A Beginner’s Guide to Building Wealth Through Real Estate Syndication

What’s the secret to growing your nest egg slowly but surely? According to 29% of Americans surveyed by Bankrate, it’s investing in real estate. There’s just one problem: Not everyone wants to be a landlord or commercial property manager. That’s where real estate syndication comes into the picture.

Real estate syndication offers investors the best of all worlds because it doesn’t necessitate a hands-on approach. If you’re unfamiliar with real estate syndication, it’s when a group of investors comes together to crowdsource one real estate investment. By pooling their funds, they can purchase a more significant property. However, they aren’t expected to get involved in the day-to-day operations of collecting rent or maintaining the roof. Their role is simply to provide money today so it can become more money tomorrow.

With real estate syndication, investors can enjoy plenty of upsides. For one, they aren’t relegated to a managerial role. That’s important for busy people who want to grow their wealth in the background. Secondly, real estate syndication allows them to diversify their portfolios beyond stocks, bonds, and even other real estate investment opportunities. Perhaps best of all, adding real estate can help people leverage their wealth so they can lead the life they want.

Justin Donald, an authority on Lifestyle Investing, agrees that real estate syndication can be a smart way to become more financially secure. He notes that it’s also a good way to grow a network of like-minded investors who want to collaborate on other projects. After working with real estate investors and seeing success, Donald keeps in touch. “I try to keep the relationship intact with these people that are trustworthy, and we can rise in our wealth together,” he says. 

And real estate syndication enables you to work with the same people again and again. At the same time, you’ll learn about future real estate syndication opportunities as your circle of influence expands. 

Beginning Your Journey Into Real Estate Syndication

Like all investors, you’ll want to take some measures to prepare yourself before jumping into real estate syndication. Below are some tips to keep in mind before becoming a full-fledged real estate syndicator.

  • Understand the risks.

There’s no doubt that real estate syndication can be lucrative and fulfilling on numerous levels. However, real estate investment isn’t a sure thing. You have to be ready to accept the risks as well as the rewards.

For example, real estate can take volatile turns — often unexpectedly. Who would have guessed that a pandemic would rock the commercial real estate scene in 2020? Investors were caught off-guard. The good news was that real estate rebounded. Today, it’s booming in plenty of areas. Nevertheless, it’s important to realize that real estate value doesn’t follow a constant trajectory. Accordingly, your returns as part of a real estate syndicate aren’t guaranteed.

Another risk of real estate syndication is not vetting the entity managing the deal. For example, you may invest in a multifamily property. That’s a common practice for real estate syndication. But what if the building experiences extensive vacancies or the rent rates aren’t competitive for the area and amenities? Undertaking due diligence before agreeing to fund a real estate syndication project is key to avoiding problems.

Of course, any investment will have risks. This doesn’t make real estate syndication wrong. You just owe it to yourself to walk into real estate syndication with your eyes wide open.

  • Prepare to hunt for real estate syndication partners and opportunities.

A huge question among people interested in becoming real estate syndicators is, “Where do I find partners and deals?” Fortunately, you have lots of paths you can take these days. Perhaps the easiest is to let your fingers do the walking — digitally.

Currently, there are numerous companies in the real estate syndication industry. Most have online platforms and processes that are simple to follow. Not long ago, Investopedia showcased its top picks for websites focused on real estate crowdfunding. It’s a nice resource to serve as a launchpad for your investigation into what’s available. 

Remember that you may not be able to enter into all real estate syndication partnerships that you see, though. Similarly, you may have to wait to enter into real estate syndication until your earnings are higher. Traditionally, real estate syndicators have been expected to make at least $200,000 annually for consideration. This isn’t necessarily a hard and fast rule anymore, though. Be sure to check out investor requirements for every opportunity you identify and research. Otherwise, you could waste your time on one that’s not a fit.

  • Invest cash that you don’t need a fast turnaround on.

While real estate syndication offers a faster turnaround on returns than other passive income options, it won’t produce cash overnight. Passive Income MD notes that a typical wait on investment returns is anywhere from three to seven years. Again, that’s not bad. It just means that you shouldn’t invest dollars that you need back faster.

How much should you earmark for your initial foray into real estate syndication? In general, you won’t want to go beyond 40% of whatever your net worth may be. Some real estate syndicators even think that’s too high and prefer to start much lower, such as around the 25% mark. Since you’ll be without your cash for years, you need to consider this carefully.

You may even want to spread your real estate syndication money around and essentially “ladder” it as you would with CDs. That way, you’ll spend a little less per crowdfunded investment but you’ll see returns in a staggered fashion. For some investors, this takes away the worries of being without access to funds for too long. Plus, it allows you time to plot out how you’ll reinvest your expected returns when the money comes in.

Real estate used to be something that only the very wealthy could afford to invest in. Not anymore. Real estate syndication has opened doors for many individuals. It might be right for you and your family as well. Just be sure you take it slowly for your first go-round. From there, the sky — or skyscraper — might be the limit.