Syndication Series #001: What Is a Real Estate Syndication?

Are you thinking of investing in real estate but aren’t sure about the day-to-day management responsibilities? Or perhaps you understand the wealth-building potential of real estate but want a diversified portfolio?

Today, we kick off a new series on real estate syndications — a powerful way for investors to gain access to the world’s original asset class. Let’s start with the basics.

What Is a Real Estate Syndication?

A real estate syndication is an arrangement where multiple investors pool their money to buy real estate. The syndication goes out and buys some assets, and you (the investor) own a slice of the syndication.

Why Invest in Real Estate Through a Syndication?

Joining forces with other investors empowers you to access assets that might otherwise be out of reach.

For example, by teaming up in a syndication, you could purchase:

A portfolio of single-family homes
An office building
An apartment complex

While buying a single-family home is a great place to start (it’s where I began), owning a personal fleet of small rentals concentrates your risk and limits your potential.

So, why are syndications better?

Diversification: If you join a syndication that owns 100 single-family homes, you reduce your risk of a single point of failure. An unexpected flood at one of the houses won’t set back your entire portfolio.
Economies of Scale: Syndicators can use the same property managers, accountants, contractors, and other service providers across several properties, leveraging repeat business and lowering average cost.
Bigger Properties: Syndications are better able to purchase large properties, which often yield better returns. An 80-unit apartment complex only has one roof to fix (and benefits from many other common expenses), which reduces per-unit cost and boosts returns.
Outsource Management: Instead of dealing with agents, property managers, contractors, title companies, and lenders, you can focus on what makes you happy. The syndication will handle the rest.

Who Are the Parties in a Real Estate Syndication?

Typically, there are two types of investors in a real estate syndication:

Syndicator: This is the person (or company) that puts everything together, including identifying, inspecting, financing, rehabbing, and managing the property. The Syndicator might also be called the Sponsor, the Manager, or the General Partner.
Passive Investors: Syndications typically have multiple passive investors who invest alongside the Syndicator. Aside from choosing a trustworthy Syndicator, passive investors don’t have many responsibilities — the Syndicator handles day-to-day management. Passive investors are often called Investor Members or Limited Partners.

What Legal Structure Does a Real Estate Syndication Use?

Historically, real estate syndications — like hedge funds or venture capital funds — were set up as limited partnerships. The Syndicator would be the General Partner and the passive investors would be the Limited Partners.

However, as limited liability companies (LLCs) have become more popular, most syndications are now structured as LLCs. The Syndicator is the Manager (or Managing Member) and the passive investors are the non-managing Members. Check out my previous articles to learn more about LLCs for real estate investors and LLC operating agreements

We’ll dive into the nitty-gritty of real estate syndications in future articles, including Syndicator compensation, potential returns on investment, risks, and much more.

Have Questions About Real Estate Syndications?

If you’re interested in learning more about real estate syndications, feel free to reach out. I’m always happy to talk about real estate!