More and more people today are investing in real estate syndications to make a profit on their savings so they can retire more comfortably! What is a real estate syndication? Many think it’s a form of real estate crowdfunding, but that’s not entirely accurate. Real estate crowdfunding is the process of attracting and engaging real estate investors to initiate the official syndication process.
Crowdfunding has become more popular recently, mainly due to the JOBS Act of 2012, which aimed to lessen regulations on small businesses and legalize equity crowdfunding. Since then, there have been more ways, especially through the Internet, for entrepreneurs and investors to find each other.
If you are considering investing in a syndication, continue reading to learn more about this investment strategy, including how to invest in one, and who you can trust within the crowdfunding craze.
Quick Answer: Real Estate Syndications vs Crowdfunding, What’s the Difference?
The difference between syndications and crowdfunding often confuses investors, but here’s the key distinction: real estate syndications vs crowdfunding aren’t competing investment types—crowdfunding is simply one method of finding investors for a syndication. A syndication is the investment structure in which multiple investors pool capital to purchase real estate, while crowdfunding is the marketing and investor-gathering process, often conducted through online platforms.
Understanding Real Estate Syndication Investing
A real estate syndication is a formal investment structure in which you become a passive investor by contributing capital and signing the offering documents. The sponsor (syndicator) handles all day-to-day operations, property management, and decision-making while you receive your agreed-upon returns. Benefits include:
- Access to larger deals: Invest in commercial properties you couldn’t afford alone
- Passive income: No landlord responsibilities or property management
- Professional expertise: Experienced sponsors handle underwriting and operations
- Potential higher returns: Larger-scale projects often generate stronger cash flow and appreciation
How Crowdfunding Fits In
Crowdfunding real estate deals became popular after the JOBS Act of 2012 loosened regulations on how sponsors could advertise and find investors. Platforms like RealtyMogul, Fundrise, and others serve as intermediaries, posting multiple deals from various sponsors with lower minimum investments (sometimes $500-$5,000). Direct syndications typically require higher minimums ($50,000+) but offer direct relationships with sponsors who are fully invested in that specific project.
Key Differences That Matter
When comparing crowdfunding platforms versus direct real estate syndications, consider: Platform deals mean less direct sponsor access and additional platform fees, but more browsing options. Direct syndications involve working with sponsors who identified the property themselves and will personally manage it, often with more transparent communication. SEC regulations (Rule 506b and 506c) govern both, determining whether deals can be publicly advertised and who qualifies to invest.
Before investing in any real estate syndication, verify the company’s experience and track record, understand the deal structure (equity partnership vs. private loan), and consult your CPA and attorney to review all offering documents.
- View RealWealth’s current syndication offerings
- Learn more about how syndications work
- Join RealWealth for free and connect directly with our investment team
Syndications vs. Crowdfunding
As noted above, syndication and crowdfunding have been used interchangeably over the past decade. However, these two words are not directly synonymous. Syndications are funding relationships or arrangements between the investors. Crowdfunding is one way to find these investors.
What is real estate crowdfunding?
Crowdfunding is a method for raising capital and engaging investors. It may be used for purposes beyond real estate syndications. For example, you may have heard of or donated to a GoFundMe account. This form of advertising and accepting quick cash would fall under the category of ‘crowdfunding.’ Companies or individuals seeking to pool financing to start a new business or purchase real estate may also crowdfund; they may create a blog or website to advertise their objectives and attract a ‘crowd’ of investors.
What is a real estate syndication?
Syndications in real estate occur when you sign over your partial investment amount and agree to the terms and conditions that have been set by the project’s manager. You can then leave the rest of the decision-making to the project/investor manager, who will, hopefully, help you achieve your agreed-upon return on investment. Some of the big benefits of investing in syndications include (1) the ability to invest in a larger deal than you could do on your own, (2) you don’t have to manage the day-to-day details and procedures, and (3) at the same time, you can (potentially) make greater income than you could from a smaller solo investment.
3 Things To Know Before Investing in Real Estate Syndicates
Large project developers seeking a syndicate (a group of people pooling financing) may initially use crowdfunding. As an investor, you’ll want to do your due diligence before investing in a syndication. You should look for well-managed projects with strong potential for high returns. A give-and-take relationship is the incentive for making a syndicate deal. If you want to begin in this business venture, here are some details you will want to know:
1. Deal Structure
There are two main divisions of investment deals. One division is equity partnerships, and the other is private loans. The equity partnership means that expenses and profits are shared between you and the developer as outlined in the offering documents. A private loan is when you lend money to a developer, who must repay you, typically at a fixed interest rate. You will decide which part of the deal you want to participate in. Your decision may vary from one syndication to another.
2. Become an LLC Member
Syndication deals can be risky and complicated, like most real estate investments. To reduce complications, the group of equity investors will join a Limited Liability Company (LLC) that can better manage financial matters and project structure. There may be multiple LLCs that are entities of the master LLC, the sole owner of a Corporation. For example, RealWealth investors come together as an LLC entity, forming a syndicate with the corporate LLC involved with the project at hand. Crowdfunding happens at various levels, making syndicates possible for more groups of individuals.
