TABLE OF CONTENTS
- What Is Real Estate Syndication?
- How a Syndication Works: Step-by-Step
- Key Players and Deal Structures
- Reg D Rules: 506(b) vs 506(c)
- Rental Cash Flow, Appreciation and the Waterfall
- Fee Glossary: What Sponsors Earn
- Benefits for Passive Investors
- Risks and Drawbacks to Consider
- Syndications vs REITs vs Funds
- Due-Diligence Checklist
- How to Invest: From Pitch Deck to Closing
- Tax Treatment and 1031 Exchanges
- Crowdfunding Platforms: Shortcut or Extra Layer?
- Frequently Asked Questions
- Final Thoughts and Next Steps
Real-estate syndication is a method of pooling investor capital to purchase one property or a small portfolio. Instead of shouldering the full price and workload yourself, you buy a fractional ownership interest and share in the income and appreciation. A syndication can target almost any property type, and one lead party (the sponsor) assembles investors, structures the deal and executes the business plan.
A syndication usually moves through four phases that take the project from contract to exit. The table shows a typical timeline for a 250-unit Sunbelt apartment bought for 40 M USD with 65 percent loan-to-value.
| Phase | Sponsor actions | Investor role |
| Secure the Deal | Sign purchase contract or option, place earnest money, negotiate loan terms | — |
| Due Diligence and Capital Raise | Inspect property, audit financials, finalize mortgage, draft offering documents, open investor portal | Review pitch deck and soft-commit capital |
| Closing and Execution | Form LP or LLC, close on loan, implement renovations, lease-ups, expense controls | Wire funds and receive subscription units |
| Operations and Exit | Distribute cash flow quarterly, provide K-1s, refinance or sell in years 3 to 7 | Collect distributions and approve major decisions (limited voting rights) |
Key Players and Deal Structures
Every syndication includes an active sponsor and passive investors. The deal is usually wrapped in an LP or LLC that shields investors from liability.
Sponsor
- Finds the deal, secures financing, leads asset management.
- Invests 5 to 10 percent of required equity for alignment.
- Bears loan guarantees and performance risk.
Passive Investors
- Receive the bulk of cash flow until preferred returns are met.
- Contribute the remaining equity.
- Enjoy limited liability and hands-off ownership.
- Receive the bulk of cash flow until preferred returns are met.
LP vs. LLC Comparison
| Feature | Limited Partnership | Limited Liability Company |
| Passive investors called | Limited Partners (LPs) | Members |
| Decision maker | General Partner (GP) | Managing Member |
| Liability shield | Yes | Yes |
| Paperwork burden | Slightly higher for GP | Slightly higher for members in some states |
REG D RULES: 506(b) VS 506(c)
Most syndications rely on Regulation D to avoid SEC registration. The exemption chosen determines who can invest and how the deal can be marketed.
| Feature | 506(b) | 506(c) |
| General advertising allowed? | No | Yes |
| Accredited-investor limit | Unlimited | Unlimited |
| Non-accredited participation | Up to 35 sophisticated investors | None |
| Typical nickname | Friends and family | Publicly advertised |
| Verification of accreditation | Self-certified | Third-party (CPA, attorney, broker) |
Rental Cash Flow, Appreciation, and the Waterfall
Cash flow and sale proceeds follow a waterfall that allocates returns in tiers.
- Return of Capital – 100 percent of net cash flow goes to passive investors until they recoup their initial equity.
- Preferred Return – After capital is returned, investors receive, for example, a 7 percent annual IRR.
- Carried Interest (Promote) – Cash flow above the preferred tier is split, for example, 80 percent investors and 20 percent sponsor.
- Additional Hurdles – Higher splits may trigger once IRR hurdles such as 12 percent or 15 percent are reached.
Case snapshot
- Purchase price: 40 M USD (65 percent debt, 35 percent equity)
- Equity raised: 14 M USD (sponsor 1.4 M; investors 12.6 M)
- Renovations: 8 K USD per unit, average rent plus 175 USD per month
- Year-five sale price: 57 M USD
- Investor IRR: ~16 percent Equity multiple: 1.9×
- Past performance does not guarantee future results.
