Syndication Real Estate Investments: 2025 Guide

I recently had a conversation with one of my tech peers who is selling a single-family property in Florida and looking to get into commercial real estate. He was looking to get into a small multifamily property and hadn’t considered syndication real estate. When I asked about his plans to manage the property, it seemed passive investing might be a better strategy.

You can invest in property in many different ways, but most people only know about directly owning residential real estate. This article gives insight into how passive investors can go beyond single-family homes and get into commercial properties by owning shares of hotels, shopping centers, or even self-storage.

What is real estate syndication?

So what exactly is real estate syndication? It’s a strategy where a group of investors pool their money to buy commercial real estate. If you don’t have a few million sitting around to buy a building on your own, a real estate syndicate gives you a way to own a share of one.

And, even if you had the capital, most banks won’t hand out a loan unless you have experience in that specific asset class. Getting into commercial real estate takes both money and a proven track record, which is why syndication opens the door for so many investors who have one but not the other.

This way of real estate investing really opened up after the 2012 JOBS Act. The new rules made it easier for operators to offer private real estate deals publicly to accredited investors, which increases accessibility.

Syndications vs other types of real estate investments

There are a few ways to invest in real estate, and each one comes with a different level of control, involvement, and return potential.

• Direct ownership: This is when you buy and manage the property yourself. You’re in charge of everything like financing, tenants, repairs, and day-to-day operations. You get full control and all the upside, but you also take on all the work and risk.
• REITs: A Real Estate Investment Trust works more like a stock. You buy shares in a company that owns and manages real estate. It’s hands-off and easy to get in or out, but you don’t have any say in what properties they buy, and returns are usually smaller.
• Real estate crowdfunding: Crowdfunding platforms let you invest smaller amounts in real estate deals online. You might see some good opportunities, but the quality and transparency can vary greatly depending on the platform and the deal.
• Joint ventures: In a joint venture, two or more investors team up to buy and manage a property together. Everyone has an active role and shares in the profits. This is how we got into our first hotel, where we brought the capital, and our JV partner handled all the daily operations. This can work well if you have the right partners and clear agreements.
• Syndication: A real estate syndication sits somewhere in between. You own a piece of a larger property alongside other investors, but you don’t have to manage it yourself. The sponsor handles everything, and you earn passive income and appreciation without being tied to daily operations.

Investment type	Level of involvement	Control	Liquidity	Notes
Direct Ownership	High	Full	Low	You manage everything
REITs	Low	None	High	Easy to sell and buy
Crowdfunding	Low	None	Medium	Vet platform and the syndicators
Joint Venture	Medium	Shared	Low	Requires trusted partners
Syndication	Low	None	Low	Passive with expert management

How does a real estate investment syndicate work?

Here’s a quick crash course on private real estate investments:

Parts of a real estate syndication

Every commercial real estate syndication has sponsors, limited partner investors, an investment vehicle, and asset management.

• Sponsors (General Partners or Operators): These are the folks with experience in the specific asset class. They develop the investment strategy and lead the entire real estate syndication deal from start to finish. Most of the time, the sponsor also secures the loan and personally guarantees it, which means they have real risk and skin in the game.
• Limited Partners: These are the passive investors who choose to invest in the syndication. They contribute capital in exchange for an ownership stake in the property. Most of the investors in our syndications are people who already have full-time careers and just want exposure to real estate investments without having to do the daily work.
• Investment vehicle: The real estate syndication investment structure is usually a Limited Liability Company (LLC) or a Limited Partnership.
• Asset management: This covers the ongoing oversight of operations, renovations, and ultimately, the sale of the real estate property.

Common syndicated property types

You’ll find syndications for multifamily apartments, hotels, office buildings, retail centers, industrial facilities, and self-storage properties. The syndicator’s goal is to buy properties that provide investors with regular cash flow (called distributions) and appreciation when selling the real estate assets.

There’s no specific size or structure required for a real estate syndication. It can involve any type of property, any minimum investment amount, and any setup for ownership or shares.

Real estate syndication process

Here’s how it works. The general partner starts by finding and evaluating an opportunity, which can take a while. There’s a lot of due diligence involved. In our case, we look for a property that meets specific criteria like:

• Solid cash flow potential
• Room for appreciation
• Opportunity to improve through renovations or repositioning

Once a syndicator finds the right asset, they put it under contract and set up the syndication paperwork. This includes a Private Placement Memorandum, which outlines the details of the investment, the risks involved, and how the syndicator gets paid.

