How to Find Real Estate Syndication Deals (& Understand Your Options)

Once you get wind of real estate syndications and you begin thinking about the possibility of investing passively in them, it’s natural to simultaneously have questions… lots of questions.

Investing in real estate is a big deal and you SHOULD have and ask ALL the questions. Furthermore, real estate syndications aren’t broadly popularized, so, not only will your friends probably not have any answers to your questions, but they likely will have no idea what you’re even talking about.

For this exact reason, it’s important you find a trusted, knowledgeable resource to get your questions answered and do plenty of your own research. In an attempt to make this easier on you, we’ve addressed 4 big questions today:

  1. What types of properties can I invest in using syndications?
  2. What risky downsides are there to syndications?
  3. Where and how do I find syndication deals?
  4. Can I invest in syndications online?

The answers to these 4 simple questions are going to clarify so much for you… we can feel it! Ready? Let’s dive in.

What are the different types of real estate syndications?

Real estate syndication deals are available on multifamily properties, self-storage, manufactured home parks, land development, hotels, student housing, warehouses, and more. Some real estate syndications are for ground-up construction and others are for buy-and-hold (i.e., buy an asset that’s already stabilized, and hold it for a number of years).

A great example of a value-add multifamily deal is an apartment community whose units haven’t been updated in ten years. The kitchens are all dated, the carpets are worn, and the landscaping needs some work.

By making those improvements, we can increase the rents, which increases the income of the property and thus, the overall value.

What are the risks of investing in real estate syndications?

You’re no dummy, you already know any type of investment is a risk. Syndications aren’t immune to risk either.

One of the biggest risks lies in the execution of the business plan. Before the deal, you’re wooed with glossy marketing packages and the sponsors will answer your questions with lofty ideals.

However, when the rubber meets the road, the sponsor team needs to be able to execute on the business plan in the face of unforeseen circumstances. Investing with sponsors who have a proven track record and who prioritize capital preservation helps ensure that they will protect your investments and do what they say they’re going to do.

Changing market and economic conditions are always a risk. No one can predict what market conditions will be like at the end of a project’s hold time.

This means, if the projected hold time is 5 years, check to make sure that the loan term is for at least that long, and ideally longer than 5 years, so there’s a buffer in case sponsors need to hold the property longer than intended.

At the end of the day, as a limited partner passive investor, you’re concerned with your personal liability. The good news is your liability in real estate syndication is limited. At worst, you could lose your original investment capital, but you could not lose more than that (e.g., you can’t lose your house).  This is a great benefit of the limited partner structure.   As a limited partner, you do not have to sign on any debt, which  means that although with any investment there is risk, you can feel comfortable knowing you are not personally liable for any losses or issues along the way.

Where can I find real estate syndication opportunities?

The only publicly advertised real estate syndication deals are for accredited investors only. So, how does a “normal person” find real estate syndication deals?

You can do a Google search, but how do you know that the opportunities that pop up are legitimate ones, put together by experienced teams with strong track records, who will safeguard your money over a period of several years?

You don’t.

The best way to find real estate syndication opportunities is to get out there and talk to people in the real estate syndication space. This community is quite small, and once you get connected, you’ll easily be able to find sponsors and real estate syndication opportunities that fit with your investing goals.

How do private real estate syndications compare to real estate crowdfunding sites?

Maybe one of your friends claims they invested in a syndication deal for just a few thousand bucks. This is because recently, real estate crowdfunding sites like RealtyMogul, RealtyShares, and Fundrise have helped make it possible for millions of people to invest passively in real estate.

Real estate crowdfunding sites can be a good place to find real estate syndication offerings. However, there are a few things you should keep in mind.

First, most of these platforms require that you be an accredited investor in order to invest in their real estate syndication offerings.

Some of these platforms do offer REITs (real estate investment trusts) as an alternative for non-accredited investors. Typically, you can invest in these REITs with a low minimum investment (you can invest in Fundrise’s eREIT for just $500).

Just be aware that REITS are not real estate syndications. Rather, it’s a fund, which is likely what your friend actually invested in.

