That’s a great question and congratulations on getting to this point. Hopefully you’ve done a whole bunch of reading by now or maybe our eGuide, A Passive Investor’s Guide to Getting Started in Real Estate Investing through Syndications, helped you get here. Regardless, I’m glad you are here and asking such questions. Once you get wind of real estate syndications and you begin thinking about the possibility of investing passively in them, it’s natural to have 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 3 big questions today:
- What types of asset classes can I invest in using syndications?
- What are my downsides to investing in these syndications?
- Where and how do I find syndication deals?
I’m sure there are tons of other questions that you might have but let’s tackle these for now as they will provide you with a lot of clarity.
Let’s go ..
1. What are the different types of real estate syndications?
Real estate syndication deals are available on multifamily properties, self-storage, manufactured home parks, land development, hotels, student housing, warehouses, and more. Some real estate syndications are for ground-up construction and others are for buy-and-hold (i.e., buy an asset that’s already stabilized, and hold it for a number of years).
A great example of a value-add multifamily deal is an apartment community whose units haven’t been updated in ten years. The kitchens are all dated, the carpets are worn, and the landscaping needs some work.
By making those improvements, we can increase the rents, which increases the income of the property and thus, the overall value.
2. What are the risks of investing in real estate syndications?
As you already know, any type of investment is a risk. Syndications aren’t any different and not immune to risk either.
One of the biggest risks lies in the execution of the business plan. Before the deal, you’re wooed with glossy marketing packages and the sponsors will answer your questions with lofty ideals.
However, when the rubber meets the road, the sponsor team needs to be able to execute on the business plan in the face of unforeseen circumstances. Investing with sponsors who have a proven track record and who prioritize capital preservation helps ensure that they will protect your investments and do what they say they’re going to do.
Changing market and economic conditions are always a risk. No one can predict what market conditions will be like at the end of a project’s hold time.
This means, if the projected hold time is 5 years, check to make sure that the loan term is for at least that long, and ideally longer than 5 years, so there’s a buffer in case sponsors need to hold the property longer than intended.
At the end of the day, as a limited partner passive investor, you’re concerned with your personal liability. The good news is your liability in real estate syndication is limited. At worst, you could lose your
original investment capital, but you could not lose more than that (e.g., you can’t lose your house).
3. Where can I find real estate syndication opportunities?
Syndications are closely governed by SEC laws. The only publicly advertised real estate syndication deals are for accredited investors only. So, how does a non accredited investor find real estate syndication deals?
The best way to find real estate syndication opportunities is to get out there and talk to people in the real estate syndication space.
This community is quite small, and once you get connected, you’ll easily be able to find sponsors and real estate syndication opportunities that fit with your investing goals.
Let’s Recap
All in all, it’s important to understand the risks, the terminology, the options available, and how to find the deal that fits your goals and investing style best. Real estate syndications aren’t for everyone, but they can be a fabulous addition to anyone’s portfolio.
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