Real estate syndication is the process of pooling funds from multiple investors – usually between 2 and 10 people but sometimes as many as hundreds of investors to finance the purchase of a property (or properties).

In exchange for your investment, you’ll receive a percentage of ownership in the form of equity units or shares. These units entitle you to a portion of the rental income generated by the property as well as a share of the profits if and when the property is sold.

The lead investor, or syndicator, is responsible for finding and vetting investment opportunities and managing the property’s day-to-day operations. But they may delegate some responsibilities to third-party professionals.

This structure has several benefits for the investors and the project itself.

Private investors can get involved in a real estate project without the pain of managing a property.

And for the project, it means that experienced professionals handle all the details and management.

Real estate syndication allows investors to tap into more considerable capital. This can be especially helpful for new investors who may not have the financial wherewithal to go alone.

Some other benefits of real estate syndication include:

• Reduced risk: By investing in a syndicate, you spread your risk across multiple properties and real estate investors. This can help protect you from the potential downside of any particular investment.

• Increased potential return: Pooling your resources with other investors gives you access to a larger pool of capital, increasing your potential ROI.

• Improved diversification: By investing in a syndicate, you can gain exposure to a broader range of properties and markets. This can help improve your portfolio’s diversification and reduce your overall risk.

• Ease of entry: Syndication provides a simpler and easier way to start real estate investing, especially if you’re new.

There are several factors that will affect your potential return, including the type of real estate being syndicated, the location, the business plan, the property management fee, the management team’s experience and track record, and more.

Every syndication is structured differently, so the projected returns can vary quite a bit. However, what we can tell you about are the types of returns most investors can expect.

When you invest in a real estate syndication, you can expect to receive both ongoing cash flow returns (typically to the tune of about 7 – 10% per year, on average), as well as profits from the sale of the asset. The total return on a typical syndication can range from 1.8x to 2x equity multiple.

For the majority of our investments, when you factor in the profits from the sale after the 3-5 year projected hold time, the average annual return typically comes to around 15-20%.

Of course, there are no guarantees when it comes to real estate investments, so your actual return could be higher or lower.

When you participate in a group investment opportunity as a limited partner, you can expect regular quarterly cash flow payments up to the date of sale 3-5 years from the purchase date.

During that time, the asset typically goes through a value-add strategy. That could involve anything from making cosmetic improvements to renovating and adding new amenities.

The goal is to increase the property’s value so that occupancy remains high, rent can be brought up to market value, and when the business plan is complete, the asset sells for a profit.

After each year’s tax season, a limited partner will receive a Schedule K-1 report that will be shared with their accountant for the purposes of individual tax return preparation.

At a high level, an accredited investor is a person or entity that’s allowed to participate in certain securities offerings.

Usually, these securities are more complex or sophisticated investment offerings that may not be registered with financial authorities. This ensures that any investors who participate are financially savvy enough to fully understand and evaluate the risks of potential investments and thus don’t need the protections that come from a registered offering. These types of exempt securities offerings, which include many real estate syndications, are called private placements.

While some private placements can be open to non-accredited investors who have a personal connection with the investment leads [for example, 506(b) offerings], many are open to accredited investors only [for example, 506(c) offerings].

As long as you meet at least one of the following requirements, you are considered an accredited investor in the eyes of the SEC. Based on the type of private placement offering, you may be required to “prove” your accredited status in order to qualify to invest.

The first and most common way to qualify as accredited is via financial requirements. This means that you meet either an income threshold or net worth requirement, or both.

Income Requirement

The first requirement is based on income. To qualify as accredited via the income requirement, you must:

• Have an annual income of $200,000 (or $300,000 for joint income with a spouse or spousal equivalent)

• Have been at this income level over the last 2 years

• Expect to earn the same or higher income this year

Net Worth Requirement

The second way to qualify as accredited is via the net worth threshold of $1 million or more, not counting your primary home, either on your own or together with your spouse / spousal equivalent.