Acquiring a medium to large commercial building or apartment complex takes a team effort. Syndications are the most common way these investment deals are done. But what are they?

Real estate syndication is a method through which multiple investors pool their financial resources and expertise to invest in larger real estate projects that would typically be out of reach for individual investors.

In a real estate syndication, there is usually a syndicator or sponsor who identifies the investment opportunity, structures the deal, and manages the property.

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The syndicator will organize a legal entity (a partnership or limited liability company) for the sole purpose of purchasing and operating the income producing real estate, and distributing profits.

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Investors can participate in the syndication by contributing capital to the project. In return, they receive ownership shares in the investment entity, which entitles them to a portion of the income generated by the property (such as rental income) and any potential profits upon sale.

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THE STRUCTURE

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A real estate syndication consists of one or more General Partners and multiple Limited Partners.

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The General Partners include the sponsor and may also include additional experienced investment partners who financially and legally participate in the setup and operation of the deal.

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These additional general partners may provide management expertise, high personal net worth to guarantee loans, or access to a network of potential limited partners to fund the deal.

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The Limited Partners are the passive investors who contributed capital to the deal but do not participate in the day-to-day operation of the deal. Their limited position provides them a higher degree of legal protection than the General Partners and their risk of loss is limited to the money they invested.

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THE BENEFITS

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Real estate syndications allow investors to diversify their portfolios, access larger investment opportunities, and benefit from the expertise of the syndicator and general partner team.

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