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Real Estate Syndication: The Ultimate Guide and How It Works?

Real Estate Syndication: The Ultimate Guide and How It Works?

Try not to be interested in real estate syndication after you hear this statistic:

Experts project the industry will generate over $300 billion by 2025. That’s after a $3.5 billion growth in 2016. Suffice to say, real estate syndication is on the up and up.

Don’t you want to join the ride?

Surely you do. But you haven’t the slightest idea where or how to start. That’s fine; it’s why you came here after all, isn’t it?

The real estate syndication industry first saw its genesis in 2012. Yes, it’s only been around since 2012! It must be reasonable to say this industry is off to a booming start.

Listen to this:

Since the early 2000s, real estate investments have outperformed the stock market at a ratio of about 2:1. Just take a look at this graph:

As you can see, even at that obvious dip during our country’s recession, real estate has outperformed the stock market every year.

In this guide to real estate syndication, we’re going to introduce you to the industry. You’ll learn what real estate syndication is, exactly, and you’ll also learn how it compares to other investments in real estate.

In addition:

You’ll discover the different types of real estate syndication investments. You’ll understand the difference between equity and debt investments for real estate syndication. Also, you’ll know the complexities of equity and debt investments.

You’ll learn there are two different types of equity investments and two different types of debt investments. If you pay attention, you’ll be able to freely consider the pros and cons of both investment types.

After your proper introduction to the industry, we’ll provide some of the best websites to get your portfolio started. If you’re still on the fence, we’ll also provide a key rundown of information. This rundown will help you determine whether or not real estate syndication is ideal for you.

We’ll offer you a look at real estate syndication and how it stacks up against other investment options. Also, you’ll learn some predicted trends for the industry in 2019 and beyond.

This is the ultimate guide to real estate syndication, but let’s start with the basics.

Real Estate Syndication: What Is It?

Let’s say you see an extremely promising property being built. You know that property is going to boom. However, there’s no way you could afford an investment on your own.

Besides, you wouldn’t be able to manage the property on your own, either. You’ve got your rigorous job to keep up with.

Here’s the deal:

Real estate syndication allows you to pool your money with other investors. The pooled money is then invested into, let’s say, that extremely promising property.

To do this, you would use an online marketplace where you could browse different investment opportunities. Those opportunities will typically vary by investment type, the location of the property, and target returns for investors.

Once you’ve selected the investment you believe to be promising, your funds are pooled with up to 99 other investors. The number of investors typically relies on the size and potential returns of a project. After the money is pooled together, the investment closes.

What happens next:

If the investment goes according to plan, you begin to collect passive income on the investment. While collecting passive income, you’ll also monitor the investment’s performance.

Soon, you’ll be able to “exit” on the investment. Typically, you “exit” on investment by selling your stakes in the investment for a large profit. Sometimes, you’re not so lucky: you have to “exit” to get at least some of your money back.

Two Common Types of Investments:

In real estate syndication, you’re going to most commonly see equity investments and debt investments. Equity investments allow you to invest in a project or portfolio of projects, kind of like the sample scenario given earlier.


Debt investments differ. These investments allow you to invest in a mortgage or a group of mortgages.

Equity investments are the more common type of investments. They’re also a long term investment that tends to yield a higher return for the investor.

Equity Investments for Real Estate Syndication

When you make an equity investment on a property, you are given a passive, indirect ownership position. This means you are a long term investor and will receive returns on your investment from property appreciation and rental income.

You become a shareholder of the property and receive several shares proportionate to your investment.

When you make an equity investment, you typically earn returns in two ways:

  1. Rental Income

Projects you make equity investments often require 3 to 10 years. This is because the properties are typically either new developments being built or require extensive renovations.

After your equity investment, you’ll likely receive quarterly payments of cash flow distributions. This is where you receive your return on investment by receiving proportional shares of rental income generated by the property. Because it may be a while for the property to start generating rental income, equity investments do require patience.

