What are Real Estate Syndications?
You already know real estate is a great investment. However, what you might not be aware of are the different types of real estate investments you can make and how each one can benefit you. And although you may have heard the term before, you may be wondering what are real estate syndications. At Summit Capital, we believe syndication is the best real estate investment you can make, but before we talk about why, let’s look at a few different types of real estate investments.
What are real estate syndications: Active Investing
Active investing is when you are personally involved with your investment property and are responsible for every part of the process. Examples of active investing are:
- Landlord of anything from a single home to a large commercial development.
- Buying and renovating real estate to make a profit, also known as flipping.
- Buying a property below value and selling for a profit, also known as wholesaling.
Active investing comes with more risk since you are responsible for all aspects of the investment. However, if done well, it can also come with high rewards.
What are real estate syndications: Passive Investing
Passive investing is a way to passively earn income through real estate. It is much lower risk that active investing. Returns are usually slower but more consistent. For more about passive income, check out Summit Capital’s page on Passive Income Through Real Estate Investing. Examples of passive investing are:
- Buying what is essentially a real estate mutual fund. You have a stock that you can buy or sell at any time. This is called a real estate investment trust or REIT. REIT’s offer passive income but trade like stocks, which ties them to the stock market. A well diversified portfolio would benefit far more from syndication, as syndications can rise even when the stock market falls. You can learn more in depth about REIT’s here.
- Joining together with other investors to purchase a property to operated through a general partner, known as syndication.
What are real estate syndications: Benefits of Syndication
Now that you understand the different types of real estate investment let’s talk about why syndication is a wise choice for your portfolio.
So, as you wonder to yourself “what are real estate syndications,” we hope we’ve helped answer some of your questions. But to sum it up, syndication is a form of passive investing, which means you only have to provide your pre-negotiated share of the capital in order to reap the benefits. Someone else, known as the general partner, or GP, is in charge of all the other elements, such as organizing financing, making business plans, and working with property management. Syndication also gives you more choice, as you are often going in on a property with hundreds of other buyers, so you can invest in properties you might not have the opportunity to invest in on your own. Larger properties also carry less risk, as you don’t have to worry about relying on a single tenant.
Syndication usually results in monthly and/or quarterly payouts, which can fluctuate depending on tax benefits and depreciation rates. However, as a limited partner, you usually get paid before the GP, which is just another great reason to consider syndication. Because of the way payouts develop, the GP has a strong incentive to work in the best interests of everyone involved.
So what are real estate syndication risks? No investment is risk free, but we believe syndication is the most stable and sensible investment you can make.
At Summit Capital, our investment thesis centers on the philosophy that real estate syndication provides better returns than other opportunities in the marketplace. By networking and across multiple asset classes, we are able to synergize and offer our partners the option to leverage efficient operations that implement sound and value add opportunities, which ultimately lead to high overall yields during ownership.
