Life at the moment has been somewhat hectic. I am undergoing some PRP treatment for my hair loss, been busy scheduling and planning a family vacation, working on my 2021 tax returns, trying to exercise regularly while incorporating some dietary changes, and – last but not least – playing some tennis with my boys. Lots of content there for a blog post I suppose – I will write updates to many of these topics soon.
Today, though, I want to talk about investing in real estate syndications. As with every post I write; be it about investments, parenting, medical issues – please know it is not meant to be advisory in nature, and I always encourage seeking professional expertise and doing your own additional research where appropriate.
So, rather then reinvent the wheel, I would recommend you visit Investopedia’s Real Estate Investing guide for some of the fundamentals. It is a great overview, discusses a variety of real estate investing terms and options, and offers up some hard data on the historical pricing of this asset class.
If you are like me, and watched the fluctuations in the stock market these past several months; it gets unbelievably unnerving watching your account balance plummet so quickly. And while I feel investing in the market is a necessary evil, and (ultimately, over the long run) will bring in decent returns – diversifying a bit beyond Wall St. cannot hurt, right?
“But land is land, and it’s safer than the stocks and bonds of Wall Street swindlers”Eugene O’neil
Just like my introduction to crypto and the Celcius Network started with a brief conversation with a friend, so too did my entrance into real estate investing. Several years ago (early 2019), a friend in Phoenix told me of a group of ladies (all professionals, one with a particularly successful family history in RE investing) that were looking to buy over 100 acre property in Arizona and needed investors.
At the time, the phrase “real estate syndication” was new to me, and little did I know that was what I was about to invest into. Essentially, a person or team (typically known as the sponsor or operator) identifies a property and/or project to purchase; and gathers a group of investors (a.k.a. limited partners) so to pool the capital together in order to buy real estate on a larger scale then we may individually have been able to do. This affords a small fry like me the ability to partake in partial ownership of shopping or strip malls, multi-family residential complexes, etc. without necessarily having any of the time demands or expertise needed to manage such projects. The sponsor I invest(ed) with has a niche of only buying vacant land in AZ with anticipation of future sales to a land developer for a significant profit. Again, the syndication is run by people that have expertise and insight that I do not possess, and are usually privy to off-the-market listings and can close on deals that would normally be too high dollar amount for me to afford alone.
When we started, some initial conference and Zoom calls were held among the syndicators and the investors to present the investment opportunity and to host a little Q&A. This was followed by an influx of paper work (i.e. subscription and operating agreements, confidential private placement memorandums, etc.) that needed to be signed. To be honest, much of the legal jargon in these documents go way over my head (and is scarily ironclad); but a big part of performing the due diligence on these investment opportunities is carefully evaluating these legal agreements – even if that means hiring a real estate attorney to review them. Within them are information such as management fees, distribution details, limitations on liquidity – content that is quite critical to weight the risks and benefits of entering into such an investment.
Another thing I learned along the way is that many syndication deals only take investments from “accredited investors“. Again, Investopedia to the rescue! I met a couple of the (income/net worth) requirements of becoming an accredited investor, had my CPA compose a letter stating as such – but basically it is a title given to those “who are deemed financially sophisticated enough to bear the risks.”
One of the general partners of the syndication stated that it would behoove me to set up a Limited Liability Company (LLC) in Arizona before I enter into this investment with them. What’s that? You don’t know what an LLC is? Investopedia has just what you need to learn more. I went to the Arizona Corporation Commission (ACC) website and registered a Domestic LLC. Then, immediately followed that by going to the IRS website and submitting an application for an Employer Identification Number (EIN) so that I could create a business checking bank account to transfer funds through.
Once the business bank account was created and funded, the final step was sending off the cashier check. I have gone sky diving before, and the scariest moment was the point where you’re kneeled over the open doorway of the plane about to freefall into the unknown. I liken that rush of adrenaline to sitting at the bank tellers desk signing away our hard-earned money into a risky and new investing endeavor.
“If you can, you should, and if you’re brave enough to start, you will.”Stephen King
Our families goal was to try and do at least one real estate investment every year. Last month (March of 2022) we closed on our fourth syndication deal – with this same group. Each one has gotten progressively smoother to complete, the repetition makes the process easier to understand. Truthfully though, I am slightly unsettled by the fact that we have “put all our eggs in one basket” – and though my friend vouched for this syndication group, we have yet to see any deals come to fruition (although in fairness, the managers have been quite honest about their long-term projected timeline for sale of each property).
In the past, I have come close to entering into deals with CityVest and DLP Capital Partners. Now that I am in this space, I pay attention to various crowd funding opportunities so much more readily. Believe it or not, Investopedia has a page devoted to just that.
My wife and I (along with a friend) recently purchased a condominium unit as a rental property – now we are even landlords. We also, quite regularly, invest in Real Estate Investment Trusts (REITs) with Vanguard. We currently have real estate as 12% of our overall investment portfolio and would love to see it grow to mid-twenties. Another goal is to get more cash flowing/passive income and tax benefits out of it. I will certainly keep you apprise of what we do next!
Since this post got quite lengthy, I’ll commit to writing more about those ventures in a future post.
Believe it or not, I have no financial interest in Investopedia or any other site referenced above. Investopedia just has lots of great info on it, so much to learn from. Thank you very much for taking the time to read this post, and I am always curious to know about ways in which people diversify their own investment portfolios. Please let me know what you do! Have a wonderful day!