How To Syndicate a Real Estate Deal?
Starting a real estate investment fund on your own is not an easy feat, primarily because you need a large amount of money to get it off the ground.
When you initially start investing in real estate, you think the only way to go is:
‘To save heaps of money until you finally have enough to do a deal on your own.’
For many people, this is undoubtedly still the case.
Fortunately, there is also a different way.
A simple concept like ‘syndication’ can accelerate your real estate progress faster.
Here’s my guide on how to syndicate a real estate deal.
What Is Real Estate Syndicate?
A real estate syndicate is a way for investors to pool their capital and expertise together to buy more significant and stable assets than they could on their own.
The intent of a real estate syndicate is generally to build wealth, generate capital growth over time and create passive income for investors along the way.
A property syndicate is a scheme under which investors have legal title to the real property.
‘Members’ of the scheme may each own a specific property (for example, under strata title legislation) or share an interest (for instance, as tenants in common).
Usually, each investor will hold (or be entitled to) a certificate of title which states their interest.
Syndicates are set up as ‘Propriety Limited’ companies.
The concept of syndicating a deal is not limited to real estate only. It can be applied to buying businesses, timeshare or film production, to name a few.
Who Regulates Property Syndicates?
Since real estate property syndicates are investment offerings, they are regulated and governed by the Australian Securities & Investment Commission (ASIC).
Investors are protected by numerous laws and regulations, including the market at large, and as such, the offering needs to be well documented and potentially registered with ASIC.
What Are the Roles Within a Real Estate Syndicate?
Whilst all parties within a scheme would be referred to as ‘Members’. Each member would play a different role within the syndicate:
- The Director; or
- The Investor
Here’s what each of those parties is responsible for:
The Director
The party putting the syndicate together is known as the directing member or director of the company. The director is the active party and is responsible for:
- Finding The Deal
- Structuring The Deal into an Investment Opportunity
- Pitching The Opportunity to investors & Raising capital
- Getting the Legal Documentation Done
Company directors have the full-time job of ensuring the deal comes together as planned and increasing value to the scheme members.
If the syndicate allows for it, directors might also be as Promoters.
The Investor
The investors are members of the syndicate and would own a specific or share an interest in the scheme and are generally the passive party in the investment structure.
Their responsibilities include:
- Invest Capital in The Deal
Before investing, the investor should review the deal, assess the director’s ability, look at the project viability and go through the financial reporting regularly to keep up with the investment progress.
In some cases, the investor may also bring in expertise that could be of value to the syndicate that would benefit the group.
Type of Real Estate Syndicates
There are several types of real estate property syndicates that you can set up.
They are more commonly referred to by the types of investors allowed to invest into the syndicate and whether they can receive relief from holding an Australian Financial Services Licence.
- Unit Trusts
- Property Fund for Small Property Syndicates
- Participating Property Syndicate; Or
- Joint Venture
Depending on the circumstances of your syndicate, you will find you may need to hold a licence or apply for relief.
How are Syndicates Structured
Real estate syndicates can be structured in many ways.
Here are (2) ways you can structure a syndicate:
- Equity; or
- Rate of Return
It is best to keep the structure as simple as possible to create complete transparency and no potential confusion in the process to avoid disputes later.
Equity
Syndications can be split between the members in many ways.
The income split can be provided to the director as straight equity. Alternatively, it can be earned, depending on the group and their goals.
Splitting profits are pretty standard and range from 70/30 to 90/10 in favour of the investing member, depending on the type of deal, the profitability, and level of risk involved.
Rate of Return
Other syndicates will offer a preferred rate of investment returns.
A preferred return is a minimum return the syndicate will have to achieve before the director can earn a return or make a profit.
For example, if a project has a 5% return, the director must return 5% for the investment receive before they can start taking a split of profits for themselves.
Having a rate of return makes it easier when raising capital, as the investors know what return they will be receiving on their money before any splits.
How to Syndicate a Real Estate Deal?
It doesn’t matter whether you’re buying a property or looking to purchase a business to syndicate a deal; the steps are always the same.
If you want to syndicate a deal faster, use my 4-Step Fund Launch Framework which I’ve used for over 20 years with my clients.
Step 1 – Find an Incredible Deal
The first step always begins with you finding a fantastic deal.
You can get deals from real estate agents or other networks that you’ve built up over time.
Step 2 – Structure Your Deal
Now that you have your fantastic deal, your job is to pull the deal apart, analyses it and understand the opportunity intimately.
Start to structure the deal out, crunching the numbers to see if the deal is viable.
Create a workable model, ensuring all parties will make money along the way.
If the deal doesn’t stack up, go straight back to step 1, and find another deal!
Structuring the deal also means conceptualising the company structure, identifying the team required to run and manage the opportunity, including everything in between.
Step 3 – Start Pitching Your Opportunity to Investors & Raising the Money
It’s now time to promote the opportunity to prospective investors.
You’ll have to tap your personal and professional networks to find investors.
Once you’ve found the investors, you will need to present your investment opportunity to them. Provides investors with details of the property, who manages it, the terms of the deal, how much income is expected, and the risks involved.
Once they have committed to invest with you, you can go to the next step.
Step 4 – Package the Deal & Get Your Legal Documents Done
So, you’ve found the deal, you’ve structured it out, and you’ve raised some money and received some soft commitment. Now it’s time to set up a company and finalise the other legalities.
Always get a lawyer before syndicating a real estate deal. The lawyer will guide you through all the ASIC requirement ensuring your syndicate complies with regulations.
Once you’ve raised all the investment and documentation is done, you can then go ahead and settle the deal.
Conclusion
That is the right way to get started with real estate property syndicates.
Syndicates enable you to invest in the property market quicker and access higher yields and along with more substantial gains from large-scale developments.
If you are starting, syndicates are a great way to start but can be challenging to scale as up must repeat the above steps every time you find a new deal.
An alternative is to create, launch & scale an investment fund instead.
If you want to Create, Launch & Scale an Investment Fund? Book a FREE session, and let’s devise the perfect game plan for you!
Here is to your fund success!
Dolly Brtan
Access free training @The Investment Fund Project Facebook group!
DISCLAIMER: – All written content on this site is for educational and information purposes only. Opinions expressed herein are solely those of the author, unless otherwise specifically cited. All statements reflect the author’s judgment as of the publication date and are subject to change. The information contained herein does not include personalized investment advice, nor should it be construed as investment, legal, or tax advice. All ideas and information provided should be discussed with a professional advisor, certified accountant, or practicing lawyer before implementation. The ideas and information presented here is also not an offer to buy or sell securities nor a solicitation of any offers to buy or sell the securities mentioned herein.