This is a good question that many busy professionals and even investors who already have had some level of success owning real estate wonder about.
You will be surprised at seeing how many talented real estate professionals invest passively in syndications. I do it myself!
When you are investing in a complicated asset class such as commercial real estate, a sponsor or operator brings such great value to the opportunity that it makes up for the fact that they are making a portion of the proceeds of the offering.
The more complicated the asset class the more value an experienced operator can bring. When it comes to investing in a non-complicated asset class such as single family homes, the difference between mom-and-pop owned and a having a great operator is minimal. That’s why in single family homes it doesn’t make sense to partner up with someone for something that’s not as complicated.
However, in a 200+ unit multi-family apartment complex which functions just like an operating business, an operator can provide great value in systems, processes, relationships, and the experience of executing a business plan. Because of this the return profile on a syndication and investing by yourself may be similar but the syndication requires no time at all from the passive investor, making it more attractive for people with limited time or who would rather use their time for something else.
Investing in syndications allows you to diversify your portfolio across multiple geographic locations, tenant types, operators, asset classes, etc. A single person can’t be an expert at everything and chances are a diversification like the one I just mentioned is not being accomplished by the solo investor.
Another great benefit is that due to the distinction between the class of shares between the GP (General Partner/Sponsor) and the LP (Limited Partners / Passive investors) the sponsor or syndicator is the only party to incur credit and liability risk.
This is of major value to the passive investors because it grants them access to low-cost debt financing through the track record of the syndicator and none of the risk associated with a multi-million dollar loan. Only the General Partner/sponsor team is responsible for the loan.
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