities.
To learn more about how our DSCR loans can finance the start of your short-term rental investing journey with a fast and easy approval process, apply for financing today.