After raising all the funds from investors, the sponsor closes on the property. Passive investors then track their investment through an online portal, receive cash flow distributions, and get regular updates on property performance.

Real estate investment deal structure and returns

You’re probably wondering how passive real estate investors get paid in a syndication. It works just like private equity deals for other types of investments, like startups or software companies. The structure follows what’s called a waterfall distribution, which outlines how everyone shares profits and what incentives the syndicator earns.

Waterfall distribution model

The standard waterfall for a real estate investment syndicate follows this sequence:

1. Return of capital: Passive investors get their initial investment returned first.
2. Preferred return: Individual investors then receive 6-10% annually, reflecting the minimum IRR the investment needs to achieve before the sponsor receives any profits.
3. Profit splits: Remaining distributions get shared between the general partners and limited partners per agreed ratios.

Common distribution structures

Example distribution structures for real estate syndications can include:

Vanilla waterfall:

• 8% preferred return to LPs
• 80/20 split (80% to LPs, 20% to GP) above preferred return

Tiered waterfall:

• Tier 1: 80/20 split until 12% IRR achieved
• Tier 2: 70/30 split from 12-15% IRR
• Tier 3: 60/40 split above 15% IRR

This tiered approach aligns interests because it rewards sponsors for exceptional performance while also protecting your downside through preferred returns.

Sponsor fees

These are the standard types of fees you’ll see in real estate syndications:

Acquisition fee

This fee covers the general partner’s work and costs to find a great property. That includes market assessments, travel to visit properties, inspection fees, and all the time it takes to track down and find good deals.

The acquisition fee is usually around 1-2% of the purchase price.

Asset management fee

This covers costs like property management to execute the business plan. It’s an annual fee that’s usually around 1-2% of collected rent or invested capital.

Disposition fee

When it’s time to sell the real estate syndication deal, this fee covers the general partner’s time spent finding the best price possible. It’s usually 2-3% of gross sale proceeds.

Construction management fee

If the property needs renovations or it’s a brand new build, the general partner usually gets paid 1%-2% of the construction budget.

Passive investor support and education

Passive investors in our projects receive real-time updates through investor portals, quarterly video calls, and detailed performance dashboards. Fiduciary duties require sponsors to act in your best interests, keep strong documentation, and provide regular financial reporting.

In addition, many prospective investors decided to join our investment opportunities because they wanted to learn more about real estate investing in general. To support this group, we set up regular 1:1s, record videos, and share strategies so that individual investors can learn along the way.

Pros and cons of real estate syndication investment

Like all investments, there are pros and cons to a property syndication:

Pros of real estate syndication	Cons of real estate syndication
Access to large commercial properties without managing them yourself.	Your money is tied up for several years until the property sells.
Backed by experienced sponsors who handle operations and loan details.	No control over management decisions once you invest.
Earn passive income from cash flow distributions and appreciation.	Returns depend on property performance and market conditions.
Opportunity to diversify beyond the stock market and residential real estate.	Most deals require accredited investor status.
Sponsors often invest their own capital, aligning their interests with investors.	Limited liquidity and less flexibility to sell if your goals change.

Real estate syndication pros

• Passive ownership: You can own part of a large commercial property without the stress of managing it yourself. The sponsor handles everything from financing to operations, so you can stay hands-off.
• Professional management: You’re investing alongside experienced sponsors who know the asset class and have a specific strategy for the property. Their expertise helps reduce the learning curve and gives you access to deals you likely couldn’t do on your own.
• Cash flow and upside: You earn passive income through rental distributions and potential profits when the property sells, which gives you income and long-term appreciation.
• Portfolio diversification: It’s an easy way to add commercial real estate to your portfolio and balance out exposure to stocks, bonds, or smaller residential properties.

Real estate syndication cons

• Long-term commitment: The longer hold period means your entire investment is tied up for several years until the property sells.
• Limited control: The sponsor makes management decisions. You’re trusting them to execute the business plan and handle the property.
• Performance risk: Like any investment, syndications carry risk. Market changes, property issues, or poor management can impact returns.
• Investor requirement: Most syndication opportunities are open only to accredited investors, which limits access for some people.

