Real Estate Syndication: The Complete Guide for Passive Investors

A real estate syndication is when a group of people pool their money to buy a large property, like an RV park, that they couldn’t afford on their own. Most syndications are led by a “sponsor” who finds and manages the property, while investors earn passive income without doing the work.

After a minor wrist injury while snow skiing several years ago, I realized that we were relying on only one income stream – the one from my periodontal surgery practice. 

This was a major wake up call. Shortly thereafter I began searching for alternative income streams without having to work more hours. 

It seemed that most successful people had real estate in their portfolio, which provided these additional income streams that I was searching for.

I decided to start off with real estate crowdfunding to attempt to grow passive income.

As a part-time periodontist,  I didn’t have time to get into property management (be a landlord), so I decided to invest in a couple of the popular crowdfunding sites at that time:

• Realty Shares
• Patch of Land

My job on this site is to be as transparent as possible. There’s nothing that irks me more than someone not telling the “entire” truth when it comes to investing.

The deals I had with the two companies were:

• Patch of Land – one debt deal 
• Realty Shares – three equity and one debt deal

I’ve since exited the Patch of Land deal and only have two Realty Shares deals remaining.

I lost BIG time on an equity deal in Realty Shares, and no longer invest in online crowdfunding sites. Why? You don’t get to know who you’re investing with.

I’ve since switched to focusing only on real estate syndication deals directly with the deal sponsor to replace my active income. 

Investing in real estate deals has been one of the best decisions I’ve made as I used to only invest in the stock market.

About the time I made the switch, I started sharing information that I was learning along the way on this blog.

As it became more popular, I decided to provide doctors and other high-income earners even more information including deals that I was personally investing in by starting the Passive Investors Circle.

It was also a way for me to answer some of the frequently asked questions when it came to passive real estate, such as:

• What is a real estate syndication?
• How and where do I find them?
• What are the risks?

I recommend that before you invest in anything, including real estate, you should fully understand what you’re getting into.  If you don’t, then continue to educate yourself and ask questions. 

It’s your hard-earned money we’re talking about, so protect it!

If you’re new to the real estate game or want a refresher, here’s what you need to know about real estate syndications.

What Is A Real Estate Syndication?

A real estate syndication is when a group of people pool their money to buy a large property, like an apartment complex, mobile home park, or RV park, that would be too expensive to buy alone.

Instead of each person buying their own small property, the group buys a bigger asset together. The deal is usually run by a sponsor (also called the general partner) who finds the property, manages it, and handles the day-to-day work.

This setup lets investors earn passive income without having to be a landlord.

Example: If I invest $75,000 and others invest $75,000, $100,000, and so on, we can buy a multi-million-dollar property together.

Who’s Involved in a Real Estate Syndication?

There are typically two parties involved with a real estate syndication.

Sponsor

Depending on the legal structure of the organization created for the investment, the Sponsor is technically known as the General Partner (GP) or Manager.

This group plays the most critical role in the investment process.

This person or group is the one that:

• Find the investment property
• Obtain financing
• Acquire the investment property
• Manages the property

Not only does the sponsor invest their time, they also invest their money. Typically this amount can range from 5-20% of the total equity capital for the real estate investment.

Investors (Limited Partners)

The second party is the investors (you and I) who invest with the sponsor and own a percentage of the real estate.

Here’s the part that got me excited about becoming an investor…

They don’t have to be involved with:

• acquiring the property
• arranging financing
• managing the property

Investors are usually responsible for investing between 80-95% of the total.

Remember, they have no active responsibilities in managing the asset.

Related: GP vs LP In Real Estate Syndications: What’s The Difference?

Who Does What in a Real Estate Syndication?

General Partner (Sponsor)	Limited Partner (Investor)
Finds & buys the property	Invests money
Manages the property	Gets monthly or quarterly cash flow
Takes on most of the risk	Enjoys passive income & tax benefits

Pros and Cons of Real Estate Syndications

Pros:

• Passive income without landlord duties

• Access to large, professionally managed properties

• Potential tax advantages like depreciation

• Diversification beyond the stock market

Cons:

• Money is usually tied up for 5–7 years

• Returns are not guaranteed

• You must trust the sponsor to run the deal well

How Are Syndications Structured?

Most syndications are structured as a Limited Liability Company (LLC) or a Limited Partnership (LP) to own the property on behalf of investors.

The rights of the Sponsor and Investors, including rights to distributions, voting rights, and the Sponsor’s rights to fees for managing the investment, are outlined in the LLC Operating Agreement or LP Partnership Agreement.

Make sure you read this agreement carefully and ask questions when needed. 

How Do Investors Make Money?

The Investors (LP) in syndications are typically compensated in three ways:

1) Preferred return

A preferred return (pref) refers to the order in which profits from a real estate project are distributed to investors.

It’s a threshold return that limited partners are offered prior to the general partners receiving payment.

