Real Estate Syndication: A Career or Investment Strategy?
Insight from Ian Bushnell, originally published on March 15th, 2021.
A real estate syndication is the gathering of capital from numerous investors and applying them to real estate projects. In the past, real estate syndication was seen as an investment strategy only the wealthy could utilize, since deal values ranged from a few hundred thousand to a few million dollars.
Since 2012, the Jumpstart Our Business Startups Act, also known as the JOBS Act, has given an opportunity to non-accredited investors, allowing them to contribute capital on crowdfunding platforms and invest in real estate. Some platforms allow a minimum investment as low as $500, and to the average investor hoping to diversify their portfolio this is a great way to get into a real estate investment. Real estate syndication platforms can help diversify one’s portfolio, or for some, be a career in and of itself.
For someone looking for a more hands on opportunity with real estate but lacks the required capital for funding an investment by themselves, real estate syndication can be a foot in the door to bigger and better opportunities. An organized syndicate group often operates as either a Limited Liability Company or a Limited Partnership. Regardless of the entity chosen, there are two roles: the syndicator or sponsor, also known as a general partner, and the investors, also known as the limited partners.
The responsibilities of the syndicator consist of finding investment opportunities, securing the property, and managing it until it is ready to be sold by the predetermined exit strategy. As for the investor, the position is oftentimes passive in terms of the day-to-day management, but includes the heavy lifting when it comes to providing capital. While the investor typically makes the majority of the return following the exit, the syndicator will also get a piece of the deal and is typically compensated from other factors but not limited to: acquisition fees, asset management fees, as well as equity participation. However, these terms will be negotiated between general partners and limited partners and stated in a mutual agreement.
In terms of a career, a real estate syndicator may seem like the golden opportunity with a decent payout in the short term and potential for a relatively large payout upon exit. However, it is not a position to take lightheartedly. One must keep in mind the many responsibilities of the job, such as fiduciary obligations to the investors, the ability to complete complex due diligence to understand how sound an investment may be, as well as having an understanding for accounting and reporting.
In an industry with opportunities appearing each day, there are investments to be made, and careers to fill. If given the opportunity — where would you reside on the line of real estate syndication — the career side or investment side?
Sources:
https://www.biggerpockets.com/blog/2010-08-30-real-estate-syndication-3-ways-you-can-profit
https://www.fool.com/millionacres/real-estate-basics/investing-basics/what-real-estate-syndication/
https://www.financialsamurai.com/real-estate-crowdfunding-learning-center/
Ian is a junior from Haverhill Massachusetts, he is currently a Business Administration major who plans to focus in Finance and IBE. Ian is currently assisting professors Sohl, Chen, and Lien as a research assistant to collect data on prominent angel investors. On-campus, Ian is also involved as a brother of Alpha Kappa Psi, the professional business fraternity, and a Peer adviser for the FIRE program. Some of Ian’s interests outside of the classroom include real estate, traveling, photography and skiing.
