Syndications - And What You Don't Know
ll of us are witnessing volatility in the marketplace, triggered by the coronavirus, but exacerbated by the reactions of the government – the Federal Reserve and global central banks printing money and pumping it into the marketplace.
We’re likely to see a lot of volatility over the next decade – possibly more than we’ve ever seen before.
We’ve got to get used to it. There’s massive uncertainty. Where do you go to get sustainable returns on your investments? You’ve got to make sure your business is running well, but then how do you plan for the future? And how do you protect your nest egg?
We’ve seen what happens on Wall Street when there’s uncertainty in the market – it can drop like a rock in a matter of days. That’s not a great option to plan around.
When I consult with professional practice owners about how they’re building their freedom plan, that uncertainty of “Do I have enough?” is what’s driving them to keep working longer and later in life. The traditional model doesn’t provide certainty, so a lot of people start looking outside, at alternative investments. And they understand that Real Estate is a good place to be.
The problem is: Do they know how to access it?
That’s where I see so many people fumble the ball. They might try renting or flipping houses, and find that as a hobby, it’s a nightmare they wish they’d never gotten involved in.
So then they look around for someone to give them a good deal or advice, and they get calls from syndicators. Syndicators are deal sponsors who make money by finding larger Real Estate projects like multifamily apartment houses, self-storage, mobile home parks, or office parks, and pulling together money from outside investors.
They give (typically high) projections of what they assume or anticipate their project will do – but it’s never guaranteed. How do you know if you’re looking at a good syndication or not?
You don’t. You’ll be relying on a pitch that sounds really good. You’ll be thinking: “Wow, this sounds much more predictable than the stock market. I’ll get double-digit returns, tax write-offs, and all this great stuff!”
But you don’t know who the operator is – and that’s where things break.
The majority of these syndicators are using “mom and pop money,” meaning money from individuals who know nothing at all about Real Estate. These people need to get higher returns and more predictability than the stock market offers, so they jump into bed with syndicators and operators that they don’t know. As long as the market stays strong, even the weakest syndicators typically make it and don’t lose money. But what happens in volatile markets? What happens in this decade?
We’re seeing a lot of syndicator deals falling apart. They were too leveraged and didn’t have good cash flow margins to begin with, and now they’re going back to the investors saying they need more money.
So how do you do it?
In Freedom Founders, we have an investment review committee (which includes a securities attorney), and we vet all syndications and other large deals. We know the operators, and we give people a chance to ask them the tough questions.
Nothing’s perfect or guaranteed, but we have a long-standing track record with vetted deal sponsors who know what they’re doing, and who give us the opportunity to understand where our money’s going.
If you think investment advice and education are expensive – try ignorance.
I’ve been on that side, and I’ve found that it’s worth it to find people who bring the right constructs, information, and social proof of others who’ve been investing in those avenues for years.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with Me:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then click the link to jump on a quick call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to schedule a call with me directly. www.freedomfounders.com/schedule
2. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Go to www.FreedomFounders.com/Scorecard to take the 3 minute assessment and get your scorecard.
3. Ready to Step Away?
“How Much is Enough?” This simple question keeps hard-working professionals at the hamster wheel of active income far longer than they need to be. Watch this free training, and discover a proven model for determining how much you really need before hanging up the handpiece! www.freedomfounders.com/training