The standard preferred return is 6-7% of their current capital account (capital account is initially equal to their equity investment).

That is, the LP will receive a return of up to 6% before the GP is paid. If the real estate cash flows 6%, the LP receives the 6% preferred return and the GP does not receive a profit split.

If the real estate cash flows less than 6%, the LP receives a return of less than 6%. If the real estate cash flows more than 6%, the LP receives their 6% preferred return, and the remaining profits are split between the LP and GP.

Typically, the preferred return is considered a return on capital. That is, the preferred return distributions do not reduce the LP’s capital account.

Example

In order to calculate the preferred return, you’d multiply the total equity investment from limited partners by the preferred percentage.

If it’s 6% and the limited partners invested $1 million, the annual preferred return is $60,000 (0.06 * $1,000,000). Typically, profits above the pref are split between the general partners and limited partners.

You may be asking yourself, “How does the general partner set the pref percentage?”

They do this based on three things:

• the business plan
• goals of their limited partners
• what other general partners who are implementing similar business plans are offering

2) Profit Split

If a preferred return is offered, the remaining profits are split between the LP and GP. The typical profit splits are either 70/30, 80/20, or 85/15 (LP/GP).

In an 80/20 situation, if there is $1 million left in profit after the preferred returns get paid out, the investors would get $800,000, and the Sponsor  would get $200,000.

The LP will receive their distributions from the profit split on an ongoing basis during the business plan (if the cash flow exceeds the preferred return) and/or at the sale of the real estate.

Typically, the distributions from profit splits are considered a return of capital. That is, the profit split distributions reduce the LP’s capital account and therefore the preferred return.

However, some GPs will continue to pay out a 6% preferred return based on the initial equity investment and catch-up with the profits from sale.

3) Refinance or Supplemental loan

If the GP refinances into a new loan and/or secures a supplemental loan, the LP will typically receive a distribution that is a portion of their initial equity investment.

Similar to the profit split, the proceeds from a refinance or supplemental loan are typically considered a return of capital. That is, the proceeds reduce the LP’s capital account.

Tax Benefits of Real Estate Syndications

One big reason investors love syndications is depreciation. This allows you to write off part of the property’s value each year, which can reduce your taxable income — even if you’re earning cash flow.

If bonus depreciation or cost segregation is used, you can accelerate those deductions into the first year, creating even bigger tax savings.

Who Can Invest?

For the most part, syndications are typically open only to an accredited investor.

To be considered an accredited investor by the SEC, you must either:

1) Have an income of at least $200,000 each year for the last two years, or

2) If you’re married, have a combined income of at least $300,000 each year for the last two years, or

3) Have a net worth of at least $1 million, excluding your primary residence, either individually or jointly with your spouse

How Real Estate Syndications Work (Step-by-Step)

1. Sponsor finds a deal – They research markets, run numbers, and negotiate the purchase.

2. They raise money from investors – Banks typically won’t fund 100% of the deal, so the sponsor raises the rest from investors.

3. The deal closes – Investors wire funds and sign legal documents to become part-owners.

4. Property is managed – The sponsor oversees renovations, rents, expenses, and operations.

5. Investors get paid – You receive monthly or quarterly cash flow plus a share of profits when the property sells.

The Avery

Here’s one of the first deals I’ve invested in the past:

My first deal involved an apartment complex in Denton County, TX called The Avery.

Example: The Avery Apartment Syndication

• Location: Denton County, TX

• Purchase Price: $40.8 million

• Units: 350

• Minimum Investment: $50,000

• Target Cash-on-Cash Return: 9%

• Projected IRR: 18.6% over 5 years

✳️ This was one of my first syndication deals, and it performed exactly as projected—consistent cash flow, regular updates, and a strong team behind it.

Should You Invest?

When considering real estate syndications, understanding the structure and process discussed above can help you determine if it is a good fit for your portfolio.

I can’t stress enough for you to do your due diligence to know exactly what you’re potentially getting into. The majority of the work is done up front by vetting the opportunity and sponsor.

If you do invest, you must realize that your money is going to be tied up for 5-7 years on average.

Are you interested in learning more about investing in our RV park syndications?

If so, join our Passive Investors Circle HERE.

Join the Passive Investors Circle

FAQs

Q: How do I invest in a syndication?

A: Most syndications are offered to accredited investors. You’ll usually get an email from the sponsor with an overview, investment webinar, and documents like a Private Placement Memorandum (PPM). Once signed, you wire the funds and become a passive equity owner.

Q: Is real estate syndication passive income?

A: Yes! You don’t have to deal with tenants or manage properties. The sponsor does all the work, and you receive regular cash flow and tax benefits.

Q: What’s the typical return?

A: While returns vary, most syndications target:

• 6–10% cash-on-cash return annually

• 15–20% internal rate of return (IRR) over a 5–7 year period