What if you could invest in multimillion-dollar real estate deals without having to find properties, manage tenants, and keep up with building maintenance?
Enter real estate syndication—the tried and true method for passive real estate investing.
What is real estate syndication?
A real estate syndication is a partnership between multiple investors who pool their capital to invest in commercial properties. Typically, a general partner (GP) or sponsor sources, acquires, and manages the deal while limited partners (LPs) contribute funding in exchange for proportional shares of the profits. This gives GPs access to more funding than they’d otherwise have and LPs exposure to more passive real estate deals than they’d otherwise have.
Syndications vs. REITs vs. direct ownership
To better understand syndications, it helps to compare and contrast them with other popular real estate investment structures:
| Accessibility | Control | Management intensity | Risk/reward profile | Liquidity | |
| Syndications | You usually must be an accredited investor | Little to no control over investment as an LP | No management responsibilities as an LP | Limited risk as an LP with preferred returns and limited potential returns | Low liquidity due to the hold period |
| Real estate investment trusts (REITs) | Open to most investors for as little as a few dollars per share | No control over investment | No management responsibilities | Limited risk and limited potential rewards | Highly liquid since REIT shares can be traded like stocks |
| Direct ownership | High upfront cost to acquire CRE assets | Full control over investment | High management responsibility | High risk and high potential reward | Low liquidity compared to REITs |
10 reasons why real estate syndications could be a smart investment
So, are real estate syndications a good investment? Consider these benefits:
1. Access to larger deals with less capital
Most individual investors don’t have millions of dollars to invest in commercial real estate. However, a syndication lets you bypass this barrier to entry by pooling your capital with other investors. This gives you exposure to institutional-grade assets like office buildings, apartment complexes, and retail centers for as little as $50,000 (or sometimes less).
2. Passive income without landlord duties
Sourcing, acquiring, and managing commercial properties takes a lot of work. As a limited partner in a syndication, you let the sponsor handle all operations and decisions so you can have a stake in the investment without the time commitment—the ultimate hands-off approach.
3. Diversification across asset classes and markets
Investing in real estate syndications can spread your capital across multiple properties, asset types, and geographic markets. That way, your risk isn’t too concentrated in any one real estate investment. Plus, syndications offer a way to diversify your portfolio beyond stocks and bonds.
4. Real estate tax advantages
Owning real estate, including through syndications, comes with many tax benefits. For example, you can depreciate commercial property over 39 years, use cost segregations to accelerate depreciation, and defer capital gains taxes via 1031 exchanges. Plus, long-term gains are often taxed at a lower capital gains rate.
5. Limited personal liability
Most real estate syndications are structured as a limited liability company (LLC) or a limited partnership (LP). In both cases, limited partners are generally protected from personal liability related to property-level risks. Meanwhile, your financial risk is limited to the money you put in.
6. Professional deal management by experts
You don’t need to be a real estate expert to invest in syndications. The deal sponsor brings the experience and expertise needed to manage acquisitions, renovations, operations, and ultimately, a successful exit. This often leads to more informed decisions and stronger execution than what most individual investors could achieve on their own.
7. Variety of deal types to match risk tolerance
Most real estate syndications follow one of three investment strategies:
- Core: These are fully-leased properties in major markets with stable long-term tenants, providing consistent returns with minimal risk.
- Value-add: These deals involve significant property repairs or updates to fill vacancies and/or raise rents, increasing the asset’s market value. This introduces more risks but also increases the potential returns.
- Opportunistic: These are typically development projects that involve ground-up construction, adaptive reuse, or revitalizing a distressed property. They yield the highest potential returns, especially in growth markets, but also come with serious risks.
Join real estate syndications with investment strategies that match your risk tolerance.
8. Potential for higher risk-adjusted returns than stocks or crypto
Real estate values are far less volatile than stocks and crypto. As a result, real estate syndications can often offer higher risk-adjusted returns. They also provide predictable cash flow backed by a tangible asset—something you don’t find in many other asset classes.
9. Technology-enabled transparency and reporting
These days, you can stay updated on real estate syndication performance through online investor portals like Agora. Our platform promotes transparency and accountability by providing detailed investment dashboards and financial reports that keep LPs and GPs on the same page.
10. Streamlined online investment experience
Gone are the days when you had to know the right people to get in on a real estate syndication deal. Instead, you can browse vetted opportunities on trusted online platforms and seamlessly onboard, e-sign documents, transfer funds, and manage your investment all in one place.
Types of real estate syndications
Now that you know why real estate syndications can be a smart investment, here are some different types of real estate syndications to consider:
Equity vs. debt syndication structures
So far, we’ve focused on equity syndications, where investors pool capital to purchase property and receive equity stakes proportional to their investment. These investors benefit from potential cash flow, appreciation, and profit upon sale.
However, you can also invest in debt syndications. In this structure, investors pool funds to finance real estate projects, essentially acting as private lenders. The loan is secured by the property, and investors earn a fixed interest return, rather than sharing in the equity upside.
Since creditors sit at the top of the capital stack (meaning they’re paid before equity holders), debt syndications generally carry lower risk. However, there is also limited potential upside, as returns are capped at the agreed-upon interest rate.
