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Real estate syndication (also known as “property syndication”) is a partnership between several investors to tackle a real estate project. The investors combine their capital and resources to purchase a property that they wouldn’t be able to purchase individually. They also work together to manage the property if the property will be held as a rental.
In short, real estate syndication is just a fancy way of saying “real estate partnership.”
A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. The term—which gets its name from Section 1031 of the Internal Revenue Code (IRC).
Under the umbrella of IRC Section 721, we encounter what is known as a '721 exchange'. Similar to the 1031 exchange, this allows investors to swap appreciated real estate held for investment or business uses for operating partnership units, which can then be transformed into real estate investment trust (REIT) shares. Properties facilitating a 721 exchange within the REIT are typically recognized as part of an umbrella partnership real estate investment trust (UPREIT).
A real estate fund may own individual commercial properties, for instance, or invest in a collection of properties (think shopping centers and hotels). A real estate fund can also invest in real estate investment trusts, or REITs. Real estate funds can be open-ended or close-ended. An open-end fund allows you to enter or leave the fund as long as it remains active. A closed-end fund typically has one entry point and one exit point; you have to invest within a certain window and, once invested, cannot leave the fund until it’s run through its natural life cycle.
Investors seeking to add real estate syndications or funds to their investment portfolio should be thinking about diversity. Diversifying your investment portfolio through different types of investments is a way to hedge against any unforseen shortcomings. Direct ownership means more time, involvement and sometimes less return on investment (ROI). Direct ownership is not passive and investors seeking access and incorporating real estate into their portfolios should highly consider syndications and funds that are a compliment to their current investment
portfolio.
According to the SEC, accededited investors are: Individuals (i.e., natural persons) may qualify as accredited investors based on wealth and income thresholds, as well as other measures of financial sophistication.
Financial Criteria
Professional Criteria
Please see: SEC's detailed description of 506b vs 506c offering and how they differ and/or are similar.
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