Few people have the type of capital to invest in real estate on a whim. It takes time, money, and effort to build and maintain a successful real estate portfolio. An influx of capital is crucial to keeping your investments running smoothly. But how do you raise capital to acquire a significant asset? Most people in the real estate game opt to do so through either a joint venture or a syndicate.
At first glance, there may appear to be little difference between joint ventures and syndicate. However, the devil is in the details. Understanding how the two operate can help you better plan your venture and ensure that you keep yourself out of legal trouble.
Joint venture: An active partnership
In a joint venture, two or more investors partner together. The linchpin of a joint venture is that each investor must take an active role in the investment. You can’t just sit around and wait for a return based on the work of others.
For example, let’s say you partner with two other investors. You may be great at doing remodeling and rehabilitation of properties. This would be your active role. Another partner may take on the role of property manager, and the third may secure financing. Everyone has a defined role, and each must take part to give the project a shot at success. There is no room for passive investors in a joint venture.
As you can probably guess, a syndicate allows for passive investors. There is a four-part test to determine whether something is a syndicate, but the most important question you need to ask is whether the anticipated returns on an investment will come from a third-party. If the answer is “yes,” it’s a syndicate.
A syndicate is considered a security. As such, you will need to register the syndicate with the Securities and Exchange Commission (SEC). Failure to do so could land you in hot water.
Which option is right for you?
Your decision to enter into a joint venture or syndication depends on the circumstances surrounding your situation. You should take the time to discuss your options with a skilled legal professional. Together, you can determine the best path forward for your real estate investment.