When you invest in a REIT, you’re investing in a company that buys real estate; you don’t have direct ownership of the underlying asset yourself, like in a real estate syndication. You would likely still get decent returns, you would be investing in a bunch of assets rather than a single one, and you wouldn’t get the same tax benefits as with a real estate syndication.

Regardless, if you’re just starting out, you should definitely check out some real estate crowdfunding sites, to see what they’re all about.

In Conclusion

All in all, it’s important to understand the risks, the terminology, the options available, and how to find the deal that fits your goals and investing style best. Real estate syndications aren’t for everyone, but they can be a fabulous addition to anyone’s portfolio. Now that you know more about how to find and passively invest in real estate deals, that’s one more checkbox checked and one less barrier to entry. At this point, what are you waiting for?

Investing In A Real Estate Syndication: All The Details

Before you’re fully committed to and after you’ve become interested in a real estate syndication, you need to know several details about actually investing in these deals. The process of investing in a real estate syndication is very different than picking a stock or a mutual fund online. Furthermore, unlike typical investment properties, there are hold times, barriers to entry, and a whole set of expectations that you need to know about prior to committing to a deal.

As a smart investor, you’ve got to know exactly why you’re choosing a particular investment in addition to the required credentials, the process, what’s involved, and how long you should expect to wait until payout. Guess what? You’re in luck!

That’s precisely what you’re about to read!

How long does a real estate syndication last?

Unlike an online stock, ETF, or Mutual Fund that can be exchanged daily or more, real estate syndications come with required, projected hold times. While each real estate syndication is different, we typically see hold times of 5-7 years, sometimes longer.  For LeavenWealth, the “hold time” is indefinite (no plans to sell) and the “stabilization period” (time at which the property is refinanced and 100% of capital is returned to investor) is between 3 and 7 years.

Real estate syndication deals have to allow time for property renovations, management changes, occupancy rate increases, and even market conditions to adjust. This means that you should plan to invest your capital for 5-7 years (or the timeline stated on the investment summary & memorandum), because you will not be able to take your money out until the asset is sold.

Who can invest in real estate syndications?

Now you might be wondering if there’s any red tape.

Is just anyone allowed to invest in this sort of thing? It seems pretty exclusive.

Well, you’re kind of correct. A large majority of real estate syndications are open to accredited investors only, though some are also open to non-accredited, sophisticated investors (i.e., investors who can demonstrate that they understand real estate syndications and their risks).

In order to be considered an accredited investor, you must meet at least one of two requirements.

  1. You must have at least $1 million in net worth, not counting your primary home.
  2. You must make $200,000 per year as an individual, or $300,000 jointly with your spouse, have made this amount or more for each of the last two years, and intend to make this amount or more this year.

If you meet either one or both of these requirements, then you are an accredited investor.

If you’re not yet an accredited investor, there are still some real estate syndication opportunities out there for you. However, you may need to look a little harder for them. This is because the opportunities for non-accredited investors cannot be publicly advertised, hence the feeling of secrecy you’re getting.

What’s the process for investing in a real estate syndication?

So maybe you’re accredited, or maybe you’re not, but you’re really wondering HOW someone invests in these elusive real estate syndication deals you’re reading so much about.

Here are the basic steps for investing in a real estate syndication:

  1. The sponsor announces that the deal is open for funding, usually via email.
  2. You review the investment summary deck and decide to invest.
  3. You submit your soft reserve, telling the sponsor how much you’d like to invest.*
  4. The sponsor holds an investor webinar, where you can get more information and ask questions.
  5. The sponsor confirms your spot in the deal and sends you the PPM (private placement memorandum).
  6. After signing the PPM, you wire in your funds or send in a check.
  7. The sponsor confirms that your funds have been received.
  8. The sponsor notifies you once the deal closes and lets you know what to expect next.

 

*Real estate syndications are almost always filled on a first-come, first-served basis. Thus, sponsors use a soft reserve to help them determine who’s interested in investing.

By submitting a soft reserve, you are telling the sponsor you’re interested in the deal and want to invest X amount. The soft reserve does not guarantee you a spot in the deal, nor does it lock you in. You can always back out or change your mind later.

