Real estate investing is going through a digital renaissance. The industry is transforming and will continue in the wake of COVID-19.
In this article, we talk about syndication, the benefits of online syndication, and how modern real estate investors need to be both real estate and tech-savvy.
Online Real Estate Syndication – The Basics
First, what is a real estate syndicate?
A real estate syndicate is an investment vehicle where investors pool funds to purchase a property. Many properties need to raise equity funding alongside bank loans to secure the property. Historically, investors raised funds through either private equity or syndicates – basically found through personal connections. It was who you knew.
Real estate syndicates often come in the form of Single Purpose Entities (SPEs), a legal entity created for a specific real estate investment. This is often an LLC created by the sponsor of a syndicate, often a developer. The developer, as the sponsor, manages the project, and investors become shareholders. This makes syndicates regulated by the U.S. Securities and Exchange Commission (SEC).
Finding a good syndicate (or private equity firm) was time-consuming, especially for the uninitiated. In 2012, this changed. The 2012 Jumpstart Our Business Startups (JOBS) Act opened online advertising of syndications, expanding access for many investors. Let’s get into the benefits.
5 Online Syndication Benefits
Syndications going online was a game-changer for the real estate industry. A recent report projects an explosive compound annual growth rate (CAGR) of around 55% by 2027, with the total market size expected to reach over $850 billion.
Obviously, there is a lot of potential here. Here are the top five benefits, in our opinion, of online syndication.
#1: Access to a Range of Investment Price Points
Before online syndication, most syndicates restricted access to high-net-worth investors, those classified as accredited. With online syndication, investors can get exposure to real estate deals with as little as $500.
#2: Access Thousands of Deal Instantly
Already, one can find syndicates and private equity deals on a range of websites, including crowdfunding marketplaces. This is huge. With only a few clicks investors can be considering deals from NYC to LA and everywhere in-between. Of course, this changes the landscape of competition and will no doubt attract many first-time investors.
#3: Connect with Investors and Sponsors Across the U.S.
Relationships power real estate investing. Online syndication increases the reach of both investors and sponsors, forging connections that were difficult – if not impossible – in the past. This can be especially useful for investors looking to find deals not located in their state or region, or for those interested in geographic diversification.
#4: Fully Digital
Many syndicates and crowdfunding marketplaces have made the process of investment digital. This means that property information, walk-throughs, investment prospectuses, and legal forms are available and stored online.
What we are seeing here is the democratization of real estate investing. Following these points, more investors can get into real estate quicker, cheaper, and can find the best deals that suit them. This is the pennies and dollars power of crowdfunding.
Technology and Real Estate Funding
I want to end on an important point. Real estate is about relationships, reputation – but it is also increasingly about the use of technology. Successful real estate investors today need to be savvy in both real estate and technological know-how.
My good friend Adam Gower is a pro in this arena. He is a brilliant real estate investor who, in the early 2000s, began to focus on the intersection of tech and real estate. His business, GowerCrowd, helps investors crowdfunding capital using tech for their own deals. and savvy investors. I know, shameless plug, but his work is important and reflects the direction the market is headed.