Real Estate Syndications – How To Tell If They Are Right For You
Real Estate Syndications – How To Tell If They Are Right For You. If you are like most people, you are interested in passive income. True passive income. So, you may be consuming a lot of information on and/or developing a strong interest in investing in real estate syndications. The benefits of investing in physical assets, like real estate, and earning a share of the returns while receiving tax advantages is very appealing for many people, including myself.
In addition to these benefits, syndication can provide you with the opportunity for diversification with minimal effort while making a positive impact on local communities.
However, real estate syndications may not be the right choice for everyone because all of us have varying degrees of risk tolerance, different goals, and are in various seasons of life. It’s important to evaluate your situation before investing in any real estate syndication or investment. Let’s look at a couple points to determine if real estate syndications may be right for you.
#1 – Real Estate Syndications Are Right For You If You Have At Least $50K
Although there are a few ways to invest in real estate with less capital, like crowdfunding sites, most private real estate syndications require a minimum investment of $50,000. There is always a one-off situation (we currently have one), but this is a great number to expect to invest. Before looking at an investment, especially because your money is illiquid for the hold time of the offering, you want to make sure you have the required minimum investment of $50,000 in addition to your typical emergency fund and any additional savings needed for your other goals or financial needs. Some examples would be: a new car, an upcoming vacation, college tuition, etc.
Syndications typically outperform the stock market and very often do have quite a few backup plans, or exit strategies, but, at the end of the day it is still an investment. If that $50K investment is going to make or break you or is all you have in savings, syndications may not be the best option for you right now.
On the other hand, if you have a sizable amount of funds that cover all of your probable cash-needing circumstances, by all means, invest with assurance!
#2 – You Don’t Mind If Someone Else Runs The Show While You Take A Backseat
If you want to get into real estate investing, but don’t have the time or knowledge to do so, syndication may be right for you. Syndications are great if you are busy with life but have the money to invest and want someone else (a qualified sponsor team) to manage the asset and run the business plan while you reap the benefits and rewards.
As a limited partner in an investment offering, you likely won’t ever see the asset and won’t be involved in any day-to-day decisions. That’s what the property managers, asset managers and sponsor team are for!
You don’t have the headaches of running the show. Some of the things we, as operators deal with is: communicating with the broker, managing the property management team including weekly calls, comparing contractor quotes, screening tenants, repairs, etc.
Instead of all of that, you continue on with your life, sign some legal documents, wire funds, get monthly or quarterly updates and continue to go about your day until the checks start to arrive. Sit back and relax – we’ve got you covered.
#3 – You Are Comfortable With A Longer Investment Period
Perhaps you know slow and steady wins the race. Now you are ready for and interested in a consistent, long-term approach to building your wealth and know the get-rich-quick ideas rarely pan out. Real estate syndications may be right for you. Most syndications have a hold term of five years or more, although it can be less.
If you’re a set it and forget it investor, then this may work for you. You invest your money, get returns you are happy with and don’t have to deal with anything until you get your capital and proceeds back, then you do it all over again. This is how you can slowly and steadily grow your wealth.
#4 – Sharing Returns In Exchange For Less Work, Works For You
Fix-and-flip investments and conventional rental property investment strategies let you keep 100% of the proceeds. However, these are both very active ways to invest in real estate and take up a lot of time and can cause a lot of headaches. Trust me. I’ve been there and done that! Real estate syndications, whether for multifamily properties or apartments, short-term rental portfolios, or other commercial assets, are different because there may be 100+ players within a syndication. Some will function as a general partner, running the show, and a lot will function as limited partners, providing the funding and get to share in the profits.
Typically, in a 60/40 or 70/30 split, the passive investors (limited partners) receive the greater half and the general partners receive the lesser portion. Of course, every offering is different, but this is typically the case.
Group investments, like syndications, require a “team” or collaborative mentality as opposed to a competitive one. This is always my mindset, anyway. Collaboration over competition 100% of the time. It’s more fund and there is plenty to go around!
Passive real estate investing is magical. You’ll like having the opportunity to invest in real estate without having to deal with the headaches of being a landlord and having to deal with the day-to-day issues managing a large asset comes with. You’ll also have the opportunity to work with various sponsors in various markets and asset classes.
Passive real estate investments can offer great tax advantages even higher profits than you would get if invested in the stock market.
But not everyone is the ideal passive investor.
So if you…
• Want to invest your money for 5 years or more
• Have more than $50,000 in money to invest beyond your emergency fund
• Are comfortable with letting someone else run the show
• Find the benefits of working with a team and profit sharing intriguing.
…passively investing in real estate syndications may be your best option.
Want to find out more, hop on a call with Angie, Owner and Founder of Ohana Investment Partners, by clicking HERE.