An Ignoble Experiment: Real Estate Funds v Syndications

Dear Investor,

Today let's discuss why real estate syndications are looked at differently from real estate funds, and some of the myths that are out there. Real estate funds – which tend to be significantly larger than syndications - pool capital from many investors, and then the fund's sponsor invests in properties that fall under the investment thesis of the fund. Syndications also pool money from multiple investors but do so for the purpose of investing in a specific real estate opportunity. At the end of the day, both forms of real estate investing allow investors to passively invest while reaping tax benefits and growing their personal wealth in the real estate investment space.

By way of disclosure, we have an advertising relationship with Mortar Group, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. This opportunity is available to accredited investors only.

Myth 1 – Syndications take longer than Real Estate Funds

Syndications typically have investment periods that range from 3-5 years depending on the actual investment and the sponsor. The exact timeframe is ultimately up to the discretion of the sponsor who is operating the deal. The actual syndication investment will describe the targeted period not as a range but as a finite amount of time.

Closed real estate funds have a definitive start date and the end date is given as a range. This is usually exited when the last property in the fund is sold. Fundraising for these funds take longer than syndications and can span over a couple of years, hence investments can be tied up longer, many times close to ten years. Open real estate funds allow investors to invest and redeem investments at certain intervals and can allow different investment timing options.

Either way, one should always review these periods before deciding to invest in a fund or a syndication.

Myth 2 – Real Estate Funds are less risky than Syndications.

Real Estate Funds are considered to be more diverse and less risky as the money is pooled and invested over multiple properties and in some cases asset classes within the fund. The downside is that the fund manager decides which deals to put into the fund, so while there can be more diversification, an individual investor is required to place "blind" faith in the sponsor.

Syndications will allow for investors to take a close look at the sponsor and the property. One will have a chance to review the deal, track history, location, demographics, etc. There is less diversification but more opportunity for personal due diligence.

At the end of the day, funds and syndications each have their own risks associated and are not necessarily more or less risky than the other.

Myth 3 – Real Estate Funds tax benefits are the same as Syndications

Both Syndications and Funds offer tax benefits such as depreciation or write-offs that pass through to investors. Typically, a syndication will require filing a tax return in the state of the property. Some funds require investors to file in multiple states while others are set up to avoid the need to file taxes in every state where the fund has made investments. Make sure to understand the implications any investment can have on your tax planning.

Overall, all real estate based investments carry high risks. Whether funds or syndications – always diversify your investments, and remember that in the real estate world you are investing in the sponsor, not necessarily just the investment. There is always risk - regardless of the sponsor, but experienced managers select better investments and can navigate more efficiently when things don't go as planned.

This content has been shared by Mortar Group. If you're interested in discussing this topic more, or you are interested learning more about Mortar Group, you can schedule a call here: Schedule a Call

Also feel free to view other recent resources from Mortar Group.

Mortar believes in experience and smarter real estate investing. Their fully integrated in-house design, development, and asset management expertise has resulted in dozens of successful privately syndicated deals. This, combined with skin-in-the-game co-investments and in-depth local neighborhood knowledge, helps Mortar mitigate risk and maximize investor returns. Focused opportunities combined with an intimate knowledge of New York's prime niche neighborhoods allows investors to diversify and deploy capital conservatively in projects and divest risk throughout the real estate lifecycle.

Mortar Group extends white coat investors access to exclusive opportunities on new offerings. If you would like to know more, please visit their website, or reach out to their Investment Relations Manager – Francesca Gaccione at 646-559-9471, or gaccione@mortargroup.com.