Leverage the Professional’s Time, Experience, and Management - Real Estate investing is a complicated process, especially for a non-professional investor. As a passive investor, you benefit from the syndicator’s experience and skills in finding, determining value, negotiating, acquiring, financing, managing, negotiating leases, and disposing of rental properties.
Invest Hassle Free – You avoid management and landlording headaches. As a passive investor, you are not responsible for the day-to-day management of the investment. The Syndicator or lead sponsor takes on this role.
Convenience - Ease of reporting. The Syndicator is responsible for the bookkeeping, financial reporting and preparing the annual K-1 tax forms for investors.
Tax Benefits - Syndications are set up to allow the investors to enjoy applicable pass-through tax benefits such as depreciation and possible tax deferral. Because of depreciation, interest payment write-offs, expense write-offs, and so on, your annual tax exposure for this opportunity will usually be zero or even NEGATIVE, even if you receive thousands of dollars in distributions from the property’s cash flow.
Shared Profits – Investors in a Syndication share in the profits. This includes the regular cash flow distribution checks (what’s left after expenses), Appreciation (increase in property value), and Capital Gains upon the sale of the investment.
Limited Liability – A Syndicate can protect investors from liability. Most syndications are created within a Limited Liability Company or other entity to reduce risk. In addition, Lead Sponsors and Syndicators sign as guarantors for the financing, shouldering the credit risk to passive investors. The passive investor is able to high returns without exposing one’s self to personal liability and credit risk.
Cost Savings - Larger properties are often more cost-efficient on a per unit or square foot basis. They allow cost savings through economies of scale and efficiencies. For example, Professional Management fees are less as a percentage of income with larger properties. Also, contractors often give favorable “bulk” pricing on larger apartments (compared to smaller apartments)
Ability to participate in otherwise unobtainable deal - Syndications allow investors to pool resources and buy larger properties than they could on their own. For the passive investor, it represents a lower cost of entry to participate in a large deal.
Reduced Risk – Managed correctly, larger multi-unit properties are less risky. The more tenants the property has, the less a single vacancy affects the income stream.
Leverage – If borrowed funds are used to purchase the Investment, that can increase the return to the investors AND limit the passive investors’ risk to the amount of the individual investment.
Reserves – Syndications allow for larger down payments while still maintaining sufficient reserves. While many new investors overlook this, sufficient capital ensures staying power, helping the investors withstand changes in the economy or shortfalls.
Diversification – Syndication can allow the individual investor with limited funds to diversity his portfolio over a number of properties. This prevents over-exposure to any one investment property.
Customize Your Investment Positions – A syndication can be structured to offer a variety of investment positions that differ by priority of return, risk of loss and tax benefits. In other words, an investor can choose the balance and risk and return that best meets their needs.
Win Together – A successful syndication creates win-win relationships for everyone. Every participant should benefit, from the syndicator/sponsor, to the investors, to the property manager, to the tenants, to the lender, to the broker(s), and even to the surrounding community. Everyone should win.