Pro tip: If you’re thinking about investing in a deal but aren’t sure whether you want to invest $50,000 or $100,000, go ahead and put in a soft reserve for $100,000. This holds your spot in the deal.

If you decide later that you only want to invest $50,000, you can easily decrease your investment amount. However, if you had put in a soft reserve for $50,000 and later wanted to increase it to $100,000, you might not be able to increase your soft reserve amount if the syndication is already over-subscribed.

What happens after I invest in a real estate syndication?

So, you’re sure you want to invest in a real estate syndication, you do your research, and you lock in a deal. Now what?

After you’ve sent in your funds for a real estate syndication deal, your active participation is done. Now you can sit back and wait for the cash flow to start rolling in.

Depending on the particular deal, you may receive either monthly or quarterly cash flow distributions, and they may start immediately, or not for a few months.

Regardless, you should start receiving monthly updates as soon as the deal closes. These monthly updates will include information on the latest occupancy and progress on the renovations.

Every quarter, you will receive a detailed financial report on the property, and every spring during tax season, you will receive a Schedule K-1 for your taxes, which will report your share of the income and losses for the property.

As your projected hold date approaches, the monthly information you receive may include information about a sale. Once the asset sells, you can expect your original investment capital to be returned, plus any percentage of profit due to you.

Now You’re In The Know…

At this point, you’ve gone from curious, to interested, to knowledgeable about passively investing in real estate syndication deals. All that’s left to do from here is to actually find a deal and get involved! You’re fully informed about who can invest, the hold time, the process, and what to expect. Plus, we’re here for any questions or guidance along the way.

Happy investing!

Which Makes More Money, Rental Properties Or Real Estate Syndications?

One question that comes up most often is, which investment provides a better return? People want to know if investing in real estate properties is more lucrative or if real estate syndications are truly the best choice.

Real estate syndications’ major benefit of being a true hands-off investment, saves investors from the stress of maintenance issues, tenant complaints, and dipping cashflow. That right there can make you feel like syndications are a better deal (who wouldn’t want to avoid that stress!?).

On the other hand, with rental properties, you have to do all the legwork. That includes finding a broker and a property manager and coordinating with lenders. So, in exchange for all that hard work, you’d expect better returns, right?

Thankfully, over time, I’ve developed a portfolio containing both types of investments, so I’m able to honestly answer this question.

Real Estate Syndication

First let’s review what a $50,000 real estate syndication deal would look like cashflow-wise, just so we have a comparable reference.

If I were to invest $50,000 into a real estate syndication with an 8% return, that equates about $333 per month in cash flow.

$50,000 x 8%= $4,000 / 12 months = $333

If I could make $333 per month with a 50K investment in a real estate syndication, then a real estate rental that requires sweat equity would need to provide me more than $333 each month in order to be worth it overall.

Rental Real Estate

Now, let’s have a look at a property owned by a peer of mine.   Here is her story:

A great example to work from is my four-plex in Alabama that cost $240,000 at the time of purchase. Each of the four units rent for between $600 – $700 a month. I put

$50,000 down and wound up with mortgage payments around $1,350 a month. If you add up taxes and insurance, our monthly obligation comes out to $1,731 a month.

The whole point of owning rental property is that the rent you earn is greater than the mortgage and bills you owe on the property. In other words, the rental needs to have some cash flow in order to work.

December 2018

On a month where all four units were occupied, except one didn’t pay, we had 3 rent payments come in for a total of $2,035 before expenses. Expenses for this example month included management fees, HVAC service fees, and utility fees which total

$660.

$2,035 – $660 = $1,375

$1,375 sounds great, right? If I owned the property free and clear, it would be great to pocket $1,375, but I have to pay the mortgage. Remember back when I said the mortgage plus taxes and insurance was $1,731?

This means for the month of December of 2018, I actually lost money on this rental property.

Almost nothing’s the same month-to-month, and there have GOT to be some good months. So. we need to examine a few more windows of time to really gain a clear picture.

