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If you’re interested in supplementing your primary income, investing in real estate can be the right avenue. Unlike most other income streams, real estate investments offer flexibility when it comes to your involvement. You can either be an active investor who manages a property, or you can approach it from a minimal-effort standpoint. If you’re looking to do the latter, then an investment opportunity to consider is real estate syndication. But first, you need to understand how they work, including their benefits and potential risks, before you make a decision.

What Are Real Estate Syndications?

A real estate syndication takes place when investors collectively group their resources, capital and competencies to buy a property, such as apartments, self-storage facilities, mobile home parks, hotels and more. Income distributions from these investments typically come in monthly or quarterly installments, with a return on investment coming from the property’s eventual sale.

In a syndication, there are general partners and limited partners. General partners make the deal happen. They find the building and the investors, and once the property is closed, they work with the necessary property management companies and contractors to ensure the investment is successful. The investors, known as limited partners, provide the bulk of the capital. As the name implies, their responsibility (and liability) is limited. However, limited partners pay an assortment of fees—such as acquisition and management fees—which can impact their potential returns compared to the general investors.

If you’re interested in real estate syndication, the most important step you can take is getting educated. After all, one of the biggest risks is who you partner with. So, do plenty of research on your options for syndications to join. For example, review public records to see if they invest in the kind of properties that interest you, reach out to your network to see who has firsthand experience with any syndications and make sure none of the partners have been involved in a financial scandal. After you’ve found some options that could work, meet each team. Ask about their industry background, previous investment returns and their structure for paying out returns. Then, ask them for references—and actually reach out. Once you’ve done your due diligence, you will be better equipped to find a real estate syndication that best fits your needs.