How To Know If Real Estate Syndications Are The Investment You've Been Searching For
I commend you for devouring all the information possible about investing in real estate syndications. Hey, we made it through years of med school and studying for boards, right? When it comes to doing research and learning the facts - we’re pros!
At this point, you’ve learned so much, and you’re still here, so maybe you’re like me and have nearly become enamored with the power of passively investing in real estate syndications. How could you not?
The ability to invest in tangible, physical assets without being a landlord, getting a share of the majority returns, and reaping excellent tax benefits is a pretty shockingly sweet deal. Plus, the diversification opportunities with minimal legwork while making an impact on local communities are rather 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.
#1 You Have More Than $50K of “Play” Money
While some real estate investment platforms will accept smaller investment amounts, most private real estate syndications begin at a minimum investment of $50,000.
Ensure you have the minimum investment of $50,000, plus your standard emergency fund, plus any other savings for your life’s aspirations. Think about it - a new car, fluffy retirement savings, this year’s vacation to the Hamptons, and college education funds, to list a few.
Of course, there are lots of contingencies in place in syndications, but if you aren’t prepared to lose your investment in its entirety and be okay financially, then syndications may not be your jam...yet. You might want to head back to the drawing board with some serious savings plans and re-visit real estate syndications in a year or two.
On the other hand, if you have all the potential cash-needing scenarios covered with stacked savings, by all means, invest with confidence!
#2 You’re Okay Having Someone Else Take the Reins
If you’re short on time but heavy on cash and want someone else (a professional team) to manage the property while you reap the rewards, you’ve found the right investment. As a busy physician, you make a high income but have hardly any time with your family, much less to research investment opportunities.
Passive investing in real estate syndications is much more hands-off than your typical residential real estate rental property. So it’s okay if you never see the property in person and don’t want to be involved in any day-to-day decisions.
You don’t have to be in contact with the broker, monitor the property manager, or receive and decipher between contractors’ bids. Instead, you get a few emails, sign a legal doc or two, and carry on with your life while your eligible distributions from cash flow and appreciation arrive automatically. As a passive investor, you’re a passenger on a plane ride. So, sit back and have a cocktail.
#3 You’re Looking for a Long-Term Investment
Maybe you’ve done your research and know not to look for some get-rich-quick scheme, but rather, are interested in a steady long-term approach to wealth. Unlike stocks or something you can flip in the two-year range, real estate syndications typically have a hold period for five or more years.
If you’re the type of investor who’d like to set it and forget it and can plan for your investment capital to be unavailable for long periods, passively investing in real estate syndications may become your new obsession.
#4 Sharing Returns In Exchange for Less Work is Attractive to You
Fix-and-flips and standard rental property approaches to investing allow 100% of the profits in your pocket if you’re the primary investor. Mainly because they are smaller deals, require plenty of sweat-equity, and often have only one party (you) financing, renovating, and managing the deal.
Multifamily real estate syndications are entirely different as there could be hundreds of individuals involved, thus some profit sharing. Usually, the passive investors get the more significant portion of a 70/30 or 80/20 split, with the general partners getting the smaller percentage.
Group investments like this take a “team” or collaboration mentality versus a competitive mindset. The general partners actively manage the property, make decisions toward renovations, and handle marketing and financial reporting. So, it only makes sense that they are rewarded for their efforts. If profit sharing and the concept of “a rising tide lifts all boats” makes sense to you, you’re in the right place.
#5 You Don’t Need the Money for a While
You may be in a season of life where your kids’ vehicle purchases or college decisions are either several years in front of or behind you, that you’re in a home that doesn’t need a massive kitchen renovation, or just that you have spent some time planning well, establishing savings accounts, and minding your expenses.
If this is the case, you also likely met the criteria in #1, and you are going to be okay having your money “locked up” for a bit. You’ve worked hard to save, budget, and build a little nest egg, and you’re just looking for somewhere to park it for a few years with the possibility of earning some interest.
Not needing your savings for the foreseeable future is a fantastic feeling, and if this describes you well, investing passively in a real estate syndication might pique your interest even more after realizing how well-positioned you are for this type of investment opportunity.
Are Real Estate Syndications Right For You?
You’ll love being able to invest your money in real estate without the hassles of being a landlord, all while having the chance to invest with different sponsors in different markets and different asset classes. Plus, the tax benefits (and sometimes even the returns) from passive investing can surpass those from personal rental properties.
But, being a passive investor isn’t for everyone. So, if you…
- Have more than $50k of “play” money
- Are okay NOT having an active role
- Are looking for a longer-term investment
- Find collaboration and sharing returns attractive
- Want to park your cash for 5+ years
…then, investing passively in real estate syndications might be the best fit for you.
The beauty of real estate investing is that it’s so incredibly diverse. Perhaps some of the above doesn't describe you, and you would prefer to roll up your sleeves and do the work yourself first to learn the ropes. Or perhaps you’re looking for a more liquid or a shorter-term investment. That’s okay.
Consider the amount of free time you have now, the amount you wish to have, and whether passive or active investing fits into those boxes. You’ve made such great choices so far - pursuing a career that provides you the opportunity to impact humans in need day in and day out while also earning a high income. Now it’s time to make that hard-earned money work as hard as possible for you.
There are so many opportunities out there to invest in grand projects and impact local communities. Of course, commercial real estate syndications are just one avenue, but if you meet a few of the criteria above, you might have found your match.
There are numerous risks with owning physical real estate via private placements including weather and natural disaster risks, interest rate risk, operator and business risks, and overall real estate market volatility which can effect the performance of the investments. Investing in private placement securities entails a high degree of risk, including illiquidity of the investment and loss of principal. Please read the offering document before investing.
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