November 2018

This was yet another month where there were four occupying tenants but only 3 rents being paid. November’s expenses included the regular management fees, utility fees, plus an electrical repair.

The total income minus expenses came out to $1,270, which, as you know, didn’t cover the mortgage payment. I was in the hole $461 that month.

October 2018

Fortunately in October, all four tenants paid rent, which brought in $2,590. The expenses were about the same as November’s (above) which brings our net operating income for October to $1,966.

After paying our mortgage, taxes, and insurance of $1,731 on that property, the cash flow was $235 beautiful, positive dollars (thank goodness!).

September 2018

If we go back one more month to September, we see another month where, thankfully, all tenants paid. In this month we had minimal maintenance issues so the income of

$2,688 resulted in $586 positive cashflow after all expenses and the mortgage payment.

$586 is fantastic. But remember, this is only one of four months that shows this much in profit.

Rental Property Review

My investment of $50,000 on a rental property yielded cashflow (rents paid minus property expenses, mortgage, taxes, and insurance) of $586 in September, $235 in October, -$461 in November, and -$356 in December. The overall result of those four months, 2 positive and 2 negatives, was a cash flow of just $4. You read that right.

Four.

Rental properties require ebbs and flows. Tenants come and go and maintenance expenses are unpredictable. If you’re really interested in consistent cash flow in exchange for minimal work, rental properties aren’t going to be your cup of tea.

Rental properties might be for you if you really want a hands-on investment and if you’re okay with having some tough months in exchange for those with positive

cashflow. You’ll just have to do everything in your power to ensure most of the months are positive to make it “worth it” long term.

So, Which is Better?

There’s no right answer for everyone. 

Rental real estate does have a potential for greater income – if the stars align and you have a fully occupied property with low maintenance costs and tenants that pay rent. There’s no such thing as a maintenance-free property though, and to boost rental rates, you’ll want to do some improvements here and there.

For a no-fuss investment with consistent cashflow, then a real estate syndication might be your best bet.

Real Estate Syndication Investing 101 – An Intro To Syndication Deals and How They Work

Many real estate investors “get their feet wet” through some form of residential real estate. Whether those initial investments are flips, standard rental homes, or even duplexes, that’s a great start. But we recently met someone who’d been in the real estate investing game for over 10 years and had never heard of a “real estate syndication” before.

Actually, that’s pretty common. Until somewhat recently, SEC regulations did not allow for real estate syndication opportunities to be publicly advertised. This made it so, you had to be part of the “inner circle” (i.e., you had to know someone who was doing a deal) in order to invest in one.

Luckily, the SEC now allows certain opportunities to be publicly advertised, which opens the gates for more people to learn about and invest this way.

But maybe you’re new to this term too and are wondering things like:

 

A Real Estate Syndication – What’s That?

Let’s start with the basics. The term syndication means pooling resources. A real estate syndication is when a group of people pool their funds and expertise together to invest in a real estate asset together. Instead of buying a bunch of small properties individually, the group of people come together and buy a larger asset together.

Let’s pretend you have $50,000 for investing, beyond other savings and retirement funds. You could invest it in an individual rental property, but that would also require time to find a property, negotiate the contract, do the inspections, run the numbers, get the loan, plus find the tenant and manage the property.

But it’s likely you don’t have the time or energy to deal with such an obligation. This is where most people assume real estate investing is too hard and too much work, so they stop there.

Real estate syndications are the alternative that allow you to still put your money into real estate, without having to do the work of finding or managing the property yourself. Instead, you can invest that $50,000 into a real estate syndication as a passive investor. So you contribute $50,000, maybe a friend has another $50,000 to invest, someone else puts in $100,000, and on and on.

By pooling resources, the group would now have enough to buy not just a rental property, but something bigger, like an apartment building, or two apartments buildings and a storage facility. As a passive investor, you don’t have to do any of the work managing the property. A lead syndicator or sponsor team does the day-to-day management (i.e., all the active work), and in return, they get a small share of the profits.

When done right, real estate syndications are a win-win for everyone involved.

How Does A Syndication Deal Work?