3. U.S. Securities and Exchange Commission (SEC) Regulations
Investors who participate in syndications are considered ‘passive’ because they are not the ones handling the project details. As a result, there are certain SEC regulations. For instance, Rule 506(c) governs syndications that require participants to have higher-income accreditation. These deals can be advertised openly, allowing the help of crowdfunding. However, under Rule 506(b), which permits up to 35 “sophisticated investors,” there is a prohibition on public advertising and discussing the deal openly. In this type of syndication project, developers may discuss the prospective syndication only with people they already know and have worked with. This rule seems to shun crowdfunding.
Important Real Estate Syndication Tips & Strategies for Success
How To Do Due Diligence
When you hear about a large real estate project from a reliable source, you will want to:
- Obtain details on the project and future capital gains projections.
- Verify credentials and experience of the real estate syndication/project managers. Kathy Fettke, Co-founder of RealWealth, suggests, “Make sure the manager has a lot of experience. Not someone who is doing it for the first time.”
- Consult your personal accountant and/or tax advisor and decide what type of investor you will be, which is listed below.
Understand Investor Types
- Secured debt investor: Your investment is tied to an asset as collateral. This is the least risky, but you don’t gain asset profits. Flat interest rate, and your return is capped at the interest rate.
- Unsecured debt investor: You offer a loan not tied to an asset. You gain from a flat interest rate that is capped, but don’t gain from asset profits.
- Preferred equity investor: You become a member of the LLC that owns the asset; therefore, you are a shareholder of the property. Preferred returns mean that if there are profits to distribute, you are the first to get a share that is proportionate to the amount you invested. No cap on return. However, if the asset goes under, you don’t get paid.
- Simple equity investor: You become a member of the LLC member that owns the asset; therefore, you are a shareholder of the property. You receive your share of profits after the preferred. No cap on return. You are entitled to a higher percentage of gains given the higher risks. However, if asset goes under, you don’t get paid.
Sound investment decision-making will come as you gather information and advice and decide on the type of investor you want to be.
Final Thoughts
There are many tactics used online to lure people into making purchases or believing in an idea. Be cautious as you venture into real estate syndication deals and don’t fall prey to the crowdfunding craze. Your due diligence will be imperative to avoid bad deals and recognize good ones. Best wishes in syndication investing!
To learn more about RealWealth’s current syndication opportunities, join RealWealth.
Frequently Asked Questions
A real estate syndication is a partnership in which multiple investors pool their capital together to purchase a property or project that would be too expensive for them to buy individually. With this investing strategy, you are a passive investor: you contribute funds and receive a share of the returns, while the sponsor (such as RealWealth Developments) handles all operations, including acquisition, management, and eventual sale. Depending on the deal type, investors may receive distributions from cash flow, a lump-sum payment upon sale, or a combination of both. A real estate syndication strategy allows you to invest in institutional-quality real estate without active management responsibilities while benefiting from tax advantages and appreciation potential. Get the full breakdown of how syndications work→
Syndications are typically illiquid investments with a 3–7-year holding period. Some may be shorter or longer depending on the project.
Most syndications require a minimum investment of between $50,000 and $250,000. The amount depends on the sponsor and the size of the deal.
We put together a free webinar that walks you through the whole thing. You’ll see examples of real syndications, learn what makes a good sponsor versus a sketchy one, and understand how the money flows. Watch our free real estate syndication webinar→
For 506(c) offerings, which RealWealth Developments specializes in, you need to be an accredited investor. For a 506(b) deal, you do not have to be an accredited investor. According to the SEC, an accredited investor must have at least $200K in annual income (or $300K if married) or a net worth of at least $1 million, excluding your primary residence. Why? They’re trying to protect people from jumping into investments they don’t understand. Learn exactly what it takes to qualify as an accredited investor→
Passive investors typically receive cash-flow distributions from rental income or property sales in development projects (monthly, quarterly, or annually) and a share of profits when the property is sold or refinanced.
