In this guide, we’ll go over all the information you need to start investing in real estate syndications, from what they are, to the returns you can expect, to the risks involved, and more. Here’s an overview of what we’ll cover:

Real Estate Syndications 101

1. What is a real estate syndication?

2. How does a real estate syndication work?

3. Can you give me an example of a real estate syndication?

Investing in Real Estate Syndications

1. Why invest in a real estate syndication?

2. Why self storage specifically?
3. Why should I go with Legacy Developers over anyone else?

4. What are the returns like in a real estate syndication?

5. What’s the minimum amount I can invest?

6. How long is a real estate syndication?

7. Who can invest in real estate syndications?

8. Can I invest in a real estate syndication with retirement funds?

9. What are the risks of investing in real estate syndications?

10. How do you know how many units to build and how to fill all of them?

11. What about taxes?

12. What’s the process for investing in a real estate syndication?

13. What happens after I invest in a real estate syndication?

Finding Real Estate Syndication Opportunities

1. Where can I find real estate syndication opportunities?

2. How do private real estate syndications compare to real estate crowdfunding sites?

3. What is Integrity Holding Group’s role in all this?

4. Where can I learn more?

What is a real estate syndication?

Real estate syndication is essentially a group of different people getting together and pooling their funds to develop, buy, own, and manage a real estate property.

When done right, real estate syndications are a win-win for everyone involved.

How does a real estate syndication work?

So the way real estate syndication works is you have two parts. You will typically have “limited partners” and “general partners.”

Your limited partners are, in a sense, the investors who bring the capital for the deal. 

General partners are the people who own the real estate, develop the real estate, do the heavy lifting, do the heavy work, whatever the real estate needs. Whether or not it’s new construction, redevelopment, value add, whatever type of deal is being had.

Can you give me an example of a real estate syndication?

We have a deal right now where we brought on limited partners in a 30% equity position where we raised $3 million.

The project will be, all in, right about $12 million.

So we have $3 million of private debt. We have about $8 million of bank financing coming on board for the project. And we have about another million dollars of holding costs and overhead that we have escrowed. And, all in, that project is just under $12 million.

At the end of the project, the project should be worth somewhere between 22 and $23 million.

At the end of the deal, we’ll refinance out the initial investors’ money, as well as all the bank financing. Then we’ll put long-term debt into place and we’ll have a functioning cash flowing project with all of the initial limited partners’ money and a real estate investor capital paid back.

Why invest in a real estate syndication?

As any high level investor would tell you, real estate is the best investment you can make to grow generational wealth. It’s much more stable, especially in this asset class, than any kind of stock or any other investment you can make.

It’s great because not only are you typically getting a preferred return, but you’re also investing in an actual asset instead of a stock for an example.

You’re actually buying land. You’re buying into an actual physical asset. So there’s a physical project or an asset backing your investment, as well as a preferred return or a preferred return on your investment.

But why self storage specifically, instead of anything else?

The storage industry over the course of the last four years has really sustained all the market fluctuations that have happened, within a factor of around 5%. 

It’s one of those industries that is extremely diverse. 

You’re covering divorcees with downsizing, growing families needing extra space, contractors needing a place to put equipment, you’re covering attorneys that have had to file paperwork.

You’re covering all your baby boomers that are moving up, moving down, moving sideways, and need to store their stuff. We’ve heard, mom passed away, we put her stuff in storage and never looked at it for 12 years. Every story you can think of on why someone needed to get a storage unit, we’ve heard it

Storage fills the need when life changes.

It’s something that is necessary for some people at a certain moment in their lives and it isn’t very expensive. Americans love holding onto “stuff” such as old yearbooks, wedding dresses, cars, memorabilia, furniture. Whether they’re moving into new homes every couple of years or are running out of space somewhere else. There’s going to come a point in their life when they’re going to have to store something for a certain period of time.

You can also think of it from a business standpoint as more retailers move into the digital age. They need places to store overflowed products, or maybe they strictly run an online boutique and need a place to hold their inventory.

There’s numerous reasons why someone may need storage units and it’s never going to go away. So when people need help, we’re going to be the first ones to lend them a hand.

Why should I go with Legacy Developers over anyone else?

One of the key components that separates us is our level of due diligence. There aren’t many teams that are doing their homework like we are.

For every deal we put in front of a potential investor, there’s 50 that we’ve already researched and turned down. We only move forward with winners for every person involved.

The next piece that makes us unique is, we’re able to find the hidden gems that are off market as well as many being off-zoning. They aren’t structures or plots of land that have been shopped around for years and passed on because the numbers don’t make sense. We’re out there actually finding deals in great markets and turning them into deals. 

Whether they have to be rezoned, whether they have to be re-evaluated, redesigned into something different, but we’re creating the deal more often than not. It’s not brought to us as a self storage deal, we’re making it into a self storage deal. And that creates an opportunity for an investor that they otherwise wouldn’t find.

Third, a large majority of all self storage in the country are mom and pop shops. With just a handful of self storage operations under our name, we’re already in the top 10% in the nation and we aren’t slowing down anytime soon. There aren’t many people out there with our experience in property management, construction, and investing.

But you may be thinking, “How can Legacy compete with someone like CubeSmart?” It’s a common misconception, but many larger brand name Storage companies may seem like they have thousands of stores but in reality they only own a few hundred of them. The rest they are just putting their name on the front and running the property management side of things.

