A real estate syndication is the act of pooling together money with other individuals for a common purpose or goal. In real estate that goal is to purchase a property, this could be land, an office building, an apartment building or something similar. It is essentially crowdfunding and has been done long before crowdfunding through the web was a thing. A syndication breaks a property up into "shares'' based on the deal structure and the amount of money invested.
1. Time Savings
All the LP needs to do is place their money in the investment, of course prior to this they should vet out the sponsor, review the deal and make sure it meets their criteria. At this point, if it checks all of the boxes they make the investment and the money does the work for them.
2. Deal Flow
There is only so much time in the day and in order to find a great deal you typically need to underwrite many properties. Instead of underwriting hundreds of properties to find that diamond in the rough you could work with multiple syndicators who are already underwriting plenty of deals. You then compare just a few of these to find the one that you want to invest in.
3. Great Deal
This piggybacks on Deal Flow but you want to find a great deal, in a great neighborhood or maybe even an up and coming neighborhood. Generally you want to find something to invest in that has upside - this is where you can make some great money.
4. The Pref (Preferred Return)
Many times you will hear the term "pref" thrown around, this means "preferred return". A preferred return is simply a return that the investors are making prior to the deal sponsors making anything. Many times this is 6+ % depending on risk and is meant to be a way to protect the capital invested by the LPs.
5. All Major RE Benefits
Unlike a REIT investors of a syndication see all of the benefits that they would if investing in real estate on their own. These things include Appreciation, Tax Depreciation, Cash Flow, Predictability and a Hedge Against Inflation.
From a syndicators/sponsors/GPs (general partners) point of view a syndication allows the team to continue to close on deals without having an unlimited supply of money on their own. If the syndicator did not open deals up in this type of structure they may only be able to close a few properties depending on how deep their pockets are. ?
Real Estate Syndications are a tool used to grow your portfolio on either the limited partner or sponsor side of the table. While sponsors do all of the heavy lifting they leverage the investment with money pooled together by LPs. These LPs also grow their portfolio by investing in larger deals they may not otherwise would have been able to be involved in. It also allows them to take a passive role and concentrate on other things that may be of more importance whether that's searching for more investments, spending time with family or enjoying hobbies.