A Private Placement Memorandum (PPM) is a comprehensive legal document that outlines the details of a real estate syndication investment. This includes the business plan, financial projections, fee structure, distribution waterfall, and potential risks. The PPM is required by securities law and must be reviewed before investing, as it contains critical information about how your capital will be used, when you can expect returns, and what risks to consider. While it may seem lengthy and technical, reading the PPM carefully ensures you fully understand what you’re investing in and helps you make an informed decision. Here’s how to read and understand a PPM→
Your preferred return, which varies by deal structure, is typically between 6% and 12% (and has been higher on some RealWealth Development Deals). It is the amount you receive before the sponsor receives any proceeds beyond their fees. A waterfall structure determines how profits are split between the sponsor and investors throughout the life of the deal. Many real estate syndications use tiered waterfalls, where the split might start at 70/30 (investor/sponsor), but once the sponsor hits a particular IRR hurdle, it shifts to 50/50, meaning sponsors take a larger share of profits as performance improves. At RealWealth Developments, we keep the profit split consistent throughout the entire investment without any hurdles, so investors maintain their full percentage of returns from day one through exit, which maximizes your share of the upside. Learn how preferred returns and waterfalls protect your investment→
Underwriting is just fancy talk for “did they do the math right?” Looking at their assumptions is key to underwriting. For example, are they projecting rent increases of 10% a year in a market that’s only been increasing by 3%? That’s a red flag. Conservative sponsors might show you lower returns, but those numbers are way more likely to happen. Ask yourself: if rent growth slows or vacancies rise, does this deal still work? Get our complete guide to evaluating syndication underwriting→
Yes! In fact, storage syndications have become really popular because the business is simpler than apartment syndications: kitchens aren’t breaking, no midnight plumbing emergencies, no tenants trashing units. Someone stops paying? You cut the lock and auction off their stuff. The deals work like apartment syndications. You invest, they improve the facility, you get quarterly checks, and everyone cashes out when it sells. Here’s everything you need to know about self-storage syndications→
Good question, as people often mix these up. When you invest in a real estate syndication, you’re working directly with the company that found the property and will manage it. They’re all-in on that deal. Crowdfunding platforms are more like a middleman. Typically, different sponsors post their deals on a website. The platform takes a fee, but they are not typically involved in the management of the investment. Direct real estate syndications mean better access to the sponsor. Platforms typically offer more options to browse through, and you may not need to be an accredited investor to invest. See our detailed comparison of syndications vs crowdfunding→
REITs are like buying stock in a real estate company. You can buy and sell shares instantly, but you have no idea which specific buildings you own. Syndications are the opposite. You pick a specific property, project, or fund, you know exactly where your money’s going, but you’re typically locked in for 3-7 years. REITs are available to anyone. Most syndications require you to be an accredited investor, which means meeting certain income or net worth requirements.
Depends on what you’re looking for. Want apartments? Self-storage? A specific region or market? Something else? Some companies are great if you’re new and need lots of hand-holding. Others assume you know what you’re doing and just give you the numbers. Learn more about the major players in the real estate syndication space→
When evaluating real estate syndication sponsors, you’ll want to 1) review their past performance, but also 2) ensure you distinguish between deals where they were the lead sponsor and deals where they were a passive partner. At RealWealth Developments, we now serve as the sponsor for our current deals, giving us complete control over operations, underwriting, and asset management. This is a key difference from our earlier investments, where we participated as silent partners. Thirdly, you’ll want to evaluate the sponsor’s experience, deal structure (including investor protections), and alignment of interests with you as an investor.
Fees in real estate syndications vary significantly based on the deal type and structure. Standard fees may include acquisition, asset management, disposition, loan, and construction management or development fees. All these fees should be clearly laid out in the private placement memorandum. If you’re adding up all the fees and they’re eating half your returns, that’s a problem.
Start with the private placement memorandum (PPM), which is the primary document that covers the deal in full, including all risks. Then read the operating agreement, which outlines your rights as an investor and how decisions are made. You’ll also want to review and complete the subscription agreement before signing. That’s your legal commitment to invest, and you can’t just back out once you’ve signed. Request the property’s financial projections and the sponsor’s underwriting to see their assumptions. If you don’t understand something in any of these documents, ask questions or have a lawyer review them.
Common asset types include multifamily apartments, self-storage facilities, industrial warehouses, single-family residential portfolios, land development, and build-to-rent communities.
Your money is typically locked up for 3 to 7 years, so you can’t withdraw it if you need it. The property may not perform as projected. Construction could get delayed. The market could tank. The sponsor might not be as experienced as they claimed. Worst case? You could lose the invested capital. This is why doing your homework on the deal’s underwriting is so important.
No. While sponsors may project certain returns, there are no guarantees. Market conditions, property performance, and operator decisions can impact actual results.
You can with a self-directed IRA or solo 401(k), but not with your regular employer 401(k). You’ll need to work with a special custodian who handles alternative investments, and any money you make has to stay in your retirement account until you’re old enough to withdraw it. Not every syndication company accepts funds from retirement accounts, so ask about this upfront if it matters to you.
Investors receive a K-1 tax form, which reports their share of income, losses, and depreciation. Thanks to depreciation and cost segregation, many investors can show paper losses even while receiving cash flow, thereby reducing their taxable income.
If you want access to larger commercial real estate deals without being a landlord, and you’re comfortable tying up your capital for several years, real estate syndications can be a strong addition to your portfolio.
Join as a free member—takes less than five minutes and costs nothing. You’ll get access to our current deals, all the details on each project, and the actual offering documents so you can do your homework. You can schedule a free call with our investment team to ask questions without any sales pressure. We also offer extensive educational content on syndications, regular webinars that walk through how everything works, and real investors you can talk to about their experience.
