Do you remember the 5 paragraph essay structure from elementary school? Having guidelines
to introduce a central idea, provide 3 supportive paragraphs, and close with a strong conclusion
provides freedom and structure all at once.
The Five Phases of a Value-Add Multifamily Syndication
Similarly, each real estate syndication goes through a progression of stages with a clear
beginning, middle, and end, which ensures individual investors operate as one, according to a
clear business plan.
One of the most common questions that we get asked is, “If I were to invest $50,000 with you
today, what kinds of returns should I expect?”
We get it. You want to know how hard real estate syndications can make your money work for
you, and how passive real estate investing stacks up to the returns you’re getting through other
types of investment vehicles.
In order to help answer that question, you should first know that we will be talking about
projected returns. That is, these returns are projections, based on our analyses and best
guesses, but they aren’t guaranteed, and there’s always risk associated with any investment.
The examples herein are only meant to provide some ballpark ideas to get you started.
In this article, we’ll explore the 3 main criteria you should look into when evaluating projected
returns on a potential real estate syndication deal.
Three Main Criteria
Each real estate syndication investment summary contains a barrage of useful data. Focus on
these core concepts:
I’m often asked about the best way for someone to get started in real estate investing. If you’ve been wanting to get into real estate investing but are sitting on the sidelines and not exactly sure how to jump in, you are not alone.
There are TONS of ways to get involved in real estate investing, which is why those who do it love it, but it’s also why those who haven’t yet taken the plunge are left feeling completely overwhelmed and intimidated.
If you’re one of those spectators on the outside looking in, rest assured that there are many ways to get involved. In this article, I will walk you through how to diagnose where you are, what you want out of investing in real estate, and the best way(s) for you to get started.
Here’s an overview of what we’ll cover
1. Get a Macro View of Where You Are
2. Determine Your Why
3. Decide How Hands-on You Want to Be
4. Assess Your Risk Tolerance
5. Determine How Much You Want to Invest
6. Decide Which Types of Real Estate Investments to Pursue
7. Recap and Takeaways
Use the Real Estate Investing Roadmap
Download this one-pager to help guide you through the steps below. There are spaces to organize and record your thoughts for each step.
Did you know that you could invest in real estate without the headaches of tenants, toilets, and termites? It’s true – you can get all the benefits of investing in real estate, without any of the hassles of being a landlord.
In this article, you’ll see what passive real estate investing means and find out if you should be an active or passive investor.
What It Means To Be An Active Investor
When most people think of real estate investing, they think of rental property investing – buy a single family home, find a renter, and collect monthly rent income. Sounds easy enough, but the reality can be quite different.
Even with a professional property management team on board, you as the landlord still have an active role in the investment.
The property managers may take care of the day-to-day issues, but you will still need to be involved in strategic decisions, including whether to evict tenants who aren’t paying, filing insurance claims when unexpected surprises happen, and sometimes having to put in additional funds to cover maintenance and repair costs.
What It Means To Be A Passive Investor
On the flip side, you have passive investing, which are the “set it and forget it” type of real estate investments. You invest your money, and someone else does all the heavy lifting.
The great part about passive investing is that it’s totally passive – you don’t get any calls from the property manager, you don’t have to screen any tenants, and you don’t have to file any insurance paperwork.
However, being a passive investor also means that you relinquish some of your control in the investment and trust someone else (i.e., the sponsor team) to manage the property and execute on the business plan on your behalf.
Once you decide to dive into the real estate investing world, it won’t be long before you hear the term “Accredited Investor.” Once you notice how many passive commercial real estate or crowdfunded investment opportunities are publicly advertised and therefore limited to accredited investors only, you may get curious.
Even if you’re a total newbie, it’s important to know the difference between a sophisticated investor and an accredited investor and if you’re one of them.
Neither of these titles requires an application or an approval process. You can find out whether you’re an accredited investor based on a few simple criteria.
What to Look For
To be an accredited investor, you must:
1. Have had an annual income of $200,000 (or $300,000 for joint income) for the past two years, and expect to earn the same or higher income this year.
2. Have a net worth of over $1 million, not counting your primary home.
Imagine with me, that your workday began with the usual routine, but halfway through your morning, you received the news you’d been laid off.
For most Americans, that means zero income starting tomorrow morning.
Now, let’s pretend that during your employment, you leveraged your money.
The rich don’t work for money. They make their money work for them. – Robert Kiyosaki
Three Types of Income
Most people’s income is active, which means it’s from a consistent paycheck. But wealthy people typically earn Residual or Passive income (or both!).
1. Active income is from your employer and requires activity in exchange for money. When you stop, the income stops.
2. Residual income means you receive money after the work is done. For example, every book an author sells provides residual income.
3. Passive income is earned with very little effort and continues flowing even when you aren’t working. Real estate investments are one of the most stable sources of passive income.
Remember the job loss scenario? Let’s pretend you’d built passive income, on the side, during employment. Since being laid off, your earnings decreased by your monthly salary amount, but you still have income. Financial freedom is achieved when your earned passive income supersedes your active income.
So What's Best?
In my opinion, all three blended together is the perfect mix. For others, they only want one or two of these. Your goals for your legacy and family should help shape the right one (or mix) of these income types.
When you first begin to consider real estate syndication as an investment option, it can feel lonely, intimidating, or even like you’re going in blindfolded.
I personally experienced fears around investing in a property I’d never seen, concern about how I’d get my family's money back, and doubt around the inability to log into an account and see my money. After all, being your family's hero (like Spider Man above) is amazing - you just don't want to mess it up.
These fears were addressed head-on through countless hours of research. Every article I read and every conversation I had built my certainty until I began to feel confident toward taking the plunge. While I can't take away the need for you to perform your own deep dive into various subjects, I can share my story and shortcuts for you to make your journey more efficient.
If you’re considering your first syndication and feeling hesitant, I recommend doing your research, connecting with other investors, reading through previous deals and taking your time.