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What is Real Estate Syndication

By Rebekah Green on 12/25/2024. 

Reviewed by Hezekiah Randolph

Real estate syndication combines a traditional investment approach with modern technology and legislation to make it accessible to a wider range of investors. While wealthy and influential investors have been using syndication agreements for centuries, recent advancements have democratized access to these opportunities.

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If you're new to the concept, real estate syndication involves pooling funds from multiple investors to collectively invest in real estate projects. This allows investors to access larger and potentially more lucrative deals than they could individually. 

Crowdfunding w/ Paper Figures

Real Estate Syndication Definition

Real estate syndication is a collaborative partnership between multiple property investors and a sponsor aimed at financing a particular development project. The sponsor, acting on behalf of the syndication, identifies and acquires the property, often overseeing its management as well. Investors collectively hold ownership of the property through the syndication structure.

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While real estate syndication shares similarities with crowdfunding in terms of pooling capital from multiple investors for a specific venture, it's important to note that they are not entirely interchangeable terms. In this article, we'll debunk common misconceptions surrounding real estate syndication, clarify its unique attributes, outline the advantages of participating in a property investment syndicate, offer insights into its operational dynamics, and assist you in determining if this investment avenue aligns with your financial goals.

How is Real Estate Syndication Unique?

In this setup, an entity, often structured as a Limited Partnership (LP), Limited Liability Company (LLC), or Delaware Statutory Trust (DST), is established specifically to acquire a singular real estate asset. As an investor, you hold ownership shares in this entity, which in turn owns the property.

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Now, let's compare syndication to similar real estate investment types.

Syndication vs. Crowdfunding

Crowdfunding is a general concept encompassing various methods of raising capital from a collective of investors. While equity funding, where investors hold a stake in the investment, is one approach, crowdfunding often involves debt funding, resembling a lending role for investors rather than ownership.

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In contrast, real estate syndication specifically denotes the collaboration between a sponsor and investors. Here, investors hold a portion of ownership in the entity that possesses the property throughout the project's lifespan.

Real estate syndication vs. REITs

REITs (Real Estate Investment Trusts) offer a common avenue for the average investor to participate in property investments without direct ownership. When investors buy shares of a REIT, it's akin to engaging in the stock market rather than possessing property outright. Notably, owning REIT shares doesn't confer ownership of the underlying properties within the REIT's portfolio.

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In contrast, syndication grants ownership stakes in the LP, LLC, or DST entities that possess the real estate assets. Consequently, investors hold a tangible interest in the physical properties.

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Moreover, REITs typically hold diverse portfolios, affording investors little control over which properties their investments support. Conversely, syndication empowers investors to select specific projects they wish to invest in, offering more direct involvement in their investment decisions.

Real estate syndication vs. real estate private equity fund

Syndications and private equity funds share similarities in pooling funds from multiple investors and granting them ownership stakes in underlying properties. However, a key distinction lies in the transparency offered by real estate syndication.

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In private equity funds, investors commit capital to the fund before specific properties are identified. Fund managers then select properties once a sufficient level of investment is secured. Conversely, syndication provides investors with full visibility into the project they're investing in from the outset. Investors have access to detailed information about the chosen project and the plans outlined by the syndicate sponsor before committing funds.

What makes real estate syndication a good investment option?

Investing in real estate alone presents several challenges:

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  • Financial Requirements: Significant cash is needed for down payments, closing costs, renovations, and ongoing mortgage expenses.

  • Skill Diversity: Various skills across analysis, finance, design, project management, and marketing are essential.

  • Industry Connections: Access to reliable contractors and vendors is necessary.

  • Supervision or Management: Personal oversight or hiring a project manager increases costs and demands time.

  • Time Commitment: Managing details requires significant time investment.

  • Risk Exposure: High capital investment in a single property requires a high risk tolerance.

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Real estate syndication offers solutions to these challenges. Here's how:

Access to Bigger Projects than You Could Finance Alone

Because project costs are distributed among multiple investors, you can participate in high-value properties with a minimal investment. While the minimum investment varies by sponsor, with Hezekiah, for instance, you can enter a $2.5 million property with just $25,000.

Flexibility

You'll have the freedom to select the project you want to invest in, whether it's a:

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Each project has its unique timeline, allowing you to align your investment with your preferred timeframe, whether it's six months or five years.

 

Additionally, you have the flexibility to decide how much to invest, as there is no set amount.

Ownership

Investing in a physical property offers a more tangible and exciting experience compared to owning shares in a real estate company or holding debt through a crowdfunding group.

Competitive Returns

Real estate has consistently demonstrated superior returns compared to the stock market over time. By leveraging the investments of other participants, you gain access to larger projects with potentially higher returns than what individual investors typically experience.

