One of the best ways to make a good profit in real estate is to start your own syndication company. This type of business allows you to pool money from different investors to find more investment opportunities, offering you a higher return on investment (ROI). If done correctly, real estate syndication can be a very lucrative endeavor.
So, how to start a real estate syndication company?
Let us help you out with this step-by-step guide!
What Is a Real Estate Syndication Company
To start on a good footing, you should first understand what commercial real estate syndication is. In short, a real estate syndicate is a group of people who raise capital together to invest in a property or multiple properties. Each person in the group (or syndicate) contributes money that will be used to finance the purchase of a property.
The leader of the syndicate, also known as the syndicator or sponsor, is responsible for finding and negotiating the deals. They will also put up some of their own money as well (usually 20-30%). The rest of the members are passive investors who do not have an active role in how the property is managed.
As the syndicator, you will be responsible for making sure that the properties are well-maintained and profitable. This includes finding tenants, collecting rent, and paying the mortgage. You will also be responsible for any repairs or renovations that need to be made.
While it may seem like a lot of work, being the owner of a real estate syndication company can be very rewarding. Not only do you get to make all the decisions, but you also get to keep a larger percentage of the profits (usually 70-80%).
Starting a Real Estate Syndication Company: The Process
Now that you know what a real estate syndication company is and how it works, it is time to learn the process of starting one. Here are the steps that you should follow.
Step One: Know Your Market
The first step to starting a real estate syndication business is to identify your target market. This means that you should have a good understanding of the area where you will be buying properties. You should know things like the average price of homes, the types of properties that are in demand, and the schools and amenities that are available.
You should also think about the properties that you would like to have. Do you want to buy single-family homes, apartments, or commercial properties? Once you have a good understanding of your market, you can start looking for properties.
You can learn about your market by doing your own research online or by talking to a real estate agent who is familiar with the area.
Step Two: Create a Business Plan
Creating a solid business plan could be the top answer to what is required to start a real estate syndication company. After all, how would you go about starting a business without knowing how you are going to make money?
A business plan should include your goals and how you plan on achieving them. It should also include a marketing strategy, as well as how you plan on raising capital.
When building a business plan for real estate syndication, you should also create a pro forma. This is a document that outlines the expected income and expenses for the property. It will help you to determine if the property is a good investment or not.
If you need help creating a business plan, there are many resources available online. You can also hire a consultant to help you with this process.
Step Three: Find a Good Team
To run your business, you will need an experienced team that can help you with the process. When you ask some people who are already in this industry, you would find out that the best real estate syndication companies have great teams.
Typically, your team should include a real estate agent, a loan officer, an accountant, and a lawyer. These people will help you find and finance properties. They will also help you to navigate the legal aspects of starting a business.
Here is how these individuals function as part of your team.
- Real estate agent – Helps you to find properties that fit your criteria.
- Loan officer – Helps you to get financing for the purchase of the property.
- Accountant – Keeps track of your finances and helps you to stay organized.
- Lawyer – Provides legal advice and helps you to comply with regulations.
You can find these professionals by asking for referrals from people in your network. You can also search for them online or in your local Yellow Pages.
Step Four: Raise Capital
Now that you have a team in place, it is time to raise capital. There are a few ways that real estate syndication companies do this.
The first way is to use your own money. If you have savings or equity in another property, you can use this to finance your business. You can also take out loans from banks or other financial institutions. Of course, you can seek out investors who are willing to provide you with the capital that you need.
When raising capital, you should always have a backup plan. This way, if one method of financing falls through, you will still have another source of capital you need to start your business.
Step Five: Find Investors
When finding people to invest in your business, you can look for private investors or venture capitalists.
You can find private investors by asking people you know if they are interested in investing. You can also search for them online or in your local Yellow Pages.
When looking for venture capitalists, you can search for them online as well or attend investor events. You can also contact your local chamber of commerce to see if they know of any venture capitalists in your area.
To attract these investors, it is important to have a good business plan in place. This will help you to convince them that your venture is a good investment.
Step Six: Start Buying Properties
With enough capital, a team, and a business plan in place, this would be the last step on how to start a real estate syndication company—you can now start looking for properties to buy.
Remember to use the criteria that you outlined in your business plan when searching for properties. You should also have your team in place to help you with finding the best types of real estate to invest in.
When you find properties that you are interested in, make an offer and hope that it is accepted. If it is, congratulations! You are now the owner of a real estate syndication company.
Risks Associated with Starting a Real Estate Syndication Company
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Now, you already know how to start a real estate syndication company. What’s next? Well, you need to ensure you can keep it afloat in order to bring it towards success. And, the best way to do this is by knowing the risks associated with this line of business and the ways how to mitigate or eliminate them altogether.
Here are some important things that you need to be aware of.
Not All Properties Are Good Investments
There is a possibility that you will purchase a property that will not generate enough income to cover the mortgage payments and other expenses.
Solution: Do your due diligence and research each property thoroughly before making an offer.
The Market Can Change at Any Time
If the market changes for the worse, it could result in you being unable to sell your property or having to sell it at a loss.
Solution: Pay attention to market trends and make sure you have a solid exit strategy in place.
You Are Responsible for the Debt Associated with the Property
If you default on the loan, you could lose the property and any money that you have invested in it.
Solution: Make sure you only purchase a property that you can afford and that has a high chance of appreciation.
You Are Responsible for the Tenants
If they damage the property or don’t pay rent, it will be your responsibility to fix the problem.
Solution: Screen your tenants carefully and require them to have renter’s insurance.
Like any other kind of business, there are risks associated with starting a real estate syndication company. By being aware of them and taking some measures, you should be able to protect yourself and your business.
Final Thoughts
Without a doubt, starting a real estate syndication company can be a great way to achieve financial freedom. It is important to remember, however, that it takes time and effort to be successful in this business.
If you are willing to put in the work, though, you can be rewarded with a profitable and fulfilling business venture. So, what are you waiting for? Get started today!
Do you have more questions about how to start a real estate syndication company? Feel free to leave a comment below. And, for more interesting and useful information that you can use in your business, please check out the other articles on our site.
Thank you for reading!