One of the biggest challenges as a novice real estate investor without a large network is finding real estate syndication deals. Most individual deals out there are only available to accredited investors. For non-accredited investors, the challenge becomes even harder since syndicators are only allowed to accept a certain allotment of non-accredited investors.
I faced many of the same problems when I first started investing in real estate. So, in this post, I will go over how to find real estate syndication deals step-by-step for accredited and non-accredited investors.
How to find real estate syndication deals
Total Time: 7 days
Build a network
By building a network of like-minded investors and syndicators you will have access to a constant stream of new deals. Due to its capital intensive nature, the real estate investing world is largely built on trust and human connections.
Find a sponsor
Contrary to what you may believe now, finding a sponsor is actually much more important than finding the actual deal. Once you have a trusted sponsor or network of sponsors the deals will follow.
Use real estate platforms
If you are unable to build up a network and find a sponsor in a short amount of time or simply would like to have access to more deals, real estate platforms such as CrowdStreet or RealtyMogul offer an excellent opportunity to get to know the market.
Let’s start with the basics: what actually is a real estate syndication and how does it work?
In simple terms, a real estate syndication is just the process of pooling investor funds to purchase a property. Usually, the type of property offered in a syndication deal is either a high-value multi-family property or a large office building. Both of which require too much capital for one individual investor.
This is very similar to the idea of real estate crowdfunding. In real estate crowdfunding investment platforms such as Fundrise also pool investors’ money to purchase properties. However, you generally have no say in which properties are bought or sold. It’s much more like investing in a REIT than anything else.
Who is the sponsor in a real estate deal?
The sponsor is a real estate deal is the person or company that is in charge of finding, acquiring, and managing the deal. Once a suitable property is found and acquired the sponsor will syndicate the deal and open it up to investors.
The sponsor will usually be compensated for their efforts by a profit split and a range of fees like an acquisition fee, disposal, and management fee.
How do I get a real estate sponsor?
Getting a real estate sponsor on your own without much experience in the industry is nearly impossible. Once you have built up a network of real estate professionals it will become much easier to meet the right people, however, even then finding the right sponsor can still be difficult.
Some platforms have made getting a sponsor much easier. As we will discuss later, you can use these platforms to connect with real estate sponsors on the deals you want.
Finding Real Estate Syndication Deals
Next, we will look at how to actually find real estate syndication deals. I have split this section up into two parts. The first deals with finding deals as an accredited investor and the latter one with how to find deals as a non-accredited investor.
These two processes and options that are available to you can differ widely from each other because of the facts mentioned above.
Being an accredited investor makes things a whole lot easier for you. Sponsors will be more willing to work with you for several reasons. First of all, they have to jump through fewer regulatory loops to open up the syndication deal to accredited investors.
Essentially, if you’re an accredited investor the SEC says: “hey, we trust that you know what you’re doing. We’re not here to protect you anymore.“
And this in turn reduces the sponsor’s fiduciary responsibility to you.
As alluded to earlier CrowdStreet is a fantastic place to find real estate syndication deals as an accredited investor. They have tons of individual property deals on their marketplace ranging anywhere from small-cap residential buildings to large-cap commercial properties.
The Internal Rate of Return (IRR) ranges anywhere from 13-23% on most properties with a target equity multiple of 1.5x to 2.5x. You can easily find and choose the deal that most appeals to you in terms of risk and investment period.
RealtyMogul is another great place to look for real estate syndication deals. The offer REITs as well as individual properties. However, the latter is reserved for accredited investors only. If you are accredited, you can have a look at their investment option here.
Another option that RealtyMogul offers is to make use of their 1031 Exchange. This will allow you to defer taxes on a property you are planning to sell and “exchange” it for another property. A great way to leverage the power of asset appreciation and tax benefits of real estate.
For accredited investors forums are gold. You may have to dig a bit deeper here but once you become a member of a particular real estate investing community and are able to build trust with sponsors the rewards will come.
Not only will you have a constant flow of new deals coming your way, but you’ll also get access to deals that aren’t made public anywhere else. Those tend to be also the ones with higher returns.
The most well-known forum for real estate investors to find real estate syndication deals and to connect with sponsors is BiggerPockets. They have a nearly endless array of educational materials and spreadsheets and their forums are teeming with real estate professionals and capital sponsors.
Currently, there are more than 4.9 million posts available for you to browse through. And the best part: it’s completely free.
Real estate syndication deals for non-accredited investors are few and far between. The reason being that the SEC has made it much more complicated for syndicators to include non-accredited investors in their deals.
Although this is somewhat well-intentioned (the rationale being that real estate is generally riskier), the conclusion that someone with a net worth exceeding $1,000,000 is better equipped or educated to invest in real estate is certainly questionable.
One option that has quite recently opened up to non-accredited investors is Cardone Capital. This is the capital management company run by Grant Cardone. Whether you like or dislike his particular style of marketing, he does offer some enticing deals.
Cardone Capital splits up their properties into investment funds which in turn are split up into funds for accredited and non-accredited investors. The only difference here is that the accredited fund offers a preferred return (meaning investors will get paid first) and the other one does not.
Grant Cardone’s focus lies on high-end multi-family properties in the South-Eastern United States. He also advertises a 15% IRR with around 6% cash flow for each fund.
Another rather small and new syndicator for non-accredited investors is Holdfolio. Holdfolio invests mostly in low- to mid-range multi-family properties in the Mid-West and Southern U.S.
Quite recently they have also started offering higher-end properties on the East Cost. I particularly like Holdfolio for a couple of reasons:
- The distribution split at 85/15 is very favorable to investors.
- Regular detailed updates on all investments.
- Close contact with the CEO and team.
If you’d like to read more about Holdfolio, have a look at the extensive review I wrote a few weeks ago.
One very new player to the game of real estate syndication is RealT. What differentiates RealT from the two other options above is that they structure all their deals in a way to be 100% compatible with the Ethereum blockchain.
This means you will be able to invest with cryptocurrency and receive your distributions in cryptocurrency.
Another big advantage that RealT offers is fractional investing which means you can invest with as little as one token per property. The value of one token is usually calculated by dividing the property value by 1,000 which ends up somewhere around $50-$150 as a minimum investment.
This is obviously insanely low for a real estate syndication deal with actual ownership in one property!
Finding real estate syndication deals is simple, but not easy. The real challenge is usually finding the right sponsor to work with.
As an accredited investor you have many more options and advantages. You can go the easy route and simply look for an investment property on a platform like CrowdStreet or RealtyMogul.
For the enterprising investor, it might be worth spending some time in forums such as BiggerPockets to connect with local sponsors.
Non-accredited investors definitely have fewer options, but the situation is not hopeless. Recently new syndicators have opened up to non-accredited investors such as Cardone Capital, Holdfolio, and RealT.
Certainly, over the next few years it will get easier and easier to find real estate syndication deals for any type of investor thanks to new technology and innovative companies.