Many think investing in real estate means dedicating your time to finding properties, dealing with tenants, or rehabilitating properties. That prospect is not attractive to some would-be real estate investors. Fortunately, there are multiple proven, unique, and profitable ways to invest in real estate and still get the benefits!
One of them is setting up a syndication company.
Read on to find out what this is and how to start a real estate syndication company.
What is a Real Estate Syndication Company?
A syndication company brings real estate investors together to pool their financial resources to fund large-scale real estate projects. You do not have to worry about the number of investors you bring together in the company.
All members of the company do not have to meet a certain experience level to join, making it the perfect opportunity for experienced and new investors. Further, the company offers members profit level and investment level investments.
Investing in a syndication company allows new investors to invest in large-scale projects with less capital and they can watch their investment portfolio grow!
The syndicate may buy a retail center, an office building, a warehouse, an apartment complex, or land for developing any properties above. The property title remains in the name of an LLC or entity specifically for such an investment.
A contract, a Private Placement Memorandum, divides the LLC into shares (or securities) that investors like you purchase to become equity investors. A syndication real estate company can raise money from investors as debt.
Taking part in the syndication process means you become a passive investor, and you do not have to worry about the daily operations of a property. Instead, you collect a share of the cash flow. A small team or an individual (deal sponsor) handles the operations of the property.
The 10-Step Guide to Starting a Syndication Company
Nearly all real estate investors dream of starting a syndication company. So, how do you do it? What does it take to succeed in such a competitive arena?
Here is a step-by-step guide that will take you through creating and establishing a real estate syndicate company from scratch.
Step 1: Select Your Preferred Asset Class
Figure out what asset class is most attractive to you.
The options available include:
- Single or multi-family residential
- Self-storage facilities
- Hospitality properties
- A shopping center
- Developing property on raw land
Step 2: Get Training on Asset Class
It is important you invest in learning more about purchasing, owning, and selling your preferred real estate asset. One strategy to learn as much as possible is by studying the moves of top real estate syndication companies.
A narrow asset class makes it easier to get the right training and helps you focus on a single asset without suffering from the new shiny object syndrome.
Step 3: Branding
Choose a company name that will brand all your syndication efforts. The name will also appear in forms and even business cards.
You must bring in an attorney to draft an operating agreement if you have partners in the company. The attorney will also be pivotal when structuring a syndication deal.
Step 4: Pick the Company Structure
The real estate syndication structure depends on the property you want to invest in. Your structure also determines the strategy you will use.
Some questions to think about include:
- What type of asset class will you invest in?
- Is long buying and holding a preferred strategy?
- Do you want to flip the property quickly or develop it?
- What Internal Rate of Return (IRR) or Return on Investment (RoI) do you want to produce?
This step will also help you create a solid business plan and mission statement defining your company’s purpose and strategy.
Step 5: Get Training in Real Estate Syndication
If you are new to and looking to learn the ins and outs of real estate syndication, invest in training.
Professional training offers you actionable, relevant, and quality content to help eliminate knowledge barriers that may keep you from achieving your real estate investment dreams. Some topics you can expect during training include how to structure a syndication deal.
Step 6: Build an Investor Database
The next step when learning how to start a real estate syndication company is compiling and building a database of potential investors.
The database is a central location to keep track of your investor data, their contact, details, or any other information concerning prospective investors. Use the database for:
- Building investor personas depending on their investment behaviors
- Reducing investor churn
- Providing personalized support
- Promoting your real estate syndication company by providing relevant information
- Personalizing email communication
Step 7: Investigate Deals and Make Offers
The next step involves finding and analyzing deals before you send Letters of Intent (Lois). However, you might have to make several offers before you get one that sticks.
Successful real estate syndicators send out 10 to 100 LOIs a month. So, the more you send out, the better the deals you will find.
Step 8: Get the Property Under Contract
Before you share any information with investors, you must get the property under contract and carry out some due diligence.
The minimums before sharing the information include:
- Signing a purchase agreement
- Reviewing the past couple of years’ financials of the property
- Visiting the site
- Carrying out an analysis
- Working on a property overview
Step 9: Hire an Attorney
Bring onboard a competent attorney to draft Real Estate Syndication Offer Documents and review the Property Overview. However, make sure you hire a securities lawyer.
The best attorney also offers legal and practical advice based on years of experience, including:
- Structuring the company
- Selecting and following the appropriate securities exemption
- Approaching your investors
- Splitting money with investors
Step 10: Complete the Transaction
The last step involves finishing your due diligence, lining up the lender, and getting your investors ready for the deal!
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After learning how to start a real estate syndication company, you are well on your way to achieving your dreams and goals. The first syndication is always hard, but it gets easier with time!