Commercial vs. residential syndications
Commercial real estate syndications focus on large income-producing assets like office buildings, industrial properties, apartment complexes, etc. These tend to be complex investments that offer high returns.
In contrast, residential real estate syndications focus on smaller rental properties, including single-family homes, duplexes, triplexes, and fourplexes. Though less complex, these properties tend to offer lower yields.
Specialized options: opportunity zones, land deals, impact investments
Some other specialized syndication options include:
- Opportunity zone syndications: These deals focus on revitalizing designated low-income communities under the Opportunity Zone program. Qualifying investments may let you defer, reduce, or even eliminate capital gains taxes.
- Land deal syndications: These involve buying raw land with future development potential. Since land typically doesn’t generate immediate income and instead relies on long-term appreciation or entitlement success, these deals are often speculative.
- Impact investment syndications: These focus on projects that deliver social or environmental benefits on top of financial returns. Common themes include affordable housing, sustainable development, energy efficiency, and community-focused design.
What to know before investing in a syndication
Before investing in a syndication, do the following:
- Evaluate the sponsor’s track record and alignment. Though never a guarantee of future returns, past performance says a lot about a sponsor’s skill and experience. Also, check how much personal capital they’ve invested to ensure they have skin in the game.
- Understand the business plan and strategy. Is this a core, value-add, or opportunistic investment? What’s the hold time and exit strategy? Having a grasp of the business plan can help you avoid taking undue risks or opportunities that don’t align with your goals.
- Identify fees, splits, and hidden costs. Syndications may charge acquisition, asset management, and disposition fees. Know what they are and understand how profits are split (including any promote structure) to better understand the potential returns.
- Assess the property and market fundamentals. Instead of relying solely on the sponsor’s offering memorandum (OM), do your own due diligence on the property’s value, rent potential, and real estate market trends.
- Read and interpret legal documents. Carefully review the private placement memorandum (PPM), operating agreement, subscription agreement, and any other legal documents before signing and investing.
Understanding returns in syndications
Here’s how syndication returns work:
Cash flow distributions and preferred returns
Investment property cash flow is typically distributed to limited partners first until they reach a preferred annual return threshold (e.g., 8%). After that, excess cash flow is usually split between the GP and LPs based on a predetermined profit split, commonly referred to as a “waterfall.”
Appreciation and equity growth over time
Over time, the value of a syndication’s underlying asset usually increases. This can result from market appreciation (driven by supply and demand) and/or forced appreciation through renovations, operational improvements, or rent increases.
Profits at sale or refinance
After a syndication’s hold period, the asset is typically sold or refinanced. At that point, any remaining equity is returned to investors as a final distribution, often triggering long-term capital gains taxes and revealing your overall return on investment. However, in some cases, sponsors may explore commercial real estate liquidity strategies to return capital to investors early.
How projected returns compare to actual performance
Once a syndication’s hold period ends, you can compare the investment’s actual returns against the original projections. Any discrepancies can help you evaluate the investment’s success and inform whether you should partner with the sponsor again.
Top risks to consider before joining a real estate syndicate
Before joining a real estate syndicate, consider the following risks:
| Limited liquidity and long holding periods | Most syndications have holding periods of 5-10 years, during which you can’t exit. |
| Lack of investor control in daily operations | LPs have limited (if any) say in investment operations after investing. |
| High investment minimums | Many syndications require a minimum investment of $25K to $100K. |
| Market downturns and economic factors | Unexpected recessions, interest rate hikes, and tenant defaults can hurt your returns. |
| Sponsor inexperience or misaligned incentives | First-time sponsors or those with little or no personal capital invested may underperform. |
Who should invest in real estate syndications?
Real estate syndications are ideal for:
- Busy professionals seeking passive income
- Investors with long-term goals and capital
- Individuals interested in real estate but not active ownership
Just make sure that you meet the U.S. Securities and Exchange Commission (SEC) criteria for accredited investors, which include having a net worth over $1 million or an individual income of $200,000 or a combined income of $300,000 with your spouse or partner.
Best practices for first-time syndication investors
If it’s your first time investing in a real estate syndication, here are some tips for success:
- Start small and diversify across deals. This minimizes your risk by keeping your commercial real estate investment small and not putting all your eggs in one basket.
- Ask the right due diligence questions. Make sure you understand the deal assumptions and ask follow-up questions for clarity.
- Focus on sponsor credibility and past performance. Look for trustworthy, transparent, and experienced operators with a successful track record.
- Understand your own risk appetite. Limit yourself to investments that match your comfort level and timeline.
Tools and platforms that simplify syndication investing
Online marketplaces like Crowd Street and RealtyMogul make it easy to find CRE syndication deals. And if you already know a sponsor, chances are they use real estate syndication software to streamline the entire real estate investment lifecycle—from initial funding to final distribution.
Conclusion
Real estate syndications are a great way to access institutional-grade commercial assets, diversify your portfolio, earn passive income, and build long-term wealth—all while leveraging the expertise of seasoned operators. While they may not be the right fit for every investor, those who do their due diligence, understand deal structures, and align with the right sponsors can turn syndications into a powerful real estate investing strategy.