After all:

Buildings don’t sprout up overnight. It takes months and years of planning, building, and renting out spaces in the finally finished property.

Luckily for you, these properties are professionally managed. All you have to do is invest, sit back, and wait for your (hopefully) profitable returns.

  1. Property Appreciation

The other, less common way you earn returns is through property appreciation. This occurs when your investment property is sold.


A new apartment building is under construction in the heart of a bustling city. It’s an investor’s dream. You and others pool money together in equity investment to fund the construction.

Once construction is finished, a big-money investor comes in wanting to purchase the property. They’re offering a lot of money. You and the other investors decide to sell it the big money investor for an instant return and profit for your investment.

Of course, that’s a dream scenario for anyone looking to make a quick profit. But it has happened before, and it will happen again.

Another benefit:

Equity investors for real estate syndication also receive tax deductions like depreciation deductions.

Two Types of Equity Investments

Now that you’ve learned the basics about equity investments, let’s take a deeper dive. There are two types of equity investments: common and preferred.

  1. Common Equity Investments

These are the equity investments we’ve essentially detailed above. With this investment, you buy a percentage of a project being developed and own that percentage. Every month or quarter, you’re paid out your percentage of returns for the property.

You’re also paid out a nice sum if the property appreciates and is sold.

But here’s the catch:

Common equity investments are considered the riskiest type of real estate syndication investments. This is due to a lot of different liabilities you’re hoping will pan out.

First, you’re relying on the building to be constructed successfully and promptly. Second, you’re hoping the property will appreciate or generate interest. Third, you’re relying on people to rent out space in the building and to make timely payments.

The list goes on…

Because of these liabilities, and the fact that common equity investors are paid last, it’s easy for you to lose your investment.

And yet:

With high risk, comes high reward. That’s right: the potential for a high return on investment (ROI) is the greatest with common equity investments. This is because common equity investments don’t cap your returns as preferred equity investments do.

  1. Preferred Equity Investments

Speaking of preferred equity, these investments are essentially less risky than common equity investments but riskier than debt investments. Also, they offer less reward than common equity investments but typically offer more reward than debt investments.

Preferred equity investors typically receive monthly payments from their investments. However, these payments are commonly “fixed” payments. This means there is less potential for a larger ROI.

The advantage:

Preferred equity investors are paid back before common equity investors. This is where that “preferred” title comes from. Because they’re paid back first, preferred equity investors are in a less risky position.

Pros of Equity Investments:

  • They offer the highest potential for return on your investment.
  • Most equity deals are under an established LLC. This allows you to receive tax deductions similar to if you owned an investment property.
  • Lower fees than debt investments.

Cons of Equity Investments:

  • Higher risks since equity investors are paid last.
  • Potential to lose your investment since you’re investing in equity and not debt.
  • The investment time frame is much longer: typically 3 to 10 years.

Debt Investments for Real Estate Syndication

When new developments are being built, the developer needs funds for the project. This is where debt investments come in. With debt investments, you’re lending funds to the developer to fund the project’s construction.

In return, you receive your funds paid back and with interest. Typically debt investments have a term of 6 months to 2 years. The average return on debt investments sits around 8.8%.


Like any other real estate syndication investment, you don’t get to choose when you exit the investment. All investment exit timelines are set up-front in a signed agreement.

If you choose to fund a build for 1 year, then you’re funding that build for the whole year. This means you need to go into every investment with certainty. If something feels off, don’t invest, or you’ll be stuck in a financial sinkhole for a year.

Of course, debt investments are considered the lowest risk option because the developer does have to pay you back.


There are essentially two common types of this real estate syndication investment option:

Syndicated debt syndication and platform issued debt investment.

  1. Syndicated Debt Syndication

The terms for these debt investments are typically less than two years and offer fast liquidity for investors. If you’re looking to make multiple, quick real estate syndication investments, this might be the option for you.