Now you’re interested in the “behind the scenes” details of a syndication to see how this all really shakes out.

First off, there are two main groups of people who come together to form a real estate syndication: the general partners and the limited partner passive investors.

The prior section mentioned a team that would take care of all day-to-day management (so you don’t have to!) in exchange for a small share of the profits. That syndication team is made up of general partners (GPs). They do all the legwork of finding and vetting the property and creating the business plan. Essentially, they do the work that

you would be doing as the owner and landlord of a rental property, just on a massive scale.

The limited partners (LPs) are the passive investors (others like you), who invest their money into the deal. The limited partners have no active responsibilities in managing the asset.

A real estate syndication can only work when general partners and limited partners come together. The general partners find a great deal and put together an efficient team to execute on the intended business plan. The limited partners invest their personal capital into the deal, which makes it possible to acquire the property and fund the renovations.

Together, the general partners and limited partners join an entity (usually an LLC), and that entity holds the underlying asset. Because the LLC is a pass-through entity, you get the tax benefits of direct ownership.

Once the deal closes, the general partners work closely with the property management team to improve the property according to the business plan. During this time, the limited partner investors receive regular and ongoing cash flow distribution checks (usually every quarter).

Once all the planned renovations are completed, and the business plan has been successful, the general partners can sell the property, return the limited partners’ capital, and split the profits.  At LeavenWealth, we like to complete a cash-out refinance of the property, which allows us to return the limited partners’ capital, and then remain owners of the property along with the Limited Partners while everyone splits ongoing profit.   That’s cash on cash return without any money into he deal!!!

Why Should You Invest In A Syndication?

Okay, now that you’ve got a decent understanding of how real estate syndications work, let’s talk about what’s in it for you. There are a number of reasons that passive investors decide to invest in real estate syndications.

Here are a few of the top reasons:

A real estate syndication is a nearly perfect way that a busy professional can invest in

large-scale, physical real estate assets, without the commitment of time or excessive mental energy, while also positively impacting the community and earning interest and tax benefits. This opportunity for passive income is sounding better and better.

An Example Real Estate Syndication:

Okay, so you’re interested, but you’re still like, “Is this real?” Here’s an example of what a real estate syndication deal would look like.

Let’s say that Jane and John are working together to find an apartment community in Dallas, Texas. Jane lives in Dallas, so she works with real estate brokers in the area to find a great property that meets their criteria. After looking at a bunch of properties, they find one, listed at $10 million.

John takes the lead on the underwriting (i.e., analyzing all the numbers to make sure that the deal will be profitable), and they determine that this property has a ton of potential.

Since Jane and John don’t have enough money to purchase the $10-million property themselves, they decide to put together a real estate syndication offering. They create the business plan and investment summary for prospective investors and work with a syndication attorney to structure the deal.

Then, they start looking for limited partner passive investors who want to invest money into the deal. Each passive investor invests a minimum of $50,000 until they have enough to cover the down payment, as well as the cost of the renovations.

Once the deal closes, Jane works closely with the property management team to improve the property and get the renovations done on budget and on schedule.

During this time, Jane and John send out monthly updates, as well as quarterly cash flow  distribution checks, to their passive investors.

When the renovations are complete, Jane and John determine that it’s a good time to refinance the property after just 3 years. Each passive investor receives their original capital plus any money needed to ensure he or she has met the preferred return (often a 7% return).  Thereafter, the cash flow is split 70/30 or 50/50 between the LPs and GPs…. While after that successful refinance neither party has any money into the deal!

At this point, each passive investor has received quarterly cashflow checks during the renovation and stabilization period, plus their initial capital investment back once the property refinanced, and will continue to stay on as owners holding the property for legacy wealth and infinite cash flow!

In Conclusion

Now that you know the ins-and-outs of a real estate syndication, including what it is, how it works, how little effort on your part it requires, and how simple it could be to begin receiving your first passive income check, definitely don’t wait 10 years to make a move.

We always recommend you research until you’re comfortable and that not all your eggs are invested in one basket, so to speak. Now that you’re armed with this knowledge about real estate syndications though, you’re miles ahead of most other investors. Keep at it.

