What is Real Estate Syndication? MRA Capital Partners Breaks it Down
Are you interested in passive real estate investing? Whether you’re just beginning or are an accredited investor, you’ve likely come across a few real estate syndications in your search to create a diversified portfolio that minimizes risk and maximizes return potential.
Now you may be asking yourself, “What is a real estate syndication?” MRA Capital Partners is here to explain everything you need to know about how it works and how to participate.
Defining Real Estate Syndication
Real estate syndication is a funding relationship between a group of investors who pool their money together to purchase higher quality properties and projects. This provides them access to larger investments that they normally wouldn’t have been able to manage or afford on their own.
Who Can Participate
To be eligible to participate in a real estate syndication, investors must be either accredited or sophisticated.
An accredited investor is a natural person that meets the net worth and income guidelines set forth by the Securities and Exchange Commission (SEC), which are:
- Earned an income of $200,000 (or $300,000 combined with a spouse) annually in each of the two previous years. They expect the same income for the current year.
- Has a current net worth of more than $1 million (alone or with a spouse).
- Holds a 7, 65, or 82 license and are in good standing.
A sophisticated investor is an individual who has the knowledge, net worth, sufficient capital, and experience to participate in certain investment opportunities.
How it Works
To organize a real estate syndication, they’re set up as partnerships where the general partner—also referred to as sponsor or organizer—is responsible for sourcing, underwriting, and managing the investment property. They’re also in charge of executing the overall development or value add plan and would earn fees and/or a share of the profits. A general partner will typically invest a portion of their own money into the deal which is around 10% or more of the total equity. The remaining cash is raised by passive investors who are known as the limited partners.
What’s the Role of the Limited Partner?
For investors seeking to passively invest in real estate, they’ll become a limited partner. This means they’re not involved in the day-to-day management of the real estate property nor are they liable for any of the debt obligations or risks associated with it.
Limited partner investors experience all the benefits of owning the property and will receive ownership shares and cash flow distributions from income, expenses, gains, losses, and tax deductions.
Common Real Estate Syndication Investments
When investing in commercial real estate syndications, it’s important to understand the different property types. These include:
- Senior Housing Facilities
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