When you invest in syndicated debt, you’re investing in a portion of an existing real estate loan. This real estate loan was originated by professional lenders who conducted diligent research before approving the loan. Because of this, you’re offered extra security.

However, these professional lenders charge a yearly fee of around 0.5% to 1.5%.

That’s fine:

You’ll still receive, on average, fixed payments ranging from 8% to 12% in returns. Because the debt is secured by the property, this investment option is less risky than equity investment options.

  1. Platform Issued Debt Investment

Instead of going through a middleman to approve the loans, platform issued debt investments invest in loans originated by the real estate syndication site. This type of debt investment also offers quick liquidity. They tend to offer investment terms ranging from 6 months to 2 years.

Pros of Debt Investments:

  • Shorter investment time frame: you’ll receive your money back within 2 years.
  • Your money isn’t tied up for a long time: you can invest in other projects.
  • Less risk than equity investments: if the developer goes bankrupt, you can regain your losses through a foreclosure.
  • Predictable payments are typically forecasted ahead of time and paid every month or quarter.

Cons of Debt Investments:

  • Higher fees than equity investments.
  • Lower potential for return on investment than equity investments: debt investments are typically limited by the interest rate on the loan.

Real Estate Syndication: How It Works

When a property is approved for investment, it is usually openly marketed to investors on an investment site. The investments site will include an investment page.

What is on an investment page?

An investment page typically includes:

  • The project overview
  • Descriptions of the local market and developer
  • Details about the business plan
  • A financial summary
  • Potential future cash flows
  • A review of risks, fees, and legal frameworks

After you’ve taken a look at the investment page, be sure to do some homework of your own. Try doing your research about the local market and potential future cash flows. Look at the developer’s build history.

Have they been successful in past endeavors?

Once you’ve decided to invest in the project, the transaction process includes 5 simple steps:

  1. Sign the legal document(s) for the investment
  2. The funds will then be debited from your bank account
  3. Your debited funds will be pooled with other investor’s funds
  4. Once enough money is pooled, the investment closes
  5. You start receiving payments for your investment

Of course, step #5 depends on the success of the project and the outlined terms in the investment agreement. Returns are never a guarantee for real estate syndication investments, just like any other investment option.

The developer could fail to implement their business plan or an unexpected market crash could occur. Any investment is not without its risks.


It’s the potential rewards that keep you going.

While you’re looking at different investment pages, you might wonder the following:

Where Do These Listed Investments Come From?

You don’t see or hear about a potential investment opportunity until it’s listed on a syndication site. That makes sense. But those syndication sites often initiate the process of finding investments months before you see them.

During a stage called sourcing, syndication sites work with real estate developers to find interesting investment opportunities. If the syndication site believes the development will intrigue its investors, it will list the development on its site.

Some syndication sites use intense, data-driven processes to find the best investments. These processes typically evaluate the real estate developers, the type of building being developed, and more.

Meanwhile, some syndication sites choose to list any and every investment option. By doing this, they allow investors to identify whether or not the investment is suitable for them.


It’d be much easier to use a syndication site that does the vetting for you. And vetting processes aren’t the only differences between these syndication sites…

Other Differences Between Real Estate Syndication Sites

For the most part, every real estate syndication site uses similar legal structures to allow its investors to invest in projects.

But listen:

Those legal structures are just about the only similarities between different syndication sites. These sites vary in the types of investments they offer and in the minimum amounts that can be invested. They also vary in fees and the amount of research and underwriting they conduct for each project.

