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Beginner’s Guide to Investing in Real Estate Syndications

Summary: Are you thinking about investing in a real estate syndication but don’t know how to get started? In this three-part series, we will embark on a journey together, uncovering the secrets to investing real estate syndications. From understanding important terminology to conducting a detailed evaluation of deals and sponsors, we will provide you with the tools and knowledge needed to make informed investment decisions. So, let’s dive into the world of real estate syndications and unlock the path to generating passive income and building long-term wealth. 

 

[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

Are you thinking about investing in a real estate syndication but don’t know how to get started? 

In this 3-part beginner’s guide to investing in real estate syndications, we’ll walk you through what you need to know to start investing in real estate syndications.

In part 1 (this article), we cover the requirements for investing in a syndication, the types of real estate that are funded by syndications and how to find syndication opportunities.

In part 2, we’ll cover how to evaluate these opportunities.

In part 3, we will cover the steps for making your first syndication investment.

[Note: If you want to be notified about future syndication opportunities, CLICK HERE to join our list]

 

What is a real estate syndication?

A real estate syndication is when you pool money together from multiple investors to buy a real estate asset. These assets can range in price but typically syndications are used for more expensive properties because of the costs to set up a syndication. The common asset type for syndications is a multifamily property, which is a rental property with multiple units. There are many other types of real estate assets, and we cover these in more detail below.

 

Important terminology

This wouldn’t be a beginner’s guide if we didn’t help you grasp key terminology related to real estate syndications. Below are some of the common terms you’ll encounter as you learn more about investing in syndications. We’ll cover specific deal-related terminology in Part 2. 

General Partner (GP) or Deal Sponsor: The driving force behind a real estate syndication, the GP takes charge of identifying and acquiring properties, managing the investment process, and implementing a successful strategy to maximize returns. Another

Limited Partner (LP): As an investor in the syndication, the LP contributes capital to the project but typically plays a limited role in the decision-making process. This allows them to enjoy passive income generated by the investment.

Offering Memorandum (OM): A document provided to potential investors that outlines the details of the real estate syndication project, including the investment opportunity, property information, financial projections, and terms of the investment.

Accredited Investor: Covered in more detail below, but in brief, an accredited investor is an individual or entity that meets specific financial criteria set by securities regulations. Accredited investors are granted certain privileges and access to private investment opportunities, including real estate syndications, that are not available to non-accredited investors.

 

Requirements for investing in real estate syndications

Not everyone can invest in syndications. 

The Securities and Exchange Commission (SEC) has rules that dictate who can invest in a syndication and who cannot. 

Generally, you have to be an accredited investor to invest in a syndication.

According to SEC Rule 501 of Regulation D, an accredited investor is someone who has an:

“individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year” or “individual net worth, or joint net worth with that person’s spouse or spousal equivalent, exceeds $1,000,000”

In other words, you have to have high-income or a high net-worth to invest in syndications. 

It is possible to invest in a syndication if you’re NOT an accredited investor. This is through a specific type of syndication called a 506(b) offering. With a 506(b) offering, a deal sponsor can have up to 35 non-accredited investors invest in a deal. 

 

Types of real estate that are funded by syndications

Now you know who can invest in a syndication, let’s talk about the different types of real estate that are commonly funded by syndications. 

 

Multifamily

This group includes residential properties of all types. They can be smaller properties to apartment buildings with hundreds of units. They can be properties that need a lot of fixing up (also known as value-add properties), to luxury apartment buildings. They can range in class from A through D, with A class properties being luxury residences to D class properties with basic accommodations in higher crime areas.

 

Office buildings

These are properties that are leased to companies that need office space. They can consist of everything from a single family home that’s used as offices to large high-rise office buildings. Office buildings also range in class from A to C, with A-class office buildings being your premier office space to C-class, which provides basic, functional office space.

 

Retail

These properties consist of everything from single storefronts to larger complexes like strip centers and malls. Retail investments are sometimes split by whether they have an anchor-tenant or not. An anchor tenant is a brand that is either nationally or regionally recognized and will drive foot-traffic to the retail center with the other stores in the complex benefiting from the anchor tenant. 

