Real estate syndication is beneficial for many reasons.
First, by participating in a syndicated real estate deal, investors gain access to properties that traditionally have only been available to large institutions, pension funds, and very wealthy investors. Second, the investors liability is reduced or eliminated altogether because the partnership or trust takes on all property liability.
The investor becomes a limited partner and provides a portion of the capital required to purchase the property and receives a pro-rata interest in the partnership for their contribution. By having this LP interest the investor receives monthly or quarterly passive income, depending on the properties performance.
Because the General Partner takes on the sweat equity of purchasing, operating and managing the property, the investor has no management responsibilities and none of the headaches of management.
Syndication differs from real estate investment trusts (REITs) and crowdfunding platforms in that investors in syndications can choose which specific property they invest in. This is one of the big advantages of syndicated deals. There are also tax benefits of investing in a syndicated property and the depreciation is passed out pro-rata to the partners and may offset much of the income received. The investor will receive a K-1 annually for their tax return and regular reports of the properties performance.
As the property appreciates, due to rising real estate prices, property improvements, increased rents or occupancy, there is a point at which the property will be sold to capture this appreciation and the investors realize a return on their invested capital.
