Syndication

What it is

A syndication is a structure that pools money from many passive investors into a single deal run by one active operator. The sponsor finds the asset, signs the loan, runs the business plan, takes a cut of profits plus fees. The limited partners write checks and collect distributions.

This is different from a partnership. A partnership is typically two to four people actively building something together. A syndication is one operator plus a roster of investors who are not involved in day-to-day decisions.

And a syndication is almost always securities-regulated. Private placement memoranda, SEC exemptions (Reg D 506(b) or 506(c)), accredited investor requirements, real attorney fees. You cannot just start collecting money from people without going through that process.

Why it matters

My position on syndications: don’t do syndications, PE funds, or huge apartment deals until you have the skills from onesies-twosies. Stop chasing 10X, start with 1X.

I started my business doing onesies and twosies. Then I started buying portfolios of maybe 10 houses at a time. Eventually I gained the skills — and knowledge times experience equals skills — and people who had more money than me wanted to partner up. People who knew how to raise money wanted to partner up. That’s how I expanded to 150-plus doors. The syndication-level tools came after the reps, not instead of them.

The people pitching syndications at beginner investors are usually the ones who couldn’t make a simple flip work. The solo flipper path — primary residence flip, a couple of regular flips, a hold, then repeat — builds a balance sheet without putting anyone else’s money at risk.

How it shows up

In a flip that goes wrong, you lose your own money. In a syndication that goes wrong, you lose your investors’ money and your reputation in the community that placed it with you. Flipping is forgiving because your only creditor is yourself. Syndications stack 30-plus creditors on the same deal, each of whom can tell their accountant, their attorney, and their Facebook group how the sponsor behaved.

I have syndicates in my portfolio now. I have 150 units, some of which came through partnerships, syndications, and private equity structures. But that happened after track record and balance sheet were real, not as a way to skip them.

The equity play over 30 years is the real argument for buying and holding. But that math only works if you bought the right properties in the first place, which requires the construction and acquisition skills you build doing onesies-twosies. Syndications are an amplifier. They amplify skill. They also amplify error.

Related

partnerships, gorilla flipping, base hits, entity structure, wealth engines, private money