Before you’re fully committed to and after you’ve become interested in a real estate syndication, you need to know several details about actually investing in these deals.
The process of investing in a real estate syndication is very different than picking a stock or a mutual fund online. Furthermore, unlike typical investment properties, there are hold times, barriers to entry, and a whole set of expectations that you need to know about prior to committing to a deal. As a smart investor, you’ve got to know exactly why you’re choosing a particular investment in addition to the required credentials, the process, what’s involved, and how long you should expect to wait until payout. Guess what? You’re in luck! That’s precisely what you’re about to read! If you’ve invested in residential real estate before, you have some important, basic lingo like rental income, mortgage interest, and amortization under your belt. When you step into the world of commercial real estate, you’ll begin to see other terms, like “cap rate”, thrown around as if everyone inherently knows what that means.
It’s okay if you don’t know what a cap rate is or what it’s used for. It can be challenging to understand and hard to calculate. As a passive investor, you won’t have to do any of the hairy work to calculate cap rates, but it’s helpful to have a very basic grasp on what they are. Keep reading to find out what a cap rate is, how it’s calculated, what it’s used for, and what you need to know about cap rates as a passive investor in a real estate syndication. Have you ever known a new parent? They likely have stashed packages of baby wipes everywhere.
In the purse, the diaper bag, multiple places in the baby’s room, in the master bedroom, in the car… it’s likely that anywhere she and the baby might be, a stash of baby wipes is near. The purpose, of course, is to prepare for those unexpected moments that accompany having a new baby. That new parent might not know exactly what to expect, or when a surprise spit-up will happen, but they know to expect the unexpected. Once you get wind of real estate syndications and you begin thinking about the possibility of investing passively in them, it’s natural to simultaneously have questions… lots of questions.
Investing in real estate is a big deal and you SHOULD have and ask ALL the questions. Furthermore, real estate syndications aren’t broadly popularized, so, not only will your friends probably not have any answers to your questions, but they likely will have no idea what you’re even talking about. For this exact reason, it’s important you find a trusted, knowledgeable resource to get your questions answered and do plenty of your own research. In an attempt to make this easier on you, we’ve addressed 4 big questions today:
The answers to these 4 simple questions are going to clarify so much for you… we can feel it! Ready? Let’s dive in! 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. Once you decide to invest outside your local area, the possibilities are limitless. This can be exhilarating and overwhelming at the same time.
A tidal wave of thoughts may come flooding in immediately. Should you consider a bustling city or a metro area? You may reminisce about a vacation you enjoyed and the gorgeous buildings you saw there. You could dive down every possible rabbit hole, cross-referencing “best real estate market” lists, trying to make sense of current population trends, and even looking up news local to areas you’d be interested in. Honestly, this won’t really help you draw any conclusions, plus you’ll waste a ton of time and energy. Instead, begin by assessing your personal investing goals. Maybe you want to invest in a growing market that also provides decent cash flow. Using that basic framework, this research checklist will help narrow things down: 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. Questions You’ve Always Wanted To Ask About The Other Investors In A Real Estate Syndication2/28/2020
A real estate syndication is a group investment, yet it can feel like a lonely process at times. For security and privacy reasons, you may never meet or even know the names of the other investors, even though you’re pooling your money into the same asset alongside each other.
It’s likely you’re in touch with the syndication sponsor, or with a group like Timbermoss Capital, but you won’t get the team atmosphere you’ve come to know with other group activities. So, you may find yourself wondering what the other investors are like, where they come from, and how they chose the same deal as you. Today, let’s satisfy your curiosity by addressing a few questions you’ve probably always wanted to ask about the other investors:
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Justin GrimesAlly in generational wealth creation & protection. Archives
October 2020
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