August 8, 2025
Find out if you’re ready to team up and buy big
Real estate syndication is having a moment. As high interest rates make full property ownership pricier, more investors are exploring flexible ways to leverage real estate's long-term potential. Syndication allows everyday investors to pool their money and buy into larger real estate deals that might have felt out of reach before.
Of course, every investment carries its risks, so let's find out if this strategy is a good match for your portfolio and explore some great alternatives as well.
What Is Real Estate Syndication?
Real estate syndication provides an opportunity for multiple investors to pool their money and invest it in a significant property deal, such as apartment complexes, commercial properties, or even self-storage units.
Here's how it works: A syndicator, also called a sponsor or operator, finds a property, creates a business plan, and brings in investors to fund the deal.
The investors, usually referred to as limited partners (LPs), supply the capital, while the sponsor handles the heavy lifting, like acquisitions, renovations, management, and selling the property when the time is right.
In short, syndication makes passive real estate investing possible for people who don't want the hassle of owning and managing property directly.
How Do Real Estate Syndication Deals Work?
Here’s how a typical deal unfolds from start to finish and what to watch for along the way.
1. Sponsor Finds the Deal
The catalyst behind any syndication project is usually the sponsor. They do the heavy lifting searching for properties with strong profitability potential, whether it's a value-add apartment building, a stabilized self-storage facility, or a commercial property in a growing market.
Their research includes deep financial analysis, market research, and feasibility assessments to make sure the numbers add up.
Keep in mind, the quality of the deal depends heavily on the sponsor's experience and underwriting. A good sponsor will be conservative in their assumptions, transparent about risks, and clear about their plan to add value.
2. Syndication Is Structured
Once the deal pencils out, the sponsor moves on to setting up the legal and financial side of things.
The process often involves creating a Limited Liability Company (LLC) or Limited Partnership (LP), with the sponsor acting as the General Partner (GP) and investors coming in as Limited Partners (LPs). This setup typically covers:
- Profit distribution – usually begins with a preferred return to investors, followed by a split of any remaining profits with the sponsor
- Investment duration – often spans 3 to 7 years, depending on the strategy and market conditions
- Exit strategy – commonly involves selling the property or refinancing to return capital and profits
The beauty of this structure is that it helps protect investors. It keeps liability separate and spells out everyone’s roles and responsibilities upfront.
3. Raise Capital from Investors
Now it's time to fund the deal. The sponsor shares the investment opportunity with their network or through a platform if allowed by the Securities and Exchange Commission (SEC) rules. Investors review the offering memorandum, which outlines the business plan, risks, and projected returns.
Minimum investment amounts can range from $25,000 to $100,000 or more, depending on the size of the deal and the sponsor's requirements.
The amount of cash required makes investor due diligence essential. Before committing capital, investors should review the sponsor's track record, ask questions, and make sure the investment aligns with their goals. And don't forget to read the fine print.
4. Purchase and Manage the Property
Once the funds are secured, the sponsor closes on the property and begins executing the business plan. It might involve renovating units, improving operations, increasing rents, or reducing expenses to boost the property's value and income.
Typically, there is a hold period, which is the length of time the sponsor plans to own and manage the property before selling or refinancing it.
Once the hold period ends, the sponsor exits the investment, usually by selling the property, and distributes any remaining profits to investors.
During the hold period, the sponsor provides regular updates to investors, usually through quarterly reports, financial statements, and perhaps even webinars.
While the actual property management may be handled in-house or by a third party, the sponsor remains responsible for making sure everything stays on track.
5. Distribute Returns
Returns are typically distributed in two ways typically based on how the deal is structured:
- Ongoing cash flow from rent profits, monthly or quarterly
- Profit at exit when the property is sold or refinanced
Often, deals prioritize a preferred return to investors, usually around 6% to 10% annually, before the sponsor earns their share of profits. This is called the "promote" or "carried interest." We would be remiss if we didn't share that the percentages vary significantly, and there are no guarantees on actual returns.
Lastly, remember, some deals generate income quickly, like rentals or flips, while others, like heavy value-add projects, may take a year or more to start producing cash flow.
