You are currently viewing Pros and Cons of Real Estate Syndication

Pros and Cons of Real Estate Syndication

Real estate syndication sounds like something out of an ensemble superhero series, where the intrepid heroes battle a group of people who own property. In reality, Real estate syndicates offer an opportunity for people ranging from well-off to crowd fund hopefuls to make their money make money.

Put simply, real estate syndication allows a group of investors to pool their capital to purchase high dollar properties to be managed by a single party who is also an investing partner. The former, often referred to as the “silent partner,” or “investor” receives a return on investment but doesn’t necessarily have any oversight on the property, while the latter, the “managing partner” or simply “manager” will have return on investment and also compensation for time spent managing the property (work which includes hiring contractors and purchasing whatever needful supplies the property will require).

A real estate syndicate may be exactly what you need for your investment portfolio, so let’s dive into some of the ups and downs of why this may be your next big move.


1)  Minimal Experience Required: Send a kid to college and you will know what it feels like to be a silent partner in investment. You have zero insight on what your money is buying and the only expertise you need is the ability to write a check. Sign in on a hotel investment group and fortunately, you won’t have to worry about whether or not your money is buying the next round at a frat party.

Oftentimes, the biggest limiting factor for anyone to invest in real estate is experience. You may have the ability to write a check, but have no experience in zoning laws, renters rights, permitting processes, or anything involved in making a property make money. With syndication, the only due diligence you need to bring is to understand the bottom line of how your contract agrees to pay you. With that said, no two real estate syndications are the same, so a review from a property expert would be wise before throwing a large amount of capital into a project.

2) Long Term Strategy: Every portfolio needs investments that return in short order and those that plan on paying off over time. Diversification is the key to an investment strategy that keeps stormy stock seasons or market drama from destroying your overall financial health. While not risk-free, investments in large real estate projects are often free from subjection to the same downturns that see stocks rise and fall in a day.

Conservatively, most real estate investments from single family homes to large multi-use property acquisitions require five years to see a successful return on initial investment. Real estate syndication will offer both a return on the initial investment as well as a quarterly or annual payment to the silent partners.

3) Initial Access to Large Projects: The world of large project investment is not largely open. It takes a lot of capital and even more skill to manage a project the size of a large hotel or even just a mall with a dental clinic, pizza joint, and gaming store. Once you have successfully navigated a project of the scope which syndicates take on, you now have in your investment repertoire the experience to make money off of these potentially lucrative opportunities. Syndicates seek out successful previous investors and this will open up the door to make even more money.

4) Higher Yield on Investment: Conservatively, the projected yield return on a successful investment will range between 4% and 7%. Four percent investments on cash payouts is often a sign of a sluggish investment while seven is a sign that your syndicate has found the cutting edge of investment.

That amount is, however, dwarfed, when compared to the projected return on your investment over the entire lifetime of the project. If the property succeeds and gains momentum, after five years, investors often see the entire project return an amount that compared to annual return ranges between 12% and 20% following the sale of the property! That projection is an average with some successful investments merely breaking even and others pushing over 50% return.


1) Higher Risk: Any investment broker can tell you for absolutely free because it is almost printed on every single investment textbook ever printed that with higher return comes higher risk. With a potential of fifty percent annualized return over the course of the project comes the risk that if it’s possible to succeed big, it’s also possible to fail big.

Whether through signing on with the wrong syndicate, managed by someone not properly attuned to the project, or because of bad market movements, or even events like the recent lockdown across the world in response to the pandemic,  it’s possible for real estate to fail big. There is no guarantee and if your project fails, your money is gone.

2) Singularly Diverse: While investing in big real estate helps to diversify your portfolio, it lacks the multiple targets of groups that invest in groups of real estate projects. If you are investing in a single property and it fails, the project itself fails. If your group is invested very lightly across several regions, it is less likely to face a total failure and see a very large investment washed away with the whims of the market.

Access is now allowed through two separate venues.

You can individually invest, but only if you can pass the definition of an “accredited investor,” a status only given if your net worth is over and individual annual income is over a certain threshold depending on which country you are in.

If you aren’t part of the top percent of wage earners, there is still the avenue of crowdfunded ventures to invest. Crowdfunding comes with less return than traditional investment and more fees, but it does give access to the everyman hopeful investor.

3) Access to Investment: Real estate is a long term investment with occasional cash payout. It will require patience on the part of the investor that once invested, the bulk of their money is unavailable. While it is possible to sell your investment in the syndicate in some circumstances, many wise syndicate managers will write into their contracts clauses about share sales and penalties for early withdrawal. In general, this is to be considered a sunk cost whose liquidity will not be available to you for several years.

There are opportunities abound to get in on the ground floor of exciting new properties. Each new property carries with it the potential for a great deal of money to be made, effectively making your money make more money. For every new property being built, there are five already-built businesses and structures waiting to be renovated and having new life built into them. There is risk involved and not every real estate project succeeds. However, if you are willing to take the risk and ride out the uncertainty, there is money to be made in real estate syndicates.


Bill Kenta


Bill Kenta is a property investor with a keen interest in long term property investing around Australia. Bill is also a retired real estate agent and has helped many new real estate agents who are new to the industry.