Real estate syndication deals have gained momentum in the last few years as investors bring more capital to this asset class and fund managers look for opportunities to deploy it. The number of real estate syndication deals almost doubled from Q1 2021 to Q1 2022. Industrial space, industrial and multifamily assets have continued to drive transaction growth in volumes. [Source]
Real estate syndication management is an instrumental way to get more capital to fund your deals and grow your business faster. It benefits both buyer and seller, as it typically leads to both parties achieving their desired result. For the buyer, this process can significantly reduce pricing and purchase costs while improving overall negotiation leverage. Real estate syndication management can help sellers achieve greater property exposure and build a strong network of potential buyers.
However, many fund managers find it challenging to enter these deals as they involve many moving parts and require expertise in structuring, finance, and deal execution. In this blog post, we have encased & discussed five key ways you can manage real estate syndication deals and make money.
What Is Real Estate Syndication Management?
Real estate syndication management, also referred to as real estate syndication or group buying, is managing multiple buyers interested in acquiring a single property simultaneously. The primary goal of real estate syndication management is to obtain the best possible value for the property by establishing an effective partnership among all involved parties.
In addition, real estate syndication management can be a complicated process that requires significant coordination and cooperation between all involved parties. All parties should have a brisk understanding of their respective roles and responsibilities throughout the process. In addition, real estate syndication management requires extensive knowledge of the property market and a high level of professionalism and tactfulness.
It further involves taking large blocks of real estate and selling them to a group of investors or investors in small pieces. This type of investment aims to achieve a higher return on investment (ROI) than would be possible if the properties were purchased individually. By combining resources, knowledge, and experience, real estate syndication management can be an excellent option for acquiring large blocks of real estate at a more affordable price.
What Are the Key Aspects Of Real Estate Syndication Management?
By offering real estate through a direct-sales model, the benefits of the sale are plowed back into the business through increased revenue and decreased costs. A more simple business also has more significant growth potential.
Affordability is essential because it allows more people to join the real estate company’s pool of buyers. It, in turn, opens up access to a larger potential market for the seller and increases the overall demand for the homes on offer.
Selling homes directly can allow real estate companies to get up and running quickly. It enables them to begin generating revenue much more quickly than they would if they were using a broker model. This gives them more time to build their brand and make contacts in the local real estate market that they can tap into later.
Real estate companies that work with brokers typically have to work through an intermediary responsible for collecting the selling proceeds and handing them over to the broker at the end of the sale. It can be a time-consuming process that slows down both the buying and selling process and its financial finalization. By working directly with sellers, with syndication software such as SyndicationPro, real estate companies can save on costs and make a sale more quickly than if they used brokers.
Real estate syndication management is vital for the success of a real estate company, as this is the best way to increase sales and earn more profit. It is also a great way to build trust with potential buyers, as you buy all of their properties under one roof. When selling your properties, it offers you an edge over other real estate companies.
How to Manage Real Estate Syndication Deals?
Real estate syndication has proven to be a lucrative venture. However, to make money, you must break down the ins and outs of real estate syndication deals to get your foothold in this industry.
Real estate syndication business model that allows investors to purchase a share of an underlying property for other investors who want to purchase a piece of that property as well. It's a great way for seasoned investors to get their feet wet with real estate investing and earn passive income from it. And, if you do it right, it can also be gratifying. So, let's dive into how you can manage syndication deals and profit from them.
1. Be Sure to Understand the Fundamentals
While many investors are interested in making money through real estate syndication deals, they often jump in without fully understanding the fundamentals. Before investing in a deal, it is crucial to understand the target asset type and geography, investment type and structure, exit strategy, deal size, and construction timeline.
The asset type and location play a huge role in determining the kind of investor interested in the deal. For example, certain asset types, such as hotels and student housing, attract more institutional capital, whereas others, such as residential mortgages, are more suitable for private investors.
