Syndication is the joining of two or more persons for the purpose of making an investment. With syndication, a group of investors put in a portion of the amount of money needed to finance a large project, sharing in the risks as well as its rewards. You may also hear it referred to as fractional ownership.

Can this be used for real estate? Although this is commonly used for investments such as funding an oil exploration to producing motion picture projects, this same process can be used to purchase real estate. Why would this be attractive for real estate? Many investors are motivated to use the power of this leveraging tool to gain access to deals that they would normally have been excluded from, as well as a greater return on their investment. That’s the beauty of syndication; it gives investors a piece of a bigger pie without much effort on their behalf.

Here is how it works: there is an active member who manages the investment while all the other members are passive. A real estate syndication combines the money of individual investors with the management of a sponsor, and has a three parts (1) origination (planning, acquiring property, satisfying registration and disclosure rules, and marketing);(2) operation (sponsor usually manages both the syndicate and the real property); (3) liquidation or completion (resale of the property). The syndication can be formed as a limited partnership, real estate trust, corporation, or LLC. The entities differ based upon the investors’ rights and participation, tax liability, and the amount of control the investors have in the property.

In today’s real estate market, property values are still falling, especially in the commercial market. So how do you use the power of fractional ownership to acquire assets? As much as we’d like to tell you that buying commercial real estate at 70 cents on the dollar would make you recession-proof, the truth is those discounts are not enough to protect you in our current economy. That is why we prefer to use syndication to take down notes. In that way you can become the bank, and buy properties by buying the note on a fractional basis at a 50% discount based upon the Unpaid Principle Balance. That gives you much more cushion on your passive investment, as well as opening your group to utilizing more exit strategies than traditional approaches to acquiring real estate. Using syndication to buy notes is a great approach to getting in on the action that was previously only available to the ultra wealthy.