One of the best analogies for a real estate syndication is to think of it as an airplane ride. There are pilots, passengers, flight attendants, mechanics, and more, who all work together to get the plane safely to its destination.
In this analogy, the pilots are the sponsors of the syndication, and the passengers are the passive investors. They’re all going to the same place, but they have very different roles in the process. If unexpected weather patterns emerge, if an engine has issues, or any other number of surprises, the pilots are the ones who are responsible for the flight.
The pilots will likely update the passengers (“Just to let you know, folks, we’re experiencing some turbulence at the moment…”), but the passengers don’t have any active responsibilities in making the decisions or flying the plane.
A real estate syndication is much like this. The passive investors, sponsors, brokers, property managers, and more, all share a vision to invest in and improve a particular asset. However, each person’s role in the project is different.
In this article, we’ll talk about exactly who those players are, as well as their respective roles in a given real estate syndication.
People in a Real Estate Syndication
Here are the key roles that come together to make a real estate syndication
If you’ve ever experienced owning single-family or multifamily homes, you know that these investments require time and energy.
Investing in residential real estate can be challenging because, typically, you as the investor wear many hats throughout the seemingly never-ending process. Responsibilities include finding the property, funding the deal, renovating the property, interviewing tenants, and even performing maintenance.
The trouble is, it doesn’t stop there. You have to repeat most of the process over again when your tenant’s lease is up.
Why Investing in Multifamily Rentals Can Be a Lot of Work
Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each.
But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still in your court. You’re basically running a small business, which can be challenging if you’re working a full-time job.
The Case for Passive Real Estate Investments
On the flip side, there are fully passive investments in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any of the three scary T’s - Tenants, Toilets, and Termites. Oh my!
According to Forbes, once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s why:
The vast majority of people spend their lives working full-time jobs to earn a “steady” paycheck.
Meanwhile, the wealthy have somehow unlocked the secret to working less while making their
money work for them.
So what is it that the wealthy know that the rest of us don’t?
One of the biggest secrets that the wealthy tap into is the incredible power of real estate. Real
estate has the ability to generate passive income and provide a path toward building wealth.
Every dollar invested in real estate works for you in these five ways:
Do you remember the 5 paragraph essay structure from elementary school? Having guidelines
to introduce a central idea, provide 3 supportive paragraphs, and close with a strong conclusion
provides freedom and structure all at once.
The Five Phases of a Value-Add Multifamily Syndication
Similarly, each real estate syndication goes through a progression of stages with a clear
beginning, middle, and end, which ensures individual investors operate as one, according to a
clear business plan.