Whether or not you have a background in real estate investing, commercial or residential, is irrelevant.
There are just things you need to know about syndications that are different than any other type of deal you’ve likely been involved in or had exposure to. Your grandpa owned a few properties? Cool. Your dad used to flip homes for profit? Cool too. Now you’re interested in approaching real estate a little differently? Awesome. So, it’s natural to wonder about the returns, minimum investment requirements, taxes and more when it comes to real estate syndications. Today we’re going to address these 4 technical details:
We love details too and commend you for digging into the not-so-surface elements of this type of investment. Many real estate investors “get their feet wet” through some form of residential real estate. Whether those initial investments are flips, standard rental homes, or even duplexes, that’s a great start. But we recently met someone who’d been in the real estate investing game for over 10 years and had never heard of a “real estate syndication” before.
Actually, that’s pretty common. Until somewhat recently, SEC regulations did not allow for real estate syndication opportunities to be publicly advertised. This made it so, you had to be part of the “inner circle” (i.e., you had to know someone who was doing a deal) in order to invest in one. Luckily, the SEC now allows certain opportunities to be publicly advertised, which opens the gates for more people to learn about and invest this way. But maybe you’re new to this term too and are wondering things like:
You’ve been devouring all the information possible and have nearly become enamored with the power of passively investing in real estate syndications. How could you not?
The ability to invest in real, physical assets without being a landlord, getting a share of the majority returns, and reaping amazing tax benefits is a pretty shockingly sweet deal. Plus, the diversification opportunities with minimal legwork while making an impact on local communities is pretty attractive. Even though these traits seem impossible to pass up, real estate syndications aren’t for everyone. Each investor is in a different stage of life, has a different level of risk tolerance, and maintains different goals. Before investing in a real estate syndication, see if one or more of the below describes you and your current situation. Any time a potential investor is reviewing real estate syndication investment opportunities, they’ll likely come across the term “equity multiple”. Even if they’ve purchased a primary home or a residential rental property before, it’s unlikely they’ve heard of equity multiples.
When it comes to passively investing in real estate syndications however, it’s an important phrase to know and understand. Have you ever heard about or explored the opportunity to sponsor a child through a non-profit program such as Children International? Contributions through these organizations change children’s lives exponentially in areas of health, education, and even safety. As you may know, when you choose to help a child through such programs, you receive updates about the child regularly, including notes they’ve written and even pictures of them. You get to have a supportive hand in their growth from afar while never having to enforce a bedtime or wash the ice cream off the child’s shirt. Investing in a real estate syndication is very similar in this aspect. As a passive investor, you would receive regular updates on the progress of the project after the deal closes, but you don’t have to field phone calls from tenants when an issue arises. Typical Real Estate Syndication Communications and Touchpoints There are 5 key communications you should receive at important intervals once you invest in a
real estate syndication. From the closing date, through the hold period, until the asset sale, here’s what to look for: Investing in real estate outside your local market, in an area you may never visit, and where you have no trustworthy friends on whom to call can seem absolutely terrifying, especially for new investors. However, this leap into seemingly scary territory may be the key to real estate investing success. Most real estate investors begin with local deals, and while some get lucky, others do not. The truth remains: There are more opportunities “out there” than you could ever imagine, and you’ll never see or know about them without the courage and wisdom to explore outside your local market. Having a wide net to cast for deal flow and potential returns can be a powerful thing. Investing Out of State, and Why Everyone Should Do ItInvesting across state lines allows you to align your real estate portfolio to your long term investing goals through:
Are you considering investing in a real estate syndication but are leery that it sounds a little too good to be true? You’re not alone.
Many investors are shocked when they first learn about the potential cash flow returns they could receive through investing passively in real estate syndications. The key, though, to putting your doubts and skepticism to rest, is to understand where that cash flow comes from and how it makes its way from the asset itself to your pocket, and that’s exactly what we’ll cover in this article. Take a moment to think about the process that you used to find the home you’re currently living
in. You likely had a checklist that included a specific area, school district, commute, and the number of bedrooms you were looking for. If you were looking for a three-bedroom with plenty of green space in mind for your growing family, it’s very unlikely you would have settled for a one-bedroom high-rise condo, even with a great view. Well, it’s the same type of situation when you’re investing in real estate. Before you even begin to consider potential investment opportunities, it’s imperative you know WHY you’re investing and WHAT you’re looking to get out of it. Without clear goals, you’ll easily be swayed (or paralyzed) by beautiful photos and well-marketed opportunities that don’t actually align with your investing goals. As we walk through these examples, see if one resonates with you. With clear goals in mind, you’ll know just what to do when the right investment opportunity comes along. Any time “investing” is brought up, peoples’ minds flash between images of Warren Buffet, memories of the Great Recession, and those #goals filed in their “someday” folder. Unfortunately, 60 percent of Americans find investing to be scary or intimidating, according to a new independent market survey. Alternatively, 60 percent also recognize that “someday” they will need greater financial security than what they currently have. Too many people are putting off to tomorrow what they should be doing (or investing) today. For the next several minutes, set aside any preconceived notions you may have, and take an honest look at the risks associated with investing. Let’s take a close look at investing in stocks versus real estate, the four basic risks of investing, how commercial multifamily real estate investments mitigate risk, and why the stock market can be much riskier than real estate. A Primer on Risk As with any investment, there’s an element of risk. Just as you could have been hit by a bus this morning, unexpected things come up in life, the stock market, and in real estate.
The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate risk. When it comes to investing in real estate, most people are fairly familiar with the process of buying a single-family home or rental property. You choose the market and neighborhoods, determine how many bedrooms and bathrooms you’re looking for, get together with a lender and a broker, tour potential properties, and then make an offer.
However, when it comes to investing in a real estate syndication (group investment), the process can be entirely foreign, especially if you’ve never invested in syndications before. For this reason, let’s explore the syndication process together, from start to finish, so you can invest confidently in your first real estate syndication. Here are the basic steps of investing in a real estate syndication: 1. Determine your investing goals 2. Find an investment opportunity that fits 3. Reserve your spot in the deal 4. Review the PPM (private placement memorandum) 5. Send in your funds |
Justin GrimesAlly in generational wealth creation & protection. Archives
October 2020
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