As a professional property and asset management company in Southern California, we have worked with clients, first-hand, in their investments as they brought on passive investors to finance shopping centers, office buildings, industrial centers, and apartment buildings. Because of this, we have seen the benefits that a quality asset can bring to both the syndicator and the passive investors, when you have a good management team by your side. And so, in this article, we want to specifically talk about what the advantages are of passively investing in real estate syndications. 

INVEST IN SOMETHING LARGER THAN YOU COULD AFFORD ON YOUR OWN 

Perhaps the primary reason that an investor might consider utilizing a real estate syndication is that it allows you to be involved in investments that would otherwise be too costly for you to acquire on your own. For example, a couple may have worked hard to put the funds together to acquire two or three single-family homes, in order to start generating some extra income. Now they are looking ahead and imagining the benefits of owning a large apartment building, where a single vacancy doesn’t cause a major disruption to their income and where the cash flow and tax benefits are truly life changing. 

It sounds like a great idea, but the capital needed to start a venture like that can be a huge roadblock. And even if an investor can put together the down payment for a larger project, access to funding on that scale will still require some extra work and a more sophisticated business structure. Plus, all the risk and responsibility for the loan and the property’s performance will lie solely on that investor’s shoulders. 

On the other hand, a real estate syndication pools together the funds from multiple investors. This essentially gives you access to other investors’ funds and means that more capital is now available for the syndication (and all those involved) to invest with. The syndicator will be in charge of setting up the business structure and securing the financing and, since a syndication typically brings on multiple investors, the risk is shared amongst all parties. 

Because of this larger pool of capital and a dilution of risk amongst more people, everyone is able to collectively participate in much larger assets. Suddenly, instead of being limited to single-family homes or very small apartment buildings, the investors can set their sights on assets such as large multifamily apartment complexes, mobile home parks, industrial parks, self-storage facilities, hospital and medical facilities, and hotels. 

  
UTILIZE SOMEONE ELSE’S EXPERIENCE 

Because of how real estate syndications are set up, unless you are the one putting the business plan together and executing on the investment, you will likely be playing a passive role and benefiting from the syndicator’s (and their management team’s) experience in the industry. 

As you may be aware, there are a lot of pieces involved in successfully investing in and operating an income property: from finding the right investment to acquire, putting together/closing the deal, setting up the management structure in order to take care of the day-to-day operations, and tracking the financials for tax purposes and analyzing the property’s performance. As you can imagine, each of these tasks can be an entire profession in its own right. As a new real estate investor, this can not only be overwhelming but can also lead to a lot of trial-and-error and costly mistakes. 

As a passive investor in a syndication, you will simply supply the capital while the syndicator will be the one to put all of those pieces together. The syndicator will usually have an area of expertise of their own (whether that’s as a broker, a manager, or another profession) and then find the other key players that will make the project a success. 

Because of this, whether you are brand new to real estate investing or already have a few smaller properties under your belt, you will likely enjoy the benefits of access to a quality real estate broker, a professional management team, a network of reliable vendors and contractors, an asset manager that can guide your financial decisions, and an accounting team to take care of the paperwork. 

LEARN ABOUT DIFFERENT TYPES OF ASSETS FROM A SAFE DISTANCE 

This brings us to another, similar point. Not only can a real estate syndication provide the capital needed to invest in larger properties and it allows you to benefit from someone else’s expertise in the industry, it can also be a great, first-hand introduction into an asset class that you’ve been curious about but have little-to-no experience with. 

For example, maybe you already have experience with small-to-medium sized multi-family properties and would like to get involved with retail centers, since the leases, capital inputs, and returns are structured very differently and thus give you a different cost-benefit outlay. Or perhaps you have heard that mobile home parks have a uniquely low cost-per-unit, low cost of maintenance, and low turnover, while maintaining high returns. Or maybe you have been interested in exploring industrial properties in a market that is looking to boom in the coming years. 

Each of these product types has its own laws, regulations, and best practices to learn. They may each perform very differently from each other, depending on the current market. And purchasing and managing each of them can be a very different endeavor that requires specific expertise. Someone accustomed to the residential real estate market might have a steep learning curve to face if they want to get involved with large shopping centers, for example. 

However, investing through a syndication likely means that the syndicator will have specific knowledge or experience with the product type in which they are investing. They may also have an extensive network of contacts that specialize in that particular property type. Since the syndicator is largely taking the wheel and handling the logistics, passive investors may therefore allow their money to be put to work, while they simply observe and learn all the intricacies of that style of investing. They won’t necessarily need to learn everything on your own, beforehand, in order to succeed. 

NETWORK WITH LIKE-MINDED INVESTORS 

We have already discussed how a syndicator can bring a network of contacts to help with the project, but it is also important to note that the group of passive investors that is involved in the syndication, can be a useful network to tap into as well. These passive investors will often come from different networks, geographical areas, or skill levels, and will be sharing a common goal in the syndication. 

Now, of course, this will vary from syndication to syndication. Some can be a very small and intimate group of peers, while others are much larger, have many more investors, and feel more anonymous. But, as with all things related to business, having a diverse group of professionals to work alongside can be the key that opens doors that would otherwise remain hidden; therefore, when a syndication does bring investors together in a meaningful way, it can add a lot of value to your real estate investing journey. 

PASSIVE INVESTING WITH PROFESSIONAL MANAGEMENT 

And lastly, let’s not forget the key word, “passively,” in this article’s title. The investors in a real estate syndication are not directly involved with the day-to-day management of the asset. That means they get to enjoy the benefits of owning a portion of an income generating property, without worrying about the late-night phone calls from tenants, broken toilets on holiday weekends, or dealing with city inspectors. Having someone you trust to take care of all these tasks will remove a tremendous weight off your shoulders. 

In very small syndications, this management might be handled by the syndicator themselves (particularly if their predominant experience in the industry comes from property management), but it’s more likely that your real estate syndication will select a third-party, professional property management company (such as Coastline Equity, of course). The management team will be responsible for all onsite tasks like dealing with tenants and staying on top of maintenance. They will be doing the heavy lifting and coordinating the day-to-day operations, allowing you to focus on your next investments. 

Also, as you may have experienced yourself, it can be very difficult to find a quality property management team if you are a small-time investor with only one or two small properties. The revenue that property managers typically receive from smaller properties is often not enough to sustain a high-quality management office, and they are incentivized to seek a higher quantity of clients, thus quickly moving their attention away from your project. 

Obtaining a management company through a syndication, however, will likely give you access to better-quality managers because the larger investment properties that syndications typically invest in will be a valuable source of income for a high-level management team that can handle the responsibilities and focus more attention on your project. 

CONCLUSION 

So, as we have seen, real estate syndications can be a great way to invest your capital, work with experienced professionals, and grow your wealth.  If you have any questions or comments, you can also feel free to reach out to us through our website at www.CoastlineEquity.net.