Real Estate Splitwise

A big word with a dash of terror, right? Being a fellow netizen, the first thing that came to my mind was “Crime syndicates” from all the Netflix series and movies that we watch.

But what does it mean in the real estate world?

I came across this term a couple of times while I was scrolling through my newsfeed. Every time I ignored it, as I was intimidated by the word. Finally, last night, my curiosity got the best of me. I started reading about 'Real Estate Syndication' and what's it all about.

(To tackle the difficult part of the term, “Syndicate”- merely means a group of people coming together for a common interest. That's it.)

Being a foodie, I will explain it the 'foodie way':-

Suppose there is an amazing but expensive butter chicken in this restaurant that you want to try out. So what would you do?

You and your friends decide to go together and share the expenses, simple! Each of you gets to enjoy the ambience and the food for a price that fits your budget.

That is what Real Estate Syndication is all about! Pool in the money to buy the property that you want.

If you know an excellent property and can secure the deal at a very good price but is way out of your reach, Real Estate Syndication is your best bet. You can find a couple of investors who can put in the money for an annual return on the income generated by the real estate asset.

There are two parties in this kind of syndicate: the 'sponsor' or the 'syndicator' and the investors. The sponsor is the one who finds the property, secures the deal, and manages it throughout the year, putting in their effort and time. The investors on the other hand don't want to deal with all the hassle of managing the property, so will give you the money to buy it. It is a kind of partnership, with different roles.

If you are the sponsor, you necessarily do not have to put in the money to buy the property. So suppose if there are 4 friends, Emey, Shradha, Abhishek, and Raj. Raj is the sponsor who found the property and put in 10%, while the others put in 30% each (Or Raj can put in no money at all and the other investors can contribute equally.) A huge chunk of the income generated from this asset yearly is split between Emey, Shradha, and Abhishek who are the investors, and a smaller chunk goes to Raj.

The best part of this is you can structure the deal however you want as long as everyone in the syndicate is on board. You can split the profits equally, or take a fixed cut for yourself as a sponsor and split the rest among the investors. There are no constraints to structuring a deal. With this advantage comes one disadvantage as well. You have to be careful about the partners or investors that you are getting in business with. There is no separate way of registering syndication as well. It is either registered as a limited liability company or partnership.

Although slightly alien, in India, it is known as 'Property Syndicate' and as per the Indian laws, there is no limit to the number of persons who can be joint owners of a property in India.

Lastly, my two cents on this is, as long as we have people whom we can trust and a decent idea about property management, this is the best way to buy a commercial property and enjoy all its benefits.

Real Estate Syndication is how you can have the butter chicken that you can't afford otherwise.