Finally it all comes down to the team we’ve assembled here at Legacy. We have some of the top people in the industry running through our numbers and managing different aspects of our deals. We put out state of the art products and the only way we accomplish that is by having the best people be involved.

What are the returns like in a real estate syndication?

Generally, the interest rates can be anywhere from 8 to 12% preferred return.

There’s also an equity element to it depending on the offering.

You can also have anywhere from 1% equity with also cash flow passive income from the equity that you own in that property. If the property is sold, there is the deal, so you then receive equity proceeds from the sale as capital gains.

What’s the minimum amount I can invest?

Typically, anywhere from $50,000 to $100,000 is the minimum.

How long is a real estate syndication?

Our deals typically go anywhere from 24 to 36 months.

Who can invest in real estate syndications?

With our deals, we only accept investors who are accredited. An accredited investor is someone who has a net worth of over a million dollars, not including their primary residence or has a singular income of $250,000, or jointly $300,000, over the last two years.

Can I invest in a real estate syndication with retirement funds?

Yes. You would have to use a self-directed IRA, which if you need help with setting that up, please reach out. But yes, 100% possible.

What are the risks of investing in real estate syndications?

Just like any other investment, there’s always a risk. The biggest risk with this type of investment is that we don’t do the homework needed to get the project completed the way we say we will.

For example, we have a three part strategy for all of our self storage deals.

Number one, we do ground-up development, number two, we do value add, and number three, we do darkened big-box conversions. So with each of these, the risk’s are slightly different because of the strategies we use, but ultimately they all come back to our team doing our due diligence.

Whether it be we don’t know the competition well enough, or we don’t know where we’re building properly. Maybe we don’t have the correct demographics, or the correct teams in place to lead sections of the construction process.

To eliminate any of these potential risks, we go make sure we have four different feasibility studies done.

These studies come from a professional who has 45 years experience in the storage business, then our commercial banker does his own third-party feasibility study of the market analysis, then our design team and engineers do their feasibility, and then last but not least, our third third-party management companies like CubeSmart and Extra Space, do an independent feasibility study.

So the risk comes in the due diligence of these deals but we only move forward when we know a deal is a homerun. Our job is to double check every single box and turn over every stone so we have as much information as possible about the deal before moving forward with it.

How do you know how many units to build and how to fill all of them?

This falls back into the research we do with the feasibility studies.

When they are completed, you’re going to be given what’s called a saturation rate, and a fill rate. 

These numbers will help let us know the correct size to build and how long it will take to fill every unit. 

If we have a study done by someone that has local third-party management, they’re going to give you real-time numbers because they’re managing local facilities in the area. 

So they might say, “I have a site three miles down the road. We thought it was going to take 12 months to fill, and it took nine and a half.” So they’re giving you real-time data of what the market is taking as far as saturation.

In this report they’ll also let us know the exact unit mixes for us to target. So they’re saying, “You need so many, five by fives, and so many, 10 by thirties, and so many climate control,” all based on the scarcity of those units sizes in our competitive analysis.

What about taxes?

So these investments generally pay in four different ways.

Number one, you’re getting a preferred interest rate of return on your initial investment. In that preferred rate of return, you’re going to pay capital gains.

At the refinance, you’re actually going to get refinanced proceeds on your money. Those refinanced proceeds would be tax-free.

After that, you’re playing with house money and that interest that you would be getting or that passive income you’d be getting after the refinance on your equity would be passive income.

That passive income cashflow that you’re getting from your equity would be earned income, would be standard earned income rates.

And then last, but not least, you would have equity on the proceeds of the sale of the property if and when the property is sold. And that would be long-term capital gains.

Of course, this is something you want to verify with your CPA, because of course, we’re not certified accountants.

What’s the process for investing in a real estate syndication?

The process for investing in a real estate syndication includes reviewing the private placement memorandum, filling out the accredited investor questionnaire, and scheduling a time to meet and talk to our CFO.

What happens after I invest in a real estate syndication?

Once you invest with us, you will receive quarterly updates on our projects. You will also be paid out quarterly dividends on your investment.

Once the project is complete, you will also receive your initial investment back, as well as your refinance proceeds. And then your share of equity, you will receive in quarterly cashflow payments, as well as if and when the project is sold, you will receive your share of equity payment back, as well.

Where can I find real estate syndication opportunities?

Real estate syndication opportunities can be found all over the place. A lot of times they can be found in different crowdfunding sources.

They can be found offered by different REITs, or they could be found offered by different private development firms like Legacy Developers.

How do private real estate syndications compare to real estate crowdfunding sites?

So in a crowdfunding site, you’re giving your money to a random computer, if you will.

With us, we’re real people that you can call and talk to with real assets. We send you updates. We let you know how we’re going, and God forbid there’s an issue, we’re just a phone call away.

What is Legacy Developer’s role in all this?

Legacy Developers is actively out there sourcing deals, building great teams, putting deals together.

We are actively speaking on a daily basis to all of our private investors. We’re creating great long-term relationships with our private investors, as well as our teams on the ground. And we are creating joint venture relationships with teams and other developers all over the country on a weekly basis.

You can also follow along and take a look at some of our projects behind the scenes in our Facebook group. We actively post updates with projects, trainings for people interested in self storage development, potential deals, and our day to day inside our office.