When you are choosing the right real estate syndication site, use these questions as guidelines:

  • Is every investment vetted?
    • While some sites undertake considerable measures to evaluate and underwrite potential investments, others simply offer a large number of investments. Ask yourself whether or not you want to research the investments, or if you’d rather the site did the research for you.
  • Who’s allowed to invest?
    • Most sites allow anyone to invest in their listed projects. However, some sites only allow accredited investors. These accredited investors have to pass requirements for net worth or annual income.
  • What investment types are offered?
    • If you’re wanting to invest in syndicated debt syndication, there’s no use signing up for a site not offering it.
  • How much is the minimum investment amount?
    • Every site will have a minimum investment amount. You’re probably better off starting at a site with a $500 minimum as compared to one with a $50,000 minimum. You know, because you’re new to the whole thing.
  • How much are the site’s fees?
    • This is how syndication sites make their money. Most sites require investors to pay 1% to 2% in fees to cover costs. Additionally, sites are typically paid by project developers for pooling the funds for their projects.

Which Websites Are Best?

You’re probably starting to think about syndication sites and finding the best ones. To make life easier for you, we’ll provide a comprehensive list of syndication sites for you.

After all:

This is the ultimate guide to real estate syndication!


This syndication site offers investors access to loan investments (debt investments). PeerStreet is a marketplace for accredited investors to invest in high-quality private real estate loans. These loan investments typically last 6 to 24 months.

According to The Real-Estate Syndication Review, PeerStreet originated over $500 million in loans. The Review also ranks this syndication site as the top-ranked syndication site.

For more info on PeerStreet check out the video below:


Like PeerStreet, this site employs a staff of analysts and underwriters to evaluate and verify potential investments. By doing so, you’re left with a list of investment options that have been heavily vetted for approval. With this syndication site, you won’t have to do the dirty work and extensive research.

Real Crowd:

This syndication site offers you direct access to commercial real estate companies. You can build relationships with these companies and invest directly in their investment opportunities. This site is great for investors looking to avoid costly fees.

This site addresses accredited investors, meaning you’ll have to qualify for approval to use the site. Once you’re approved, you’re able to browse a wide array of investment offerings for private real estate. The Real-Estate Syndication Review ranks this site as the top site for general commercial real estate equity.


This real estate syndication site allows you to directly access real estate investments. Investors using this site typically see annual returns of 8% to 12% for their investments.

Real estate and property developers/owners can gain access to capital through this site very fast. In turn, they’re able to close a deal much quicker than going through a bank. Therefore, this site is beneficial for both investors and developers.

Crowd Street:

This site is excellent for you if you’re interested in commercial real estate investing. The syndication site offers investors a minimum investment of only $1,000, so it’s perfect for beginning investors.

The listed real estate syndication websites are just a glimpse at the wide array of sites out there. However, these are five of the very best syndication sites. You should be able to find what you need from at least one of these sites.

If you’re unable to find what you need, head to The Real-Estate Syndication Review to see the top 100 syndication sites. From there, you’ll be able to look at a diligently compiled list of syndication sites.

Real Estate Syndication Returns: What to Expect

While real estate syndication has only been around for about 7 years, annualized returns are starting to come in. As you consider getting into the industry, you’re going to wonder what to expect from these returns.

Here’s the thing:

No one is going to experience the same amount on returns. One guy might average around 8% on returns from debt investments while the other averages 9%. Whatever the case, you can count on debt investments to provide returns just under 10% for your investments.

Equity investments, on the other hand, tend to average returns of around 12% to 15%. Some individual properties for equity investments may offer returns as high as 20%, but your overall rate of returns will likely end up around 14% or so.

These returns aren’t insane, but consider the other benefits of investing in real estate syndication:

  • It helps diversify your portfolio of stocks and bonds: investing in real estate holds up during inflation and its natural demand supports prices even during times of recession. Remember that infographic at the beginning of the article? Real estate investment has doubled the returns of stocks for nearly two decades.
  • Real estate syndication is a cheaper and more effective way to diversify your portfolio. It also protects you from market-specific risks.
  • Syndication investments on properties are one of the most passive ways to earn an income. All you do is invest and then collect the returns when payments are issued. It’s truly that passive and simple.

As you can see, the returns you receive from real estate investments are typically better than stocks and bonds. Also, it’s a much more passive activity. Once you’ve fronted the money, you don’t have to anxiously watch the stock market.