How Much Can You Make With Real Estate Syndication?
In a well-run syndication, you can make money in a few different ways; the exact amount depends on the terms of the deal and market conditions:
- Collecting cash flow from rental income, which is usually paid out monthly or quarterly
- Racking up tax benefits thanks to depreciation and other real estate write-offs
- Cashing out at exit, which is often a sizable chunk of the total profit, comes when the property is sold, with investors receiving anywhere from 40% to 60% of the appreciation.
The Pitfalls of Real Estate Syndication Investing
Real estate syndication can open the door to big earning opportunities, but like any investment, it’s not without its tripwires. While you don’t need to be a real estate tycoon to participate, you do need to keep your eyes wide open. From sponsor slip-ups to inflexible timelines, here are a few red flags to keep on your radar before you write that check.
Your Money’s Locked Up
Most syndicate deals tie up your funds for 5 to 7 years. Life happens, and you may need access to that cash, but unless you can find a buyer for your share, there’s no easy exit ramp.
The Sponsor Isn’t Who You Thought They Were
A flashy pitch deck doesn’t guarantee competence or integrity. Poor communication, mismanagement, or even outright fraud can tank a deal. If the sponsor’s dodging your questions early on, that’s your cue to walk away.
Too Much Debt, Not Enough Cushion
Many deals rely heavily on leverage. That works great until it doesn’t. Rising interest rates, softening rental markets, or unexpected expenses can erode returns or sink the project entirely.
You’re Not in the Passenger Seat
When you invest, you hand over control. That means no say in when to sell, refinance, or renovate. If the sponsor goes off-script, you’re along for the ride, seatbelt optional.
Fees That Eat Your Returns.
Between acquisition fees, management fees, and promoted interest, the sponsor gets paid no matter how the investment performs. Make sure the structure rewards long-term success, not quick flips.
Is Syndication a Good Fit for First-Time Investors?
That depends on what kind of "first-time" investor you are.
If you're new to investing altogether, syndications may feel a bit advanced. They require reading legal documents, understanding risk, and committing capital for several years. They're not as simple as opening a brokerage account and buying a few index funds.
But if you've already built a solid financial foundation, for instance, an emergency fund, no high-interest debt, and some investing experience, syndication could be the next step toward diversifying into real estate.
In many ways, syndication offers a middle ground between buying your own rental and passively investing in a Real Estate Investment Trust (REIT). It comes with more control and potential upside than a REIT, but more risk and complexity too.
Can Non-Accredited Investors Participate?
Let's start with a quick definition if you're not in the know, an accredited investor is someone who meets certain financial thresholds set by the SEC.
The label exists because private investments, like real estate syndications, aren't regulated the same way as public stocks. The SEC assumes accredited investors are financially savvy enough to understand and take on more risk.
So, can non-accredited investors, aka everyday investors, get involved? The short answer: sometimes, but not always. Most real estate syndications are structured under Regulation D exemptions, and the type of exemption determines who's allowed to invest.
The gist is, Regulation D gives sponsors two main paths to raise money, and which one they choose affects who can invest and how you'll hear about the opportunity. Here's a simplistic explanation of how these rules work.
Rule 506(b)
It allows the sponsor to accept up to 35 non-accredited investors, as long as they're financially savvy, often called "sophisticated" and already know the sponsor. You won't find these deals advertised publicly. You have to be in the sponsor's network and be invited to participate.
Rule 506(c)
This version is only open to accredited investors. But the trade-off is that sponsors are allowed to promote these deals publicly, on websites, social media, and email. To invest, you'll need to prove you qualify, usually by sharing financial documents or getting verified by a third party.
Groundfloor Is the Real Estate Investing Alternative
If the lengthy timelines and high minimums of syndications give you pause, there's another option: Groundfloor.
Groundfloor offers short-term, high-yield real estate debt investments that start at just $10 with LROs or $100 with Flywheel Portfolio. You're not buying equity in a property; you're funding real estate loans backed by collateral. That means your investment is typically less sensitive to market swings and doesn't require you to be accredited.
It's a flexible, accessible way to get exposure to real estate without locking up large sums of money for years at a time.
