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Syndications: Beware

What are syndications in real estate?

Syndications are a type of platform in which multiple investors pool their money and buy shares, typically in an LLC.

 

 

That LLC then invests in, purchases, and acquires a real estate project, such as a multi-family apartment complex (it could be a self-storage facility, a mobile home park, a retail building, etc.), but something larger than a single-family home.

In a syndication, multiple investors, who must usually be accredited, will put in between a $25,000-$100,000 minimum investment.

The good thing about syndications is that they can create an opportunity for individuals to get involved in larger projects, where there is a manager or sponsor who has already identified a specific project, which means individuals are not investing in a blind project.

Syndications can be a great way to invest, since they are hands-off most of the time.

Individuals can get tax benefits from syndications and they can also leverage their syndications, which is extremely positive.

The problem with syndications is that since there is so much money being pumped into the economy these days, a lot of people who promote syndications don’t have a strong track record of actually doing them.

Many promoters, managers, and sponsors don’t know what they are actually doing when it comes to syndications.

It’s hard enough to find a good real estate deal these days, which makes finding a good syndication even harder.

Rising markets can make anyone seem like a genius.

The problem is that when the market stops rising, the low-quality sponsors start to show.

So how can you tell who’s who?

How can you tell a quality sponsor from a low-quality, inexperienced sponsor?

Well, you have to really know the sponsor who is promoting the deal.

And, if you want to invest in a specific syndication, you have to invest with someone that you know well.

Someone that you have spent time with and met face-to-face.

It’s easy for all types of syndications to raise money these days, even the bad ones.

We are late in the game right now.

There are very few quality syndications today.

While there are a ton of syndications that you can invest in, there are very few that are quality syndications.

You don’t want to make a mistake by investing in the wrong syndication.

Be very careful – don’t put your money with someone just because they are making assumptions.

When choosing a syndication sponsor, make sure to ask them the important questions

Where were they during the downturn of 2008?

What is their track record?

What lessons have they learned?

You need to get all the important information before you invest in a syndication, or else you could be throwing your money down the drain.

To your freedom,

– David

 

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