There are a variety of ways to get started in the real estate investment world. One way is through real estate syndication. Real estate syndication is when income property investors come together to finance an investment property. This a form of crowdfunding that is used by real estate investors in order to expand their portfolio and capitalize on larger properties. There are two specific roles taken during the syndication:
Sponsor: The sponsor typically takes on 5%-20% of the finance equity. They will be the one who locates the investment property, acquire and manage finance equity and property, and most importantly they are responsible for the overall day to day work involving the investment property.
Investor: The investor will put up the required amount needed to secure the investment. The investor is typically hands-off and will delegate most responsibility to the sponsor unless specified in the initial agreement.
Finding investors may be the easiest part if you have access to revenue producing property. There are several steps to purchasing single-family homes using syndication.
Step One: Develop your business model. You will need to have a defined goal for your company in order to recruit investors. You should know what type of property you are looking to buy and who you want to buy it. The specifics should be laid out in contracts and how the money will be used for the investment. Purpose can be a motivator for investors when working with single-family homes.
Step Two: Locate your property and start to make offers. Evaluating property can be time-consuming but it can save you a lot of money over the lifetime of an investment. The more you research the better your estimate will reflect potential growth or losses, allowing you to give specific details to your potential investors. Investors like to know the numbers make sense. Remember to go see the property physically before making any deals.
Step Three: Contract a property. The closer you are to getting an investment the more intrigued your investors will be in providing funds. Providing a purchase agreement will show them you are serious and have the details in order.
Step Four: Hire Legal Aid. A legal team that focuses on syndication deals will help you navigate the legalities of real estate investment. A strong firm can help you with all aspects of the syndication process from setting up your business, to providing valuable information revenue distribution, and securities exemptions.
Step Five: Bring in Investors. Your investors now have all of the information and specs on the potential investment. Bring them in by providing numbers on their return. Investors want to see how they will make money from the deal.
Syndication is a great way for a community of people to get into real estate investment. If you don’t have the cash on hand to purchase a property on your own setting up a syndication company may be the perfect opportunity for you and others to capitalize on the real estate market in your city.