The investment type, such as debt or equity, and structure, such as REIT or joint venture, determines the type of investor that will have interest in the deal. For example, debt investors will only be interested in debt investments, so only deals suitable for debt financing will interest them.
2. Assess Market & Target Deal Types
The first step in entering the syndication market is identifying the type of deals you want to target. Generally, real estate syndication deals are categorized into debt and equity investments.
Debt investments refer to REITs (real estate investment trusts) or fund managers lending money to other companies or individuals to finance their real estate projects, and equity investments refer to fund managers purchasing a partial stake in a real estate project, such as buying a share in a shopping mall.
In addition to these investment types, fund managers also target different asset types, such as hotels or residential mortgages and geographies.
3. Research and Analyze Deal Opportunities
Once you have identified the type of deals you want to target, you can start researching and analyzing deal opportunities. Typical deal-finding methods include:
- Scanning for news about potential deals.
- Reaching out to brokers and other syndication market participants.
- Attending syndication conferences.
For instance, if you are interested in residential mortgages and want to target assets in the United States. You can regularly check news websites and scan the internet for potential deals. You can also reach out to brokers to access a wide variety of deals.
4. Maintain the Due Diligence
The next step in managing real estate syndication deals is conducting due diligence. When considering a deal, the first step is to define the investment criteria, such as asset type, geography, and the dollar amount you want to commit to each agreement.
After identifying potential deals, you need to go through the due diligence process, which includes reviewing the deal terms and conditions, conducting legal and financial analysis, and conducting construction monitoring. Here the real estate syndication software such as SyndicationPro can be your companion.
During the construction monitoring phase, you will work closely with the fund manager to review the progress of the building and ensure that the construction is carried out according to the original timeline. At this stage in the process, you are required to work closely with the fund manager and other syndication investors, so it is important to understand the various risks and deal terms associated with each deal.
5. Identify Exit strategies
In real-estate syndication, the top syndicator's principle is that- "Start With The End In Mind, Make Money In Real Estate Syndication."
In managing real estate syndication deals, identifying exit strategies is required. Generally, there are two ways to exit a real estate syndication deal: sell your shares or the underlying property. You have the authority to sell your shares in the open market, but there is no assurance that you will be able to find a buyer at a favorable price.
If you are interested in selling the underlying property, you can sell the property as a whole or sell the underlying equity stake. You can also exit the deal by taking out a loan against your share of the property, known as a real estate loan syndication deal.
To bring the worm-eye view or manage the real estate syndication deals and make money to increase your chances of success in this challenging space, we have encrypted an infographic with the brisk point: Let's roll through it.
Bonus Tip: Check Risk Management Capabilities
In order to make money in real estate syndication, you need to have a sharp eye for details and a tremendous amount of tenacity. You also need to be well-informed about the current market conditions and trends so that you can act on them promptly and correctly. There will be many challenges and a new learning curve, but if you have that vision, with the limit you can stretch in real estate syndication, it is one of the best ways to make money in real estate, real estate management is a best bet here. .
In addition, setting real estate syndication valuation and price set points is an essential step in the business' growth. The most critical pieces of information when setting real estate syndication valuation and price set points are:
- The current value of the property you are purchasing from the seller
- The expected return on your investment
- The average closing time for your syndications (how long it will take to close each deal)
- The duration between each property's sale (how long it will take to sell all properties in your syndication)
With the correct real estate management software you keep a tab on these value points, that helps you to drive more growth & profit.
Depending on the right deal, real estate syndication deals are an attractive investment opportunity. Even though the returns may be low at first, it comes with the benefits of diversification. Also, there are tax benefits such as deduction in cost basis and interest income. So, even though the returns may be low initially, it would become more than worth it in the end.
Real estate syndication management sets you in the direction of earning profit by working with your long-term and trusted partners. You can have better insight about the project/property and its marketability, also able to negotiate the best deals with your partners. In addition you have the foresights on the legalities of the project and you can prevent the project from loss, boasting the success.