My First Real Estate Syndication Deal!
How I bought a 300 unit apartment complex as my FIRST investment in real estate: https://www.coursenvy.com/real-estate-syndication
I don’t know about you, but I was the stereotypical guy that was SUPER inspired about investing in real estate after reading the book, Rich Dad Poor Dad ® by Robert Kiyosaki. This isn’t a bad thing and I 100% suggest you give that book a read if you haven’t already… but personally, after reading his book, I spent over a decade in “analysis paralysis” when it came to real estate investing. I love the inspiration Robert gave me to pursue investing in real estate, but my engineering mind went to work quickly on dissecting every option real estate had to offer. I read hundreds more real estate books… I listened to thousands of hours of real estate podcasts like BiggerPockets… I researched every type of real estate investment opportunity available on earth (SERIOUSLY! Note investing, to single family homes, to mobile home parks, to flips, to REITs, to NNN, etc. etc.) …and it all ended with ZERO assets 10 years later!
I don’t want this to happen to you too!
That is why I created a course on the topic of Real Estate Syndication. After going down EVERY rabbit hole real estate has to offer, I believe I have discovered the most lucrative and safest investment option available.
Real Estate Syndication enables you to purchase properties that the average person could NEVER afford! For example, my first real estate investment was on the passive investor side (the LP side—limited partner) of a real estate syndication that purchased a 300 unit apartment complex! During my 10 years of research (and no action), I was fortunately putting away every extra penny I could into my savings account. It was in this 10th year anniversary of reading Rich Dad Poor Dad ® that I finally choose real estate syndication as my investment vehicle and a syndicate team with an amazing resume to invest in! I invested $50,000 to be a passive investor in a syndicate partnership. The syndicate raised the entire down payment for this 300 unit apartment complex from passive investors like myself, then the syndicate management team (the GP side—general partner) secured a 5-year bank loan and purchased the apartment complex. Over those 5 years I received an annual preferred return of 8% (yes… $50,000 x 8% = $4,000 per year for doing nothing) while the syndicate management team renovated the apartment complex. Oh, did I mention I got the same benefits of personally owning the real estate as I could claim real estate depreciation each year on my taxes (the wins kept coming)! When year 5 rolled around, the property was completely renovated and the rents had all been increased FORCING appreciation into the property. When I say “forcing appreciation” I mean it literally… while single family home owners watch their home values go up and down with the market, commercial properties (like apartment complexes) are truly like a business… you have X amount of rooms and X quality of a building/neighborhood bringing in X rent. By renovating the property, my syndicate management team forced the value of the property to increase because the renovations equaled higher rent prices and higher rent prices equaled higher price per unit value when it came time to sell the property. In year 5, the team sold the apartment complex and passed a portion of the appreciation on to their investors (me!)
So what were my final numbers on my first deal? In 5 years, I made a 100% gain on my investment! Yes, that is an average return of 20% per year, plus I got to write-off a good chunk of that income with depreciation! Now I am not guaranteeing you will see these same results. This business requires hard work, dedication, time, and risk… just like any real estate investment. You have to do your own due diligence. This took me TEN YEARS of research before I was confident in investing my own hard-earned money in real estate! But with this course, I hope to streamline your timeline to investing in Real Estate Syndications! Now that you know a little about me, let’s rewind a bit in order to teach you the ins and outs of real estate syndication.
Syndication involves the same elements as any good investment plus the addition of the syndicate vehicle. The start of any syndication is a soundly conceived investment. Good sense, careful preparation, diligent investigation, conservative underwriting, and a little luck are the elements of syndication.
By pooling money, investors can purchase properties which would normally be out of their reach. Investors also use syndicates to purchase large properties and limit liability and exposure. A syndicate can be as simple as two investors buying a single property or as complex as a group of domestic and foreign investors purchasing the Rockefeller Center!
Syndicates offer economy of scale to an investor. Let's say you have $100,000 to invest and you have decided to put it into real estate. One option would be to find a property that costs $100,000 and purchase it for cash. This is all well and good, however, you are not taking advantage of one of the best features of investing in real estate, which is leverage. Okay, so say you decide to buy an investment property using leverage. Most lenders now require 25% to 50% down payment on investment properties. If we use 33% for our example and you put $100,000 as a down payment, you can purchase a property for $300,000. These examples are an over simplification, but you get the idea. Now, if you find 9 friends who also have $100,000 to invest and you use leverage you would have $3,000,000 worth of purchasing power ($100,000 x 10 = $1,000,000 as a 33% down payment, therefore with leverage you could buy a $3,000,000 property). So let’s review… if you are purchasing units which cost $100,000 per unit, you could buy one unit with your cash. You could buy three units with leverage on your own. Or with a group of 10 investors in a syndicate, you could buy 30 units!
In this syndication scenario, you own one-tenth of 30 units which is still 3 units, however, your expenses per unit decrease with the more units you have. The amount you pay for management, insurance, maintenance, and almost every expense associated with a property is reduced the bigger the property you purchase (remember economies of scale), which in turn means a higher return on your investment dollar! A real estate syndicate is also one of the few ways to invest in real estate as a truly passive investment. As I mentioned in my first syndicate investment, I wasn’t on the syndicate management team… I wasn’t collecting rent or unclogging toilets. Real Estate Syndication provides a TRUE passive income stream!
The most important thing for you to consider if you do decide to invest in a real estate syndication is… who is the Syndicator and Syndicate Management Team? My first syndicate investment not only included me researching the property, but also the syndicator and their resume/success record of past syndicated property investments. Some may disagree and say the offering (the property) is the most important. However, the offering is brought by the syndicator, so the knowledge, expertise, and experience of the syndicator are essential to a successful syndicate.
A great syndicator is an individual who strives to satisfy the investor's desires while mitigating their fears concerning investing in real estate. He/she has the skills to find worthwhile projects and do an in-depth analysis (underwriting) of the current and future potential of the property. The syndicator should NEVER guarantee or overstate projected returns. I prefer CONSERVATIVE underwriting that the syndicator can only over perform on with future higher returns! They should present the facts as both pros and cons. You want the good, the bad, and the ugly of the project. The syndicator should present their opinion of why this particular investment is a good one and how it can be made an even better one (i.e. forcing appreciation via renovation). They should demonstrate the ability to use proven models that can help you to raise your level of achievement dramatically while avoiding many known stumbling blocks. Your syndicator should be someone you would want to include in your inner circle. Someone who you feel truly cares about your success.
My goal with this course is to open people’s eyes to this amazing niche in real estate investing! We are dedicated to ongoing education in the space of real estate syndication. We hope to influence every reader to THINK BIG, avoid the analysis paralysis trap we fell in, and take advantage of the power of pooling funds to invest in bigger, more stable real estate syndications!