Real Estate Syndications: Are They Right For You? Here’s How To Tell

You’ve been devouring all the information possible and have nearly become enamored with the power of passively investing in real estate syndications. How could you not?

The ability to invest in real, physical assets without being a landlord, getting a share of the majority returns, and reaping amazing tax benefits is a pretty shockingly sweet deal. Plus, the diversification opportunities with minimal legwork while making an impact on local communities is pretty attractive.

Even though these traits seem impossible to pass up, real estate syndications aren’t for everyone. Each investor is in a different stage of life, has a different level of risk tolerance, and maintains different goals.

Before investing in a real estate syndication, see if one or more of the below describes you and your current situation.

 

#1 You Have More Than $50K of “Play” Money

While there are some real estate investment platforms that will accept smaller investment amounts, most private real estate syndications begin at a minimum investment of $50,000.

Ensure you have the minimum investment of $50,000, plus your standard emergency fund, plus any other savings for your life’s aspirations. Think about it – a new car, fluffy retirement savings, this year’s vacation to Cabo, and college education funds, to list a few.

Of course, there are lots of contingencies in place in syndications, but if you aren’t prepared to lose your investment in its entirety and be okay financially, then syndications may not be your jam…yet. You might want to head back to the drawing board with some serious savings plans and re-visit real estate syndications in a year or two.

On the other hand, if you have all the potential cash-needing scenarios covered with stacked savings, by all means, invest with confidence!

#2 You’re Okay Having Someone Else Take the Reins

If you’re short on time, but heavy on cash, and want someone else (a professional team) to manage the property while you reap the rewards, you’ve found the right investment.

Passive investing in real estate syndications is much less hands-on than your typical residential real estate rental property, in fact, you’ll probably never see the property in person and won’t be involved in any day-to-day decisions.

You don’t have to be in contact with the broker, monitor the property manager, or receive and decipher between contractors’ bids. Instead, you get a few emails, sign a legal doc or two, and carry on with your life while the checks show up. As a passive investor, you’re a passenger on a plane ride. So, sit back and have a cocktail.

#3 You’re Looking for a Long-Term Investment

Maybe you’ve done your research and know not to look for some get-rich-quick scheme, but rather, are interested in a steady long-term approach to wealth. Unlike stocks or something you can flip in the two-year range, real estate syndications typically have a hold period for five or more years.

If you’re more of a set it and forget it type investor, and can plan for your investment capital to be unavailable for long periods of time, passively investing in real estate syndications may be your new obsession.

#4 Sharing Returns In Exchange for Less Work is Attractive to You

Fix-and-flips and standard rental property approaches to investing allow 100% of the profits in your pocket. Mostly because they are smaller deals, require plenty of sweat-equity, and often have only one party (you) financing and managing the deal.

Multifamily real estate syndications are completely different as there could be hundreds of individuals involved, thus some profit sharing. Usually, the passive investors get the larger portion of a 70/30 or 80/20 split, with the general partners getting the smaller percentage.

Group investments like this take a “team” or collaboration mentality versus a competitive mindset. The general partners are actively managing the property, making decisions toward renovations, and handling marketing and financial reporting. So, it only makes sense that they

are rewarded for their efforts. If profit sharing and the concept of “a rising tide lifts all boats” makes sense to you, you’re in the right place.

#5 You Don’t Need the Money for a While

It’s possible you’re in a season of life where your kids’ vehicle purchases or college decisions are either several years in front of or behind you, that you’re in a home that doesn’t need a massive kitchen renovation, or just that you have spent some time planning well, establishing savings accounts, and minding your expenses.

If this is the case, you also likely met the criteria in #1, and you are going to be okay having your money “locked-up” for a bit. You’ve worked hard to save, budget, and build a little nest egg, and you’re just looking for somewhere to park it for a few years with the possibility of earning some interest.

Not needing your savings for the foreseeable future is a fantastic feeling, and if this describes you well, investing passively in a real estate syndication might pique your interest even more after realizing how well-positioned you are for this type of investment opportunity.

