Start Investing from the Top through Commercial Real Estate Syndication
Are you tired of flipping houses, buying single-family units, and dealing with tenants? You might be taking that route thinking that you have better control of everything and earning more. However, the balance sheets say otherwise.
If you’re looking for ways to grow your investment portfolio, why not invest from the top and enter into a commercial real estate syndication? It’s a process where a sponsor and group of investors pool their resources to acquire larger asset classes—multi-family, industrial, and office spaces.
As an investor, you want to place your capital in high-performing assets that yield better ROI and tax benefits. If you want to be a passive investor, take a look at how syndication works and see if this matches your financial goals.
How Commercial Real Estate Syndication Works
Structure
Syndication in commercial real estate is usually formed as LLC—Limited Liability Company or Limited Partnership. In this structure, the Sponsor or Syndicator is the General Partner (GP) and the Investors are Limited Partners (LP). The GP is also sometimes called Manager and the LP, passive members. The rights of the Sponsors and Investors are stated in the Operating Agreement of the LLC’s or the LP’s Partnership Agreement. These rights include voting, distribution, and rights of the Sponsor to collect management fees. These structures and rights are laid out to protect both parties’ interests in their investment deals.
Responsibilities
The Syndicator finds the properties and looks for investors to raise the capital. Once a property is acquired, the sponsor manages daily operations to make the property profitable. The GP or Manager assumes most of the risks and liabilities and handles all concerns with the upkeep of the commercial property. He’s also referred to as an active investor.
Meanwhile, as a passive investor or limited partner, you and other investors put in the majority or the total capital required. They have limited liability and are considered passive investors. As such, they invest for ownership, tax benefits, and ROI.
Profit
There are two ways that limited partners earn when investing in real estate syndication—rental income and property appreciation.
Once the property is fully operational and rental comes in, you’d start receiving returns. Your distribution of profit depends on the structure of your deal; either monthly, quarterly or annually.
Over time, the value of your property appreciates, you’ll earn more as the rent increases. And when your entity wants to exit from the deal, you will also earn large profits after the commercial property is sold.
Moreover, since the industry benefits the government and the overall economy, commercial real estate investors can take advantage of huge tax benefits.
Final Thoughts
As a passive investor, you’re letting money work harder for you, not the other way around. And yet, there are still risks involved in every investment opportunity. However, when you side with the right team, you’ll be reaping financial benefits more than you could when you’re going solo. It’s time to make a change and start investing from the top. All it takes is to initiate a conversation with a trusted partner.
