If you’re interested in investing in real estate rentals, perhaps you’ve heard of real estate syndication and are curious about it. According to the online commercial real estate syndication platform CrowdStreet, $641 million was raised in 2020 alone, amid the pandemic. That was almost thrice as much as the amount in 2018.
It looks very promising but like any savvy investor, you’d like to know more before you plunge in. This article will discuss real estate syndication and what you should look for if you want to invest in it.
What is Real Estate Syndication?
Real estate syndication is a great way to invest in rental properties. By pooling your money with other investors, you can spread the risk and get into the real estate market without going it alone. The process of real estate syndication is relatively simple. Here’s a rundown of what you can expect.
A real estate company that offers apartment investment and property management services will approach a group of investors, also known as a syndicate. The company will offer to look for a property or properties for sale. The investors will then pool their money to buy the property or properties.
The real estate company will manage the property or properties on behalf of the syndicate. The investors will receive a share of the rental income generated by the property or properties after the percentage of the real estate company is deducted.
Real estate syndication enables investors to get into the market at a lower price. But like any investment, there are a few things you should look for before you put your money down.
A Good Track Record
When you’re looking at real estate syndication, you should first research the company’s track record. How long has it been in business? What kind of success have they had with previous projects? Are they experienced in managing and developing rental properties?
Checking out a company’s track record will give you a good idea of their experience and expertise. If possible, talk to their other clients to see how they felt about the experience.
A Sound Investment Strategy
The next thing you should look for is a sound investment strategy. The company should have a detailed plan for finding, assessing, and developing the property or properties. How will they keep down costs while ensuring quality? How do they plan to increase the rental value of properties?
They should also have a solid financial plan in place, outlining how much money they need to raise and the anticipated return on investment. Does the company have a clear plan for how they’re going to generate returns for investors? How soon will profits be distributed?
Are they realistic about the risks involved? Do they factor in taxes? An excellent real estate syndication company will have a well-thought-out plan. It will be able to answer any questions you have about it.
When you’re looking at real estate syndication, make sure you understand the company’s business plan and investment strategy. This will help you determine whether the investment is suitable for you.
Another critical thing to look for is transparency. The company should be upfront about its fees and expenses. They should also provide regular updates on the progress of the project.
Make sure you understand how the company plans to use your investment money. They should be able to provide detailed financial statements and reports. The company should also be open to answering any questions you have about the project.
A Team of Experts
Another thing to look for is a team of experts. The company should have a staff of experienced professionals, including real estate agents, property managers, contractors, and construction workers. The team should be able to handle every aspect of the project, from finding the property to developing it and managing it.
Make sure you’re comfortable with the team before you invest. Ask about their experience and qualifications. And make sure you’re confident in their ability to get the job done.
How to Qualify as an Investor
Not everyone can invest in real estate syndication, though. According to the U.S. Securities and Exchange Commission (SEC), you have to either be an accredited investor or a sophisticated investor.
An accredited investor is defined as someone with a net worth of at least $1 million or an annual income of not less than $200,000. A sophisticated investor has experience investing in complex products like hedge funds or private equity.
Suppose you don’t meet the criteria for either of these categories. In that case, you can still invest if you’re willing to put down a more considerable sum of money. The minimum investment for most real estate syndication deals is $25,000.
Due Diligence for Maximum Returns
Before investing in real estate syndication, make sure you understand the requirements and risks involved. It’s essential to do your research and talk to other investors to get a better idea of what to expect. Make sure you’re comfortable with the company you’re working with.
Look for a company with a good track record, a sound investment strategy, and transparent business practices. These are all signs that you’re working with a reputable company that will look after your best interests. Doing your research and due diligence will help you make informed decisions and protect your investment. You can then confidently explore this excellent opportunity to invest in rental properties.