Imagine spotting an old bookshelf sitting out on the curb. You pull over to check it out, and since it’s in good shape, you proceed to lug it home and give it a fresh coat of paint. A few years later, you sell the shelf to someone else who claims to have the perfect spot for it. You took something that had been overlooked, committed some sweat equity, and breathed new life into it. This is the essence of value-add, and it’s a commonly used strategy in real estate investing. The Basics of Value-Add Real Estate
Let me ask you a question. What first interested you in real estate syndications? Most likely, it was the potential to put your hard-earned money to work for you to create a good return and thus grow your wealth over time.
And in fact, that’s the number one question that most of our investors ask us when they first consider investing in a real estate syndication with us. They want to know, if they were to invest $100,000, how much money they could stand to make. And believe me, we love good returns, and those returns are a big part of why we do what we do. However, while returns are certainly important, there’s an even more important aspect that we focus on when we evaluate potential deals. Can you guess what it is? I’ll give you a hint. It’s not nearly as exciting as passive income and double-digit returns. In fact, it’s more boring than taxes and K-1’s. The most important thing we focus on in a real estate syndication is capital preservation. In other words, we focus on how NOT to LOSE money. That’s our number one priority, as boring as that might sound. Once you choose a real estate syndication deal, sign the PPM (private placement memorandum), and send in your funds, you have very little control over the performance of the asset. You’re truly a passive investor at that point and must fully trust the sponsor team to manage the daily operations effectively, execute the business plan, and guard (and grow!) your investment.
This is exactly why you should be absolutely confident in the deal and the sponsor team up front. Do your research, squash any doubts you may have, and ask questions BEFORE investing with a new real estate syndication sponsor. This list of questions provides some great ideas and may guide you toward subjects and concerns that should be on your mind as a new investor. It will also give you some ideas of things that other investors are asking that you might not have thought about. Some of these can be found on your own in the investment summary or through independent research, but others you may need to ask the sponsor directly. 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. If real estate investing seems interesting to you, but you’d rather avoid becoming a landlord, you’re not alone. Fixing toilet emergencies at 3am isn’t appealing to most people. Shocker. The next logical step that many investors take is toward a real estate investment trust (REIT), which is easy to access, just like stocks. What is a REIT, anyway? When investing in a REIT, you’re buying stock in a company that invests in commercial real estate. So, if you invest in an apartment REIT, it’s like you’re investing directly in an apartment building, right?
Not really. Let’s explore the 7 Biggest Differences Between REITs and Real Estate Syndications: 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
Categories |