You simply kick back and wait for your returns.

Overcoming Investment Failures

Of course, there’s the possibility the investment goes under, but failures are bound to happen. The important thing is to not get discouraged after a failed investment.

What’s more important is this:

Do not fall into the habit of trying to make your lost money back right away. People who do this are the ones who file for bankruptcy. It’s important that you cautiously plan every investment endeavor.

While it’s easier said than done, you must use the same financial willpower it took to get you to this point. After all, you didn’t get the capital to invest in real estate without at least some financial willpower and prowess.

How You Know If Real Estate Syndication Is Right for You

You’ve been given all of this information about real estate syndication. You know the difference between debt and equity investments. Also, you’ve even been given information about which syndication sites to use and why.


You’re still not certain whether or not syndication real estate is right for you. Essentially, real estate syndication is right for anyone interested in passive investing in properties too expensive to afford on their own.


Real estate syndication allows investors to increase their exposure to debt investing.

Here’s a quick rundown for you to see if real estate syndication is right for you:

  • You don’t have enough capital to purchase a property on your own but still, want to make real estate investments.
  • You don’t want to have to do any work on the property yourself. Also, I don’t want to deal with the headaches of being a landlord or property manager.
  • You want to invest in real estate outside of your location.
  • You’re looking for an alternative to the stock market and other investment options.

If you want to own the properties outright, real estate syndication isn’t right for you. You also won’t want to get into real estate syndication if you like to be very hands-on.

For example, you want to play a large role in renovating or constructing the property. You want to make decisions about deadlines and budgets, contractors and investments. If that’s the case, syndication isn’t the right choice for you.

If you’re more interested in developing properties and being hands-on with the process, consider flipping homes. Whether it’s purchasing a recently foreclosed property or a spot of land, there are plenty of tips for flipping properties.

Or maybe you want to fix up the property and rent it out to tenants. If that’s the case, there are also some great articles about becoming a landlord.


Let’s stick to real estate syndication. You may have noticed the last bullet point in that rundown list mentions the following:

  • You’re looking for an alternative to the stock market and other investment options.

How Does Syndication Compare to Other Real Estate Investment Options?

In the last half-century, real estate investing has become more and more accessible. With the recent genesis of real estate syndication, real estate investing has become even more accessible.

While real estate syndication makes it much easier to invest in real estate, how does it stack up with other real estate investment options?

First, you have to consider the different real estate investment options. There’s property ownership, traditional direct investing, public REITs, and real estate syndication.

Let’s take a look at each of these investment options and how they stack up with real estate syndication. We are going to evaluate these options through six aspects:

  • Ease of diversification
  • Liquidity
  • Stock market correlation
  • Minimum investment
  • Investor fee amount
  • Daily management duties

Ease of diversification ranks how easily that investment type allows you to diversify. If the investment type offers easy diversification, it will have a high rating in that category.

Liquidity ranks how liquid the assets are for the investment type. If the investment type offers a lot of liquidity, it will have a high rating for liquidity. High liquidity means the investment offers you assets you can sell right away.

The stock market correlation ranks how much the investment correlates with the stock market. An investment type ranking high in this category will be heavily affected by a stock market crash.

Minimum investment ranks the minimum amount of money required for the investment type. An investment type with a high ranking requires a greater sum of money for the investment.

The investor fee amount ranks how high the fee is for the investment type. A high ranking means a large investor fee.

Daily management duties are straight forward. It ranks how often you will have to manage the investment. A high ranking means the investment needs to be managed daily. A low ranking means very little to no management is needed for the investment.