Recap

You’ll love being able to invest your money in real estate without the hassles of being a landlord all while having the chance to invest with different sponsors in different markets and different asset classes. Plus, the tax benefits (and sometimes even the returns) from passive investing can surpass those from personal rental properties.

But, being a passive investor isn’t for everyone. So, if you…

…then investing passively in real estate syndications might be the best fit for you.

The beauty of real estate investing is that it’s so incredibly diverse. Perhaps some of the above doesn’t describe you and you want to roll up your sleeves and do the work yourself first to learn the ropes. Or perhaps you’re looking for a more liquid or a shorter-term investment. That’s okay.

There are so many opportunities out there to invest in great projects and impact local communities. Commercial real estate syndications are just one avenue, but if you meet a few of the criteria above, you might have found your match.

5 Reasons Real Estate Is The Most Effective And Lucrative Investment

The vast majority of people spend their lives working full-time jobs to earn a “steady” paycheck. Meanwhile, the wealthy have somehow unlocked the secret to working less while making their money work for them.

So what is it that the wealthy know that the rest of us don’t?

One of the biggest secrets that the wealthy tap into is the incredible power of real estate. Real estate has the ability to generate passive income and provide a path toward building wealth. Every dollar invested in real estate works for you in these five ways:

 

#1 – Cash Flow

The greatest benefit of investing in real estate is passive cash flow. When an asset is purchased and rent is collected from tenants, the remaining value after property expenses are paid is your cash flow.

If you put down $50,000 to buy a rental for $200,000, your mortgage payment would be about

$1,000 per month. Now let’s say that you’re able to rent the unit out for $2,000 per month.

Upon receipt of the $2,000 rent payment each month, you pay the $1,000 mortgage, use $700 for expenses and reserves, and keep the remaining $300 as passive cash flow (i.e., money in your pocket).

#2 – Leverage

In the example we just discussed, you hypothetically bought a $200,000 rental without paying

$200,000 in cash. Instead, you put in $50,000 as a down payment, and the bank contributed the remaining $150,000.

The cash flow you earn is based on the full $200,000 asset, not the $50,000 portion. This is the magic of leverage.

Even though the bank contributed 75% of the money, all you have to do is pay the mortgage and interest, and any excess cash flow or profit is all yours. No need to share it with the bank.

#3 – Equity

As you receive monthly rental checks and use them to pay the mortgage, your equity in the property increases. In this way, the rental property generates income to pay for itself.

Imagine buying a laptop that generated money to pay for its own wifi!

Once your rental builds significant equity, you may have the opportunity to use a home equity line of credit (HELOC), which allows you to borrow against your existing asset. HELOC funds can be invested into another asset, which allows you to make your money work even harder for you.

#4 – Appreciation

Real estate values tend to rise over time, which means your money can also work for you in the form of appreciation.

For example, consider a property purchased for $580,000. In time, the duplex appreciates to

$750,000, at which point it is sold. The profit at the sale, or $170,000, will have been generated via appreciation, plus any additional equity that you had built through paying down the mortgage.

That being said, while appreciation is nice, it’s not guaranteed, which is why you should always invest for cash flow first and foremost, with appreciation as the icing on the cake.

#5 – Tax Benefits

When you invest in real estate, you get the benefits of depreciation and mortgage interest deductions, as well as a whole host of write-offs for a number of other related expenses.

Investors often show losses on paper, while actually making money through cash flow. The losses play a big part in helping to offset other income, which is a major reason real estate is so lucrative.

Further, when investing in commercial real estate syndications, you have the opportunity to take advantage of cost segregation and accelerated depreciation, further increasing your tax benefits.

Advantages of Investing in Real Estate

With each dollar invested in real estate, you have the opportunity to take advantage of cash flow, leverage, equity, appreciation, and tax benefits. This is true regardless of whether you invest in single-family rentals, large syndications, or anything in between.

How to Scale to 700 Units in Multifamily Investing with Collin Schwartz and Chris Pomerleau

How To Review A New Investment Opportunity In Under 5 Minutes

I’m sure you’ve been there, that shopping trip where you browse the entire store, finding things you’ve just “gotta have” and once you get to the checkout, you’re faced with the realization that not only did you buy what you didn’t need, but you didn’t get anything you actually needed.

