Real estate syndication is an investment strategy that allows individuals to pool their resources to invest in larger, more complex real estate projects than they could on their own. In a real estate syndication, investors typically form a special purpose entity (SPE), which holds title to the property and manages the investment for the parties involved.
The property is typically owned by a legal entity, such as a limited partnership (LP) or limited liability company (LLC), that is created specifically for the investment. The investors in the syndication, who contribute capital to the project, become owners of the legal entity and therefore own a share of the property.
What is Real Estate Syndication?
Real estate syndication is a method of pooling money and resources from multiple investors to purchase, operate, and manage a real estate investment property. A real estate syndicate is typically formed by a sponsor, who identifies and manages the investment opportunity, and a group of investors who contribute capital to the project. The sponsor finds and negotiates the purchase of the property, secures financing, manages the property, and distributes profits to the investors.
Real estate syndication allows individual investors to invest in larger, more complex real estate projects than they could afford or manage on their own. By pooling resources and expertise, investors can spread their risk across multiple properties and projects and potentially earn higher returns than they would through individual investments.
What is a General Partner?
The legal entity that owns the property is typically managed by a general partner or manager, who makes decisions about the property, such as acquiring and selling the property, making repairs and improvements, and managing tenants. The general partner or manager is typically the sponsor who started the syndication and brought together the group of investors.
Special Purpose Entities and Limited Liability Structures
In a real estate syndication, the ownership of the property is usually held by a special purpose entity (SPE) created specifically to hold the property. The SPE is typically structured as a limited liability company (LLC) or limited partnership (LP), which allows investors to pool their capital and invest in the property as a group.
Instead of owning a direct interest in the property, investors in the syndication will own an interest in the SPE. The syndication agreement will typically set out the rights and responsibilities of the investors and the managers of the SPE, including how profits and losses are allocated, how decisions are made, and how the property is managed.
Overall, the ownership structure of a real estate syndication allows investors to participate in larger and more complex real estate investments than they might be able to on their own, while also providing some degree of limited liability protection.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.