Real estate syndication simply involves a group of people investing money to buy or build properties, to earn profits. The number one investment rule has to be investing in what you understand, this piece should give you a basic understanding of what syndication is all about.
In the past, syndication was not readily acceptable to the general public but now is from private equity real estate investment firms similar to The Fortes Company. Syndication deals, which consistently outperform stocks, have been made easier because passive investors can earn passively without any on-hand experience, expertise, or presence. Syndication offers a stable and promising pathway to passive earning. For instance, investors could leverage home equity lines of credit (HELOC) loans to finance investments, as opposed to stock markets, where banks are extremely reluctant to provide loans for stock trading. Though that is the extreme and I would advise against that scenario it gives you a perspective between the two. The deal is made between a sponsor (general partner) who finds a suitable project for passive investors (limited partners). Profits, from projected returns, are paid annually, quarterly or monthly, giving investors the flexibility and freedom to utilize their time or resources on other things.
“If you don’t find a way to make money while you sleep, you will work until you die.”
– Warren Buffet
In the long run, a real estate syndication deal can prove to be a milestone in one’s financial pathway. Before investing in any deal, you must know who you are working with, finding a sponsor is relatively very easy, but don’t simply or hurriedly toss your cash ‘any which way’. Ensure you read through everything. Research it and in case you’re uncertain, have a lawyer review any offer if it makes you comfortable. Understanding the syndication model is beneficial for passive investors especially first-time investors. Counseling an expert will help give you significantly more trust in the syndication landscape.
Every business or investment, it comes with an inseparable companion – risk. Syndication deals are no exemptions. A lot could influence the failure of a deal, particularly inexperienced syndicators, timeline, poor business plans, poor decision making, and even unwillingness to take risks. The onus is almost always on the sponsor and/or his performance, which is why you must vet the sponsor of any potential deal and ask pertinent questions. A lot can be done to avoid the pitfalls of a potentially failed deal, but even when a sponsor gets everything right, a deal could still fall through, although that is unlikely to happen.
“The fundamental law of investing is the uncertainty of the future.”
– Peter Bernstein.
Some of the advantages real estate syndication has over other investment methods are that it is perfect for a busy professional, who is unable to learn and grasp the intricacies of real estate by managing their own assets, it also allows diversification to spread your capital across various options and access to larger properties. Passive investors can build a portfolio, that includes apartment buildings, office space, high-end properties, mixed-use properties. In syndication, the limited partners bear the limited risk and are not responsible for property management or other landlord duties, a great relief for busy individuals; with the growing need for apartments and offices means that properties will continue to inflate in value, at least in the long term.
One of the most important factors for a potential investor or pool of investors in syndication is the optimism to make returns on investment (ROI), through syndication. This is security! The 1933 Security Act expresses that each security must be enrolled with the Protections and Trade Commission, otherwise called the SEC. Each security must be enrolled except if it is excluded from enlistment. This is otherwise called pre-emption. In addition to the fact that it is excluded from enrollment with the SEC, yet it’s pre-empted from the state’s applying rules, which are significantly more convoluted than the SECs.
Syndicators always have an edge since investors are from different backgrounds and expertise, and as the saying goes, “Two heads are better than one,” more upfront capital is generated and more knowledge is available for operating the investment asset. Here are some crucial points for getting started in multifamily real estate syndication:
- Be informed! Get the necessary pre-requisite knowledge.
- Select a business model
- Study deals and offers carefully, seek advice where needed
- Hire an attorney to review any legal documents to help you understand them
- Familiarize yourself with the common real estate syndication terminologies and financial terms.
Learn more about investing passively in multifamily syndications start by reviewing our strategy page before completing the “invest now” form. See if this strategy is right for you.
Happy Investing!
Disclaimer: The views and opinions expressed in this blog are provided for informational purposes only, and should not be interpreted as an offer to buy or sell any investment or course of action.