If You Like Crowdfunding, You’ll Love Real Estate Syndication

The popularity of crowdfunding has increased dramatically with the advent of platforms like GoFundMe and Kickstarter, offering people the opportunity to invest in causes that matter to them. For those who enjoy crowdfunding, there is another option available in the form of real estate syndication, which enables investors to pool funds and invest in real estate projects.

What is Crowdfunding vs. Real Estate Syndication?

Real estate syndication and crowdfunding share a common principle, which is the pooling of resources from multiple investors to fund a larger project. While crowdfunding typically involves gathering small amounts of capital from a large number of investors to finance a new venture or product, real estate syndication uses the same concept to purchase and manage a property. In North America alone, crowdfunding is responsible for raising an annual sum of $17.2 billion, and the average crowdfunding campaign has about 47 backers. The process of real estate syndication involves a sponsor who sources and manages the property and a group of investors who pool their capital to purchase and manage it.

The Basics of Real Estate Syndication

Real estate syndication involves investors partnering with a sponsor who manages and locates profitable real estate projects. The sponsor is responsible for finding a property with high potential for value-building through remodeling, rebranding, and attracting new tenants or buyers. The individual investor doesn’t require any specialized real estate or financial knowledge because the sponsor puts their intellectual capital to work for the group.

Real estate syndication is a passive form of investment, requiring investors to contribute money without putting in too much time or effort. Once the sponsor has found a property and investors have made their contributions to the project, the sponsor manages the value-building process, and investors receive payment disbursements at intervals.

Real estate syndication is a popular investment choice, with approximately 120,000 U.S. investors participating in 2019. The average investment size was $3 million, with an average preferred return of 8%. Interest in syndication is expected to expand to one million or more participants post-COVID as the need for affordable housing increases.

The size of investment varies in real estate syndication, with some investors starting with a few thousand dollars, and the average project value being about $3 million. At Life Bridge Capital, the typical minimum investment is $50,000, and the average project value is $25 million to $35 million.

Differences Between Crowdfunding and Real Estate Syndication

Crowdfunding and real estate syndication have some notable differences. Firstly, a syndication agreement formalizes the relationship among investors, while crowdfunding is mainly used to find investors.

Crowdfunding often takes place informally through a website or blog, whereas real estate syndication typically occurs in a more professional setting with communication happening via phone, email or in-person meetings.

Real estate crowdfunding is similar to real estate syndication but is not exactly the same. One major difference is in how profits are distributed. Real estate crowdfunding generates profits from rental income or the appreciation of a property at sale, with a target exit date for investors.

In real estate syndication, profits are distributed at set intervals through a waterfall structure. This structure is considered the gold standard in real estate syndication and is explained in detail in the whitepaper, A Guide to Passively Investing in Commercial Real Estate.

What Crowdfunders Love About Real Estate Syndication

The benefits of crowdfunding and real estate syndication are what makes them both so intriguing to so many people. Here are some of the benefits of real estate syndication that may appeal to you:

• It brings investors together for a common cause.

• It allows you to pick and choose your projects.

• It leverages the resources of a knowledgeable sponsor.

• It’s a longer-term approach to investing that yields modest but reliable returns.

• Real estate syndication is a type of investment that allows you to invest passively, freeing up your time to focus on other aspects of your life.

Just like when you contribute to a crowdfunding project, investing in real estate syndication allows you to make a financial decision and then move on with your life. You don’t have to babysit your investment and interact with it day-to-day the way you would with flipping a house or becoming a landlord, for example.

And for many people, that’s enormously attractive. When you’re already busy with work, a family, and everything else, passive real estate investment provides a smart, resource-effective path to building wealth.

How to Learn More About Real Estate Syndication

If you are intrigued by the idea of investing in real estate through syndication, there are resources available to learn more. One option is to download a free whitepaper called A Guide to Passively Investing in Commercial Real Estate. Another resource is a podcast called The Real Estate Syndication Show.