  1. Property Ownership

Let’s take property ownership through the gauntlet first:

  • Ease of diversification: low
  • Liquidity: low
  • Stock market correlation: low
  • Minimum investment: high
  • Investor fee amount: none
  • Daily management duties: high
  1. Traditional Direct Investing

  • Ease of diversification: low
  • Liquidity: none
  • Stock market correlation: low
  • Minimum investment: high
  • Investor fee amount: medium
  • Daily management duties: low
  1. Public REIT’s

  • Ease of diversification: high
  • Liquidity: high
  • Stock market correlation: high
  • Minimum investment: low
  • Investor fee amount: low
  • Daily management duties: low
  1. Real Estate Syndication

  • Ease of diversification: medium
  • Liquidity: none
  • Stock market correlation: low
  • Minimum investment: medium
  • Investor fee amount: medium
  • Daily management duties: low

As you can see, this extensive list allows you to easily see the differences between each investment type. If you want to manage your property, property ownership is the best course of action.

If you don’t want to have any management duties and have the money to spend, traditional direct investing will be ideal.

However, if you don’t want to spend big but still don’t want daily management duties, real estate syndication is ideal.

Meanwhile, if you want something with a high correlation to the stock market, high liquidity, and that’s easy to diversify, public REITs are your best option.

More Reasons to Consider Real Estate Syndication

In case you’re still on the fence, let’s take a look at some more reasons you might consider real estate syndication:

  1. It’s Your Choice

You’re able to choose the individual properties that appeal to you most. Somebody else doesn’t choose where you put your money. If you want to invest in properties in L.A., you’re able to do so.

  1. Easy Diversification

With real estate syndication, you’re able to easily diversify your investments. You can find different properties types, make different investment types, and invest in properties in different cities.

  1. Low Maintenance

Perhaps the most commonly talked about the benefit of real estate syndication is its low maintenance. After investing, you have no stress or headache regarding managing the properties. All you do is wait for the returns to start coming in.

Of course, there’s still the chance that you will lose your money.


  1. Low Risk

If you invest in debt investments for real estate, you are almost certain to at least get your money back. Why? Because debt investments allow you to make your money back even if the developer goes bankrupt.

After a developer goes bankrupt, the property is foreclosed and sold to make up the debts. Guess what? With debt investments, you’re one of those debtors getting paid back.

  1. Tax Benefits

Common equity investments allow you the possibility of potential tax benefits. Tax deductions can be applied due to depreciation and mortgage expenses. Of course, this all depends on your tax situation.

Real Estate Syndication Trends

Perhaps those reasons have given you the boost you need to get you over the figurative fence. Now that you’re over the fence, you might want to know some potential trends for real estate syndication.

  1. An Increase in Institutional Investing

So far, the target audience for real estate syndication has been accredited, investors. These are the investors you learned about earlier.


They’re the ones who have met certain requirements by syndication sites and are allowed to invest. Requirements like net worth and average annual income are usually used to “accredit” an investor.

While individual accredited investors may provide up to $100,000 for investing, institutional investors can step in with up to $100 million. With that said, look for institutional investors to be the next target for real estate crowdsourcing sites.

Of course, it’s difficult to say whether or not crowdsourcing sites will completely pivot toward institutional investors. Sites that have done so really began to struggle when institutions began to pull back on their investments.

  1. Look for Mergers and Acquisitions to Start Happening

As of now, the real estate syndication market is flooded with syndication platforms. There’s a good chance only a handful of these hundreds of platforms survive the next ten years.

Chances are, it’s the first ones to start developing smartphone apps for their platform that make it.

Guiding You to the End

There you have it:

That’s quite the guide, isn’t it? You’ve learned what real estate syndication is. Now you understand the subtle differences between common equity investments and debt investments.

You even discovered the different types of equity and debt investments. Reasons have been laid out to guide you into real estate syndication or to guide you away from it.

You’re probably surfing one of those syndication sites right now. Does it even matter what I say here?

Of course, it does:

Because the heartiest of you have stuck it through to the end! You even received some helpful information about future trends for real estate syndication.

Let me ask you:

What was the most enlightening information you learned about real estate syndication? Is there anything that pushed you into deciding to try it out? Anything that repelled you from the idea of it?

Let us know in the comments below!