Fee Glossary: What Sponsors Earn
Sponsors charge several fees that compensate them for work and expertise.
| Fee | Typical range | Purpose |
| Acquisition | 1 to 3 percent of purchase price | Up-front deal sourcing and underwriting |
| Asset management | 1 to 2 percent of EGI or OMR | Ongoing reporting and oversight |
| Construction | 5 to 10 percent of rehab budget | Managing renovations |
| Financing or refinance | 0.5 to 1 percent of loan balance | Negotiating debt terms |
| Disposition | 0.5 to 1 percent of sale price | Coordinating broker, closing and buyer relations |
EGI = Effective Gross Income OMR = Operating Monthly Revenue
Benefits For Passive Investors
Syndications combine the cash-flow potential of direct ownership with the convenience of professional management.
- Passive income without tenant calls.
- Deal-by-deal choice instead of blind-pool funds.
- Tax efficiency through depreciation passed on Schedule K-1.
- Diversification across multiple markets for as little as 25 K USD per deal.
- Access to 1031 exchanges via TIC or DST structures.
- Leverage of the sponsor’s experience and vendor network.
Risks and Drawbacks to Consider
No investment is risk-free. Evaluate these factors before wiring funds.
- Sponsor quality varies in skill and ethics.
- Capital is illiquid for 2 to 10 years.
- Rising rates or regulation can dampen returns.
- Complex waterfalls and high fees may erode yield.
- Sponsors can issue capital calls in tough times.
The table highlights how private syndications differ from other real-estate vehicles.
| Feature | Syndication | Public REIT | Private Fund |
| Liquidity | Low | High (traded daily) | Medium-low (quarterly windows) |
| Minimum investment | 25 K-100 K USD | Price of one share | 250 K USD and up |
| Transparency | Property level | Portfolio level | Fund level |
| Investor control | Moderate votes on major events | None | None |
| 1031 eligible | Often | No | Rare |
Due-Diligence Checklist
Before you commit, confirm these items.
- Sponsor track record, past IRRs and any SEC actions.
- Market fundamentals: population, jobs and supply pipeline.
- Debt terms: LTV, interest-rate cap, maturity, covenants.
- Business-plan realism: rent-up speed, cap-ex budget, contingencies.
- Fee load and waterfall alignment.
- Exit sensitivity tests at higher cap rates.
- Insurance, title and environmental reports.
How To Invest: From Pitch Deck To Closing
A repeatable process keeps emotions out of the decision.
- Source deals through portals, investor clubs or professional referrals.
- Read the two-page executive summary.
- Join the sponsor webinar to probe downside scenarios.
- Study the Private Placement Memorandum, Operating Agreement and Subscription.
- Ask your CPA about tax impact and your attorney about liability.
- Wire funds and submit accreditation forms.
- Receive portal access, distribution schedule and K-1 timeline.
Tax Treatment and 1031 Exchanges
Syndications pass through both income and deductions to investors.
- Depreciation often shelters early cash flow.
- Depreciation recapture is due at sale unless a 1031 exchange is used.
- Cost-segregation studies accelerate bonus depreciation on five-, seven- or fifteen-year components.
- Many sponsors allow a drop-and-swap TIC so investors can roll equity into a new property and defer gains.
Crowdfunding Platforms: Shortcut or Extra Layer?
Portals like CrowdStreet, RealtyMogul and Fundrise match investors with sponsors.
- Curated deal flow and lower minimums.
- Added platform fees of 0.5 to 2 percent annually.
- Less direct access to the sponsor.
- Quality varies, so vet both the portal and the underlying deal.
Frequently Asked Questions
Can non-accredited investors join syndications?
Yes, but only in 506(b) offerings and no more than 35 such investors. 506(c) deals are accredited-only.
What is a preferred return?
It is the minimum annual return, for example 7 percent, that passive investors receive before the sponsor shares in profits.
How long is my money locked up?
Most holds run two to ten years; consult the PPM for exact timing and any interim liquidity options.
Do I receive monthly rent checks?
Distributions are usually quarterly. Some value-add projects pause cash flow during heavy renovations.
Final Thoughts and Next Steps
Real-estate syndication bridges the gap between hands-on land-lording and hands-off REIT investing. By teaming with a proven sponsor, you can reach institutional-grade assets, diversify geographically and enjoy tax-advantaged cash flow.
Ready to analyze a deal? Contact a team member today.
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About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 16-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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