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Real Estate Syndication vs Real Estate Crowdfunding
Investing in real estate in India? Have you heard about real estate syndication? Real estate crowdfunding? Fractional ownership or co-ownership? I know, I know. The real estate investing world can seem daunting and confusing to new investors alike. But that’s what we’re here for.
Based on a report by industry consultants Knight Frank India, the real estate market in India is poised to grow to $5.8 trillion (!) by 2047. The realty market size is currently estimated to be around $500 billion.
Real estate syndication and real estate crowdfunding make up a huge chunk of the overall real estate market. But what exactly are they? And how do they differ from each other? As a leading alternative investment platform, we at Assetmonk are here to tell you everything you need to know about the two.
What is Real Estate Syndication?
Real estate syndication in India involves pooling funds from a group of investors to buy commercial property, or to develop new real estate.
Typically, a sponsor, a syndicate, or a real estate developer identifies an attractive real estate investment opportunity. This investment is then presented to investors, who choose to participate as limited partners. These investors put up the capital, and in return receive a share of the property’s income, as well as any capital appreciation the property undergoes.
Advantages of Real Estate Syndication
- Diversification of Real Estate Holdings
- Increased Liquidity
- Consistent Income Flow
- Consistent Stream of Passive Income
One key benefit of real estate syndication is: commercial real estate investment opportunities that may be beyond your reach as an individual investor, you can still be a part of by participating in real estate syndication and leveraging the collective resources of multiple investors.
Real estate syndication allows for: Diversification across a number of properties and markets, and also reduces the investor’s exposure to risk.
Cons of Real Estate Syndication
- Lack of agreement between all investors
- Lack of control over management decisions usually taken by the syndicate or management
Okay, I know the question that’s on your mind. Isn’t this just like fractional ownership of real estate? Well….kind of, but not really.
Is Fractional Ownership Real Estate Syndication?
Fractional ownership of real estate and real estate syndication are similar concepts, but there are some differences.
In fractional ownership, you invest in ownership real estate asset, and gain the benefits of rental income or even usage rights.
Real estate syndication, on the other hand, is more like a partnership where multiple investors buy a property through a sponsor or a syndicator.
What is Real Estate Crowdfunding?
What real estate crowdfunding does, is that it democratizes access to real estate investments. It allows individuals to invest smaller amounts in specific properties through online platforms. Unlike syndication – where investors act as limited partners – crowdfunding platforms often operate under Regulation Crowdfunding (Reg CF) or Regulation A (Reg A+) exemptions: these allow non-accredited investors to participate.
Crowdfunding platforms showcase a variety of investment opportunities, ranging from residential properties to commercial developments, catering to diverse investor preferences. Investors can browse projects, conduct due diligence, and invest with relative ease through these platforms all from the comfort of their homes.
Real estate crowdfunding offers one primary advantage: its accessibility. Investors can start with minimal capital, which makes it an attractive option for those who want to dip their toes into real estate investing without making significant financial commitments. Furthermore, crowdfunding platforms empower investors by providing transparency and information that help them make informed decisions about where to allocate their funds.
How Big is the Real Estate Crowdfunding Market?
Real estate crowdfunding and syndication are 2 real estate trends that gaining significant popularity and growth.
According to Research Nester, the real estate crowdfunding market is expected to reach USD 2,724.7 billion by the end of 2036, growing at a CAGR of 50.1% between 2024 and 2036.
In 2023, the industry size of real estate crowdfunding exceeded USD 21 billion, indicating substantial growth potential in the coming years.
In fact, it is expected that the Asia Pacific Region, including countries like India, is expected to dominate the real estate crowdfunding market, and will take up a share greater than 40%. Some of the reasons for this include rapid urbanisation and globalisation, and fast paced completion of real estate development projects.
Real Estate Syndication vs Real Estate Crowdfunding
| Aspect | Real Estate Syndication | Real Estate Crowdfunding |
| Investor Qualifications | Typically requires accredited investor status. | Open to accredited and non-accredited investors. |
| Capital Requirement | Usually requires larger capital commitments. | Allows for smaller investment amounts. |
| Investment Structure | Investors act as limited partners in specific projects. | Investors directly invest in individual properties or projects. |
| Decision-Making Authority | Sponsor or syndicator retains significant control. | Investors have more control over their investment choices. |
| Diversification | Provides access to diversified portfolios. | Allows for customization and selection of individual projects. |
| Investment Accessibility | Access may be limited to accredited investors. | Open to a broader range of investors through online platforms. |
| Passive Income Potential | Offers potential for passive income streams. | Potential for passive income with varying degrees of control. |
| Risk Exposure | Risk exposure may be mitigated through portfolio diversification. | Risk may vary depending on individual project selection. |
| Liquidity | Typically involves longer holding periods. | Limited liquidity with longer investment horizons. |
| Transparency | Transparency varies depending on syndicator practices. | Platforms provide transparency and information on projects. |
Invest with Assetmonk
For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role.
The best way to do that is by strategically planning out your investment strategy, and creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations.
Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio.
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