Investment process and due diligence

Before you invest, potential investors need to know how to evaluate whether a syndication deal makes sense. Here are the key steps to review the opportunity:

Step 1: Deal sourcing and initial review

You can find syndicators almost anywhere by searching online, social media, or through a friend of a friend. Look at a few different investments before deciding where to put your money. It’s a good idea to diversify, too. For instance, we invest in our own hotel syndications but also passively in oil, gas, and debt funds.

Start by looking at syndication opportunities from experienced sponsors who have a proven track record in the asset class you’re interested in.

Step 2: Sponsor evaluation

Look at the sponsor’s experience, previous deal performance, and alignment of interests. Review their track record, asset management capabilities, and exit strategies. It’s also a good idea to connect with other previous investors to get an idea of their experience working with the syndicator.

If the syndicator puts their own money into the deal, it shows they’re committed and have skin in the game.

Step 3: Deal analysis

Real estate investments involve substantial risk, given the amount of dollars on the line and the fact that it can take time to sell. Look at the location and market. Is it growing, with job opportunities and rental demand? Then review the property itself. Are occupancy rates strong, or does it need work to improve performance?

Check the numbers and structure. Understand the projected returns, fees, and exit plan, and make sure there’s enough cushion for unexpected expenses.

Step 4: Review the real estate syndication offering documents

Finally, review the offering agreements. These provide the fine print and details that protect you and other real estate investors in the deal. This includes:

• Private Placement Memorandum (PPM): This document should give you a good explanation of the investment, risks, projected returns, and the syndicator’s track record. It provides disclosure to help investors understand what they’re investing in, and it helps sponsors comply with the Securities and Exchange Commission anti-fraud rules.
• Operating agreements: The operating agreement for the LLC or LP covers the profits and losses of the multiple investors in the project. It also describes investor rights, voting, management responsibilities, and exit procedures.
• Subscription documents: These are basically commitment documents stating that you’ve read the details, know your risks, and verified your accredited investor status.

Accredited investor requirements

The JOBS Act has specific securities regulations that syndicators follow. These determine whether they accept accredited or non-accredited investors. The rules under Regulation D allow companies to raise capital by selling securities without registering with the SEC as long as they follow specific exemptions:

• Rule 506(b): Syndicators cannot advertise. But, they can raise money from unlimited accredited investors, and up to 35 non-accredited but sophisticated investors.
• Rule 506(c): This rule allows syndicators to advertise, but every investor must be accredited.

Accredited investor qualifications

To participate in Rule 506(c) offerings, you must meet any one of these accredited investor criteria:

• Income test: $200,000 annual income ($300,000 for joint filers) for the past two years.
• Net worth test: $1 million excluding your primary residence.
• Professional certifications: Series 7, 65, or 82 licenses

The syndicator is legally required to verify your status. They may use a third-party company, or they might accept a statement from your CPA to meet those regulations.

Exit strategies

A real estate syndication’s typical hold period is 5-10 years, so sponsors can execute value-add improvements and benefit from market appreciation. Primary exit strategies include:

• Sale: Complete sale to take advantage of increasing property values and distribute proceeds to investors.
• Refinancing: Extract equity investments but still keep ownership of the property.
• 1031 Exchanges: Once real estate projects sell, you can use a 1031 Exchange to defer capital gains tax consequences and move into another property.

Capital calls

One area to be aware of is the potential for capital calls during the hold period. Sponsors usually keep 10-20% reserves, but sometimes unforeseen scenarios may require additional investor contributions. Review offering documents to understand your maximum exposure and keep cash or easy-to-sell investments to cover potential calls.

This is why you’ll want to work with experienced sponsors who have proven crisis management capabilities to handle economic downturns or other challenges.

Is a real estate syndication right for you?

Take a look at your goals, risk tolerance, and how much liquidity you need. If you want to diversify outside the stock market but don’t want to deal with managing a property, a real estate syndication might be a great fit.

To learn more about hotel syndications and see if they make sense for your situation, connect with us or check out our latest hotel offering.

Syndication real estate: FAQs

Is real estate syndication risky?

It can. Every investment carries some level of risk, and syndications are no different. Before you invest, consider your financial situation and how much risk you’re comfortable with, and make sure you do your due diligence on both the deal and the sponsor.

How does a syndicate make money?

The syndicator makes money on fees for managing the asset and by sharing deal profits with other investors.

What is the minimum investment for real estate syndication?

The minimum investment depends on each project or syndicator. For Gateway Private Equity group’s hotel projects, it’s $100,000.

The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals and advisors before making any decisions or taking action based on this information.