 

Mobile home parks

These are plots of land that are used to house prefabricated homes that are…mobile! There are basic mobile home parks with little or no amenities like pools and playgrounds, to luxury ones with numerous amenities. The mobile homes in the park can be owned by the owner or tenants can bring in their own mobile homes.  

 

Self-storage facilities

You probably are familiar with self-storage facilities. These are spaces you can rent to store your stuff. They can range in size and quality. The nicer facilities will have security gates and will be climate controlled.

 

Hotels

There are a wide range of hotels ranging from luxury to budget. There are Nationally recognized brands to boutique hotels. 

 

Industrial

Industrial properties include land and buildings that are used for industrial purposes, such as manufacturing, storage and distribution, and research and development.

 

How to find syndication opportunities

Let’s wrap up Part 1 by discussing how to find syndication opportunities. 

For someone just starting out, it can feel pretty overwhelming. You just learned about the many types of real estate. But what about other considerations? What about location? Where should you start looking for opportunities? What about the minimum investment required? Where can you find an opportunity that fits your budget? 

In order to find opportunities, we think you should have a clear plan. Here are some suggested steps.

 

Step 1: Clearly define your goals

If you don’t know where you’re going, it will take longer to achieve your goals or worse you’ll never get there. 

So if you’re wanting to get started with syndications, start by setting a clear goal. Maybe set an amount you want to invest and then set a goal to either spread that amount into one or a few syndications. 

Why multiple? So you can diversify your investments. If you spread out your bets, you can potentially lower risk.

 

Step 2: Choose one type of real estate to start

Once you’ve set your goal, the next step is to choose where to start. We believe the key to this step is focus. By focusing on a real estate type, for example, multifamily, you can gain deeper knowledge and experience investing in that type of real estate. 

Focus is also critical for the next step (finding opportunities). By focusing, it will make it easier to find opportunities. For example, if you know you want to invest in multifamily, then you can start searching for conferences or networking events dedicated to multifamily investing. Without this focus, you might attend a general real estate conference and end up being even more confused and unfocused as before.

 

Step 3: Cast a wide net and find as many opportunities as possible

The next step is to start searching for opportunities. Now that you’re focused on a particular type of real estate, it’ll make your search really easy. The following are a few sources of opportunities:

In-person or virtual conferences: As mentioned above, you can easily search for multifamily conferences online. Many of the deal sponsors attend these events to look for passive investors like you! If you start searching for multifamily conferences, you’ll probably find that you start getting advertisements about multifamily opportunities. That’s just how online marketing works. Doesn’t mean you invest with any of these companies, it’s just part of casting a wide net.

Local real estate groups and in-person or virtual networking events: These are also easy to find online. You can join the group and then get notified about any networking opportunities. From there, you can search out deal sponsors. 

Profession-specific online forums: Another place to look is to drill down to your profession and find real estate forums. For example, we have a group called Semi-Retired Physicians, which is specifically for doctors of all types and Semi-Retired Professionals for other high-income professionals. These are places where you can potentially find deal sponsors and maybe even get some reviews about them.

Identify connectors: There are certain individuals who are natural connectors. They just seem to know everybody. They can be a source of deals themselves or they probably know many of the deal sponsors out there.

 

Generate deal flow and review hundreds of deals

So now that you’ve identified sponsors, the next step is to let them know that you’re looking.

If you want to be considered for as many opportunities as possible, one tip is to get to know the deal sponsor. Ideally you speak to them over the phone. The reason is, you’ll not only be considered for an exception if you don’t meet the minimum investment requirement, but also, you will have the opportunity to invest in the 506(b) type of syndication opportunity we described above. 

You won’t have to do much at this point except wait for the deal sponsors to send you deal. Don’t worry, once you get on their list, they’ll send you opportunities. 

What you’ll want to do at this step is to review all of them. As our mentor Keith Cunningham says, “you have to evaluate hundreds of deals before you can distinguish a good looking one from an ugly one.” 

In a future article, we’ll cover exactly how to review one of these deals and the things you should evaluate closely.

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

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Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

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