Your cart filled up with pretty stuff, you blew the budget, and you don’t even know how it happened. Meanwhile, you lost hours of precious time and didn’t really get anything done. This is the same aimless frustration you might experience when you first start looking into real estate syndication deals.

It’s possible you’ll begin to receive a seemingly endless string of opportunity emails, each with a summary that could be 50 pages long! Although this is exciting, without knowing specific tactics, your goals, and a strategy for sifting through these, that aimlessness might turn into overwhelm. Ain’t nobody got time for that!

Right here, right now, you’re going to learn how to put a stop to that meandering and decide within 5 minutes if a deal is right for you.

The First Glance

New deal alert emails are like a surprise gift. You had no idea it was coming, but you can’t wait to rip it open and see what’s inside.

The emails you receive about new deals are full of valuable information, but a few highlights you’ll want to pick out at first glance are the type of asset, market, hold time, minimum investment, and funding deadline.

If you open the email simply aiming to extract only these pieces of information, you’ve already avoided unnecessary information overload. All you’re trying to do at this point is to find out if these data points match your investing goals. If not, there’s no reason to waste any further time or energy. As an example:

You receive a deal alert and pull these details:

With this simple, at-a-glance information, you’re able to immediately see that although this is the perfect asset class and market you wanted, you are aiming for a longer hold or an emerging market. Or perhaps you already know you need more than 3 weeks to access your capital.

PASS.

Another deal will pop up shortly and you’ll get opportunity after opportunity to practice this little exercise. At some point, the details will all be exactly what you’ve been waiting for and you’ll get to dig deeper.

The Numbers

Once you’ve decided a deal’s initial look aligns with your goals, it’s time to dig further into the investment summary and explore.

As an example, you might learn that this particular deal is offering:

But what does all that mean for you and your $50,000?

In time, you’ll get lightning-quick at this and know right away what all of that means, but right now, let’s pretend this is your first go.

Preferred Return & Cash-on-Cash Return

Preferred return, a common structure for deals, means that the first percentage (in this case, 8%) of returns go 100% to the limited partner passive investors. Sponsors don’t receive any returns until the property earns more than that.

This means that if you invested 50K and everything went according to plan, you should see 8% of $50,000 or $4,000 this year, which breaks down to $333 per month.

Since cash-on-cash returns are projected at 9%, that tells you that this deal is projected to pay out above the 8% preferred return at some point.

Average Annual Return & IRR

My last two concerns when initially examining a new deal alert are the average annual return and the IRR.

The average annual return tells you what the average earnings are, averaged over the hold time.

In the example above, we discovered that your $50,000 is expected to double to $100,000 over the next 5 years. That total return is 100% of your original investment, and when divided over the 5 year hold period, we see that your average annual return is 20%.

The IRR (internal rate of return) is the average annual return (in this example 20%) and adjusts for the time delay. Since the majority of your earnings are expected later, at the sale, and time has cost associated with it, the IRR takes that into account. An IRR of 14% or more is a great target.

The Decision

After this 5 minute analysis of these data points, you should be able to tell is this deal is a potential yes or no for you. This isn’t a final decision and it doesn’t mean you’re putting in a wire transfer this afternoon, but it does mean you can decide to spend more time reading into the investment summary or not, and you can make that decision with confidence.

If these numbers align with your investing goals, you can go ahead and let the sponsor know you’re interested by requesting the full investment summary or submitting a soft reserve.

Conclusion

New investment deal opportunities can be exciting, but if you get lost in the weeds too quickly, they can become overwhelming too.

Whether you’ve had funds ready for weeks or are still in limbo getting them rolled over into a self-directed IRA, it’s imperative to know exactly what you’re looking for so you can jump on the perfect deal and minimize wasted time.

With the data points, you learned to look at in this post, you’ll be able to identify if a deal is even worth your time and energy right off the bat.

Partnerships in Real Estate with Chris Pomerleau and Collin Schwartz