Thursday, December 08, 2022
Simply put, a real estate syndication is a group of investors pooling capital together to take on either larger, or greater volume of deals. Access to larger and more diverse real estate investments allows the investor to scale more quickly while mitigating risk. The structure of the syndication allows the investor to reap all the benefits of owning real estate, without the burden of shopping the deals, underwriting the deals, or being a landlord.
Any real estate syndication is an investment contract, and therefore considered a security under the meaning of federal securities laws. The SEC (securities and exchange commission) offers two exemptions to offer securities without having to register the company.
Utilizing these two exemptions, investment companies can raise an unlimited amount of money. Rule 506 (b) and Rule 506(c) Under Rule 506(b), a “safe harbor” under Section 4(a)(2) of the Securities Act, a company can be assured it is within the Section 4(a)(2) exemption by satisfying certain requirements, including the following: The company cannot use general solicitation or advertising to market the securities. The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. The company must be available to answer questions by prospective purchasers. Under Rule 506(c), a company can broadly solicit and generally advertise the offering and still be deemed to be in compliance with the exemption’s requirements if: The investors in the offering are all accredited investors; and The company takes reasonable steps to verify that the investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.
Who is involved?
A real estate syndication will create an LLC structure to hold the property or properties. This LLC will be comprised of two groups, the General Partner(s), and the Limited Partners. The General Partner(s) are also known as the syndicator(s) and the Limited Partners would be the Passive Investors.
The Syndicator is responsible for
- Hunting for deals
- Underwriting the deal
- Completing thorough due diligence on the property.
- Arranging the financing.
- Negotiating with the seller.
- Building a business plan.
- Finding investors.
- Raising capital for the transaction.
- Working with the property management team.
- Handling investor relations.
The Passive Investors are responsible for bringing a portion of the capital to be raised. In return, they own shares of the property or properties. This comes with all of the benefits of real estate ownership. In addition to passive income from the cash flow, investors also are rewarded on refi or sale with the principle reduction and appreciation. Last, but certainly not least, owning and investing in real estate comes with massive tax advantages. When you invest in a syndication, you get these rewards in a truly passive manner.
As a real estate syndicator, Ryan has a passion for helping investors grow their wealth through passive income and professional management. With 10 years of experience in the industry, Ryan has a track record of successfully executing value-add real estate strategies and creating positive returns for investors.
Ryan is the founder and CEO of Beechmont Equities, a real estate syndication firm that specializes in acquiring and rehabilitating multifamily and commercial properties. He works closely with a team of experienced professionals to identify and analyze deals, negotiate terms, and oversee the renovation and management of the assets.