Expert Management

You don’t need to be a real estate expert to capitalize on the market. Your sponsor possesses the requisite skill, knowledge, and experience to effectively manage the project on your behalf. Additionally, they have the necessary industry connections to ensure the project's success. This means you won't have to invest any of your time or effort.

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How does real estate syndication work?

The sponsor will scout locations and acquire a property with solid potential. They will project costs for renovating, rebuilding, or developing the property to ensure profit margins are sufficient to provide investors with a strong return. Once the project has been chosen, the syndicate will be opened to investors, and the work will commence.

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As the investor, all you have to do is transfer the initial investment to the syndicate and then watch the progress! Modern real estate companies, like Hezekiah, offer online platforms where investors can receive updates and view progress photos.

Who can invest in a real estate investment syndicate?

You must be an accredited investor to invest with Hezekiah. Accredited investors are individuals or entities that meet the SEC’s requirements to qualify as sophisticated investors.

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You can qualify by meeting one of the following criteria:

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  1. Earning $200,000 or more in income over the past two years (with a reasonable expectation to continue earning as much).

  2. Earning $300,000 or more in combined income with your spouse over the past two years (with a reasonable expectation to continue earning as much).

  3. Maintaining a personal net worth of $1 million or more (excluding the value of your primary residence).

  4. Existing as an entity with at least $5 million in assets, or existing as an entity in which all equity owners are accredited investors.

 

Let’s consider a few real-world examples.

Example of a real estate syndication for a single-family house flip with Hezekiah

In the single-family market, Hezekiah focuses on homes priced under $1,000,000 in Southwest Florida due to their high demand and solid investment potential.

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Our team of experts diligently scouts neighborhoods to identify properties with promising profitability. Through thorough analysis and collaboration with our architecture, design, and construction teams, we accurately project costs and aim to maximize profit.

 

Once the deal specifics are finalized, we open the opportunity to investors. Minimum investments typically start at $10,000. We handle all aspects of the project management from start to finish. Upon completing the flip and sale of the house, we distribute the proceeds to the project’s investors. The entire process typically spans 6 - 12 months, depending on the unique characteristics of each project.

Example of a real estate syndication for a multi-family development with Hezekiah

Hezekiah has pinpointed multi-family developments in the Southwest Florida area as another lucrative investment opportunity. Given the housing shortage in Southwest Florida, multi-family projects present an attractive option, particularly those with fewer units that offer quicker turnaround times for our investors.

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Investing in multi-family development follows a similar process to single-family home flips. We meticulously scout neighborhoods and identify prime properties. Often, we acquire single-family properties that can be re-zoned for multi-family use. Our seasoned team oversees the demolition of existing structures and the construction of new ones from the ground up. Collaborating with top-tier architects, renowned designers, and trusted contractors, we ensure the development of high-quality properties within expedited timelines.

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Multi-family developments can be finalized in as little as one year, with a minimum investment of just $25,000.

Is a real estate investment syndicate right for me?

If you're an accredited investor seeking to leverage funding from numerous other investors to gain access to larger real estate deals beyond your individual capacity, this model is an ideal fit.

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With its adaptable nature, you're sure to discover a project that aligns with your investment objectives and sparks your interest. The minimum investments are relatively low, the turnaround times are comparatively short, and the returns are competitive.

How to get started

Below is a straightforward three-step guide to kickstart your investment journey:

Step 1: Sign up and be verified as an accredited investor

You can sign up with Hezekiah online in under two minutes. Then you’ll just need to provide some financial information to our third-party partners, Verify Investor. All of your financial information is used solely to confirm your status, it remains 100 percent confidential and will never be supplied to anyone but Verify Investor.

Step 2: Choose your investment(s)

Explore our investment opportunities online to discover projects aligning with your investment horizon and expected ROI. There's no restriction to a single investment; if several projects appeal to you, you can diversify your investment across as many projects as desired.

Step 3: Transfer funds

Once verified as an Accredited Investor, you can initiate your investments. Your investment is securely held within a Delaware Statutory Trust (DST), and you become an official investor. Upon project completion and sale to the new owner, proceeds from the sale are distributed to investors within 30 days.

Why investors are choosing Hezekiah

At Hezekiah, we prioritize making real estate investing low-risk, enjoyable, and profitable. Our model embodies this principle. With Hezekiah, you can expect:

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  • A team of seasoned, knowledgeable, and adept property experts

  • Competitive returns on your investments

  • A low minimum investment requirement

  • Varied investment opportunities

  • A secure online platform

  • Transparent operations

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We're eager to offer you a hassle-free real estate investing journey with the potential for significant profit.

Start investing with Hezekiah today

Don't miss out on the opportunity to invest in the booming Southwest Florida real estate market. Property values are soaring, making it the perfect time to invest. Sign up with Hezekiah today and start reaping the benefits of real estate investment.

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