What is a Real Estate Investment Syndication?

If you’re interested in investing in real estate, but don’t have the time, experience or patience to deal with all the management challenges it brings, a real estate investment syndication might be the way to go. 

Put simply, a real estate investment syndication is a way for a group of investors to pool their money together to buy property. Typically, it is managed by the Sponsor/Syndicator and an LLC (limited liability company) is used to hold the title (ownership) of the property and create the partnership agreement among all the investors through an Operating Agreement. . 

There are two key players in a real estate syndication; the Syndicator (aka Sponsor/General Partner/GP) and the Passive Investors (aka Limited Partners or Members). 

The Syndicator is responsible for structuring and operating the syndication which includes underwriting, property due diligence, negotiating with sellers, bank financing, raising capital with investors, capital improvements, asset management, tax returns and investor relations among other things.     

The Passive Investor is responsible for providing their portion of the capital (money) to acquire the money. This is typically done with a group of Accredited Investors. In exchange for their capital contributions, they receive ownership shares of the LLC that owns the property. 

You can form an LLC in any state, but they are typically formed in the state where the property is located. However, you can use an out-of-state LLC to take advantage of some specific protections some states have over others. Commonly, Delaware, Nevada and Wyoming are used in real estate syndications because of the case law protections and limited information they require from the owners. 

LLCs are the preferred entity structure in syndications because they protect the investors from personal liability that could occur from a property.

There are many different types of real estate asset classes and strategies involved including value-add apartments where the property is purchased and capital improvements (renovations) are made to justify increasing rents. Value-add apartments are our favorite asset class and long-term investing strategy, but many syndicators specialize in self-storage, mobile home parks, hotels, and vacation rentals.

We also specialize in syndicating real estate developments where we buy raw land or property with tear down condition improvements and build new construction apartments, single family homes or ADUs. Depending on where we are in the real estate cycle, developing can be the most advantageous strategy offering the highest returns. However, with a quick turn in the market, it can also be the riskiest strategy if there are no buyers or banks willing to play ball when you’re finished with construction. 

About the Author

Jonathon Dilworth is the Principal of C&D Partners, a real estate development and investment company that specializes in value-add multifamily investing in the Western United State and for-sale spec single-family-home development in Culver City, CA.