Today I want to talk about something that's very near and dear to my heart, Real Estate Syndication. I know, that word sounds crazy and complicated but it really isn't. So, what is syndication? Well, the word syndication actually just means a pooling of resources and ideas to get a goal done. In real estate it means people pulling leadership skills and resources to purchase an investment property that is bigger than an individual may be able to do themselves.
There are a lot of people doing syndication right now. Some of the big ones you may have heard of are Grant Cardone and Joe Fairless. They're really out there right now talking about raising private money and they buy commercial assets and operate them using other people's money to provide a stable return.
Why did we, Bugay Investments Group get into syndication? It's like that adage, “the end result is greater than the sum of its parts.” This is so true with syndication, you can get more done by pooling funds and resources, ideas and knowledge together. So we got into syndication because a) we are able to provide a stable return that beats the stock market for our investors and b) to be able to achieve greater returns than we would be able to do by ourselves.
Our very first deal was a syndication. We raised private money to buy two properties and we will continue to do syndication on all of our deals from here on out. I love being able to provide huge returns to investors and I love how happy I make them with the checks they get back from us. As well as being able to grow our business quicker than doing it ourselves.
What are the different ways to structure a syndication? It encompasses a lot of different ways to do the same thing more or less. There's two big main ways of structuring it. One is by selling equity or selling ownership in the company which owns the asset. You can think of that kind of like the stock market when you buy a share of stock you actually own a fractional piece of the company.
The second way to structure it is through debt. You can think of this kind of like the bank except the private lenders are essentially the bank. They lend the money for a set rate of return and they will get their money back. No matter what happens if the syndicators failed to pay, the investors have the right to foreclose on the property and take ownership.
Now going one way or the other it can get very complicated. I'm going to preface this by saying I'm not giving any legal advice, you need to consult your SEC attorney before you proceed down this path any further. This is for educational purposes only.
Typically, selling equity in a company is for the bigger deals. It is tied to the performance of the asset more so than by raising money through debt. Debt is a very good way to get smaller deals done and once you get into the larger numbers, it can make more sense to sell equity. Equity tends to be a longer-term hold whereas debt can be short term.
Those are two different ways you can Syndicate a deal to raise the money needed to purchase real estate. As a recap a syndication is a way to leverage people's resources and knowledge to get more done. It can be great for both the operator, the operation company and the private investors as it will beat out typically any other investment there is right now, especially the stock market. That’s what syndication is in a nutshell.
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John is the owner of Bugay Investments Group. He loves Real Estate Investing and wants to share his thoughts and knowledge with you!