How to Invest In Commercial Real Estate Using Real Estate Syndicating
Evaluate Whether Syndicate Investing Is For YouYour first step is to determine if investing in real estate through a syndicate is for you. Real estate syndication allows a group of individuals to combine private savings to purchase larger real estate investments for which other financing is not available. This method of real estate investing has been popular for financing the purchase and sale of commercial properties such as shopping centers, office buildings and warehouses. However, not every one has the stomach for such large investments. You also should be comfortable investing with others and make sure you are OK with having your money tied up for a period of years.
Develop a Rock-Solid Operating AgreementEvery real estate syndicate is different, and dictated by the terms of a central agreement which defines the purpose and powers of the syndicate. Typically these real estate investment vehicles are structured using some form of partnership agreement or limited liability company (LLC). The partnership or LLC has an Operating Agreement which determines how the investment will function day-by-day, including how much power will be delegated to a sole manager and whether passive investors will participate in decision-making. You must put great care into drafting the syndicate agreement. This is the "Constitution" which will guide the investment group no matter what happens in the future. If you are planning on investing a significant sum in this investment vehicle, you should spend a fair amount of time and money on getting legal advice and drafting this foundational document.
Seek Out ExpertiseOne of the primary advantages of syndicates is the ability of many investors to leverage expertise. Rather than relying on one person's knowledge as is the case whenever an individual makes a self-directed investment, a syndicate can bank on the knowledge and skills of numerous real estate professionals. Nonprofessional investors who have neither the time nor the inclination to learn every aspect of owning and managing real estate investments can benefit from someone else's skills and experience negotiating purchase agreements, financing a purchase, negotiating leases and managing the property. You should seek out a manager who is experienced, capable, and able to handle the wide variety of responsibilities they will have.
Identify the Type of Investment, Market Area, and ScopeThe final step in forming a real estate syndicate is to identify the type of investment and the market area. Do you want to purchase an office building or a shopping center? Because it is wise to invest close to home, you should first look at investments close by. If the manufacturing sector in your area has been suffering, you should avoid purchasing warehouses.
You should also decide on the scope of the syndicate, including how many investors are going to be involved. A syndicate can consist of as few as 2-3 investors to as many as 50 investors. It can also be helpful if all the investors are known personally by the organizer.