Frequently Asked Questions

In its simplest form real estate syndication is pooling investor money together and partnering with a private real estate company to increase the purchasing power of the group to acquire larger assets. The partnership formed between investors and the real estate company is designed to be a win/win for everyone involved. Real estate companies looking to syndicate deals focus on acquiring the best investment opportunities and have well established teams to operate these properties. Investors provide equity to acquire properties without having to do the legwork of acquisition and management and then benefit by recognizing a solid return on their investment passively yet still retain the benefits of real estate ownership. The significant difference between syndication and a joint venture is that in a syndication the management of the investment is controlled by the sponsor (general partner) with limited input from individual investors (limited partners). 

Many of these syndication deals are only able to be offered to accredited investors to meet SEC regulations. Which SEC registration exemption the sponsor is offering the deal under will determine to which type of investor the sponsor is able to offer the deal and how they are able to market the deal to those investors.

An “accredited investor” can be defined a number of ways but is typically met by either income requirements of $200,000/yr individually ($300,000/yr jointly) or by demonstrating a net worth of $1M (individually or jointly with a spouse; exclusive of your primary residence).

Some offerings are made available to sophisticated investors that do not meet the accreditation requirements. These individuals need to be sophisticated enough to understand their investment decisions but the pool of investments that you have to choose from is definitely greater once you can be classified as an accredited investor. 

Like all issues tax related, you are always advised to consult with your own tax professional on this subject as it relates to your own individual situation. That being said, the benefits attributed to real estate ownership as an individual are generally passed through on a fractional basis the same way they would be if you owned a property individually. This includes the ability to use the depreciation deduction to reduce the taxable amount of your investment. 

Most syndication investments of this nature are underwritten to a hold period of 3-5 years. As a passive investor you should expect to be committed for the entire duration of this projected hold period. Occasionally there might be opportunities to sell out of your shares in a deal to another investor but there is no guarantee of the availability or timing of that opportunity so one should be fully prepared to continue in a deal for the initial timeline projected at the start. 

 Most deals are structured to give the passive (limited partner) investors a return of somewhere around 15-20% with a split of profits above this amount of somewhere between 80/20, 70/30, 60/40 (limited partner/general partner) depending on the deal.

A preferred return means the return the limited partner investors receive before the sponsor takes any share of the profits. This aligns the sponsor’s interest with the investor and incentivizes them to meet or exceed projections in order to profit from the operations of the property.

Yes, generally you are able to use retirement funds through a self-directed IRA (SDIRA) or Solo 401k plan. Self-directed retirement accounts allow you to invest in “alternative assets”, real estate in this case, but require you to use a different custodian of the retirement account that offers self-directed plans. 

As well, you can frequently invest a combination of retirement and post-tax funds into a deal to meet the minimum investment (ex. $25,000 of self-directed IRA money and $25,000 of personal savings money).