This is part three of a series on real estate syndication investing (though it has a different title than the other two parts).
In case you missed them, you’ll want to read How to Get Started Investing in Real Estate Syndications, Part 1 and How to Get Started Investing in Real Estate Syndications, Part 2 for my friend, Jeff’s, great summary of real estate syndication investing.
With that said, let’s get into how I got involved in real estate syndication investing…
Learning from the Millionaire Money Mentors
It all started with meeting Annie Dickerson in the Millionaire Money Mentors forums.
Annie is the co-founder of Goodegg Investors, a real estate syndication company, and she agreed to do our first Ask Me Anything session last September.
Previously I wasn’t really aware of the ins and outs of real estate syndication. I only thought there were big, faceless, corporate companies offering these opportunities in the form of crowdfunding sites. After my experience with peer-to-peer lending, I wanted none of that.
But Annie’s responses (both the content and her manner) made me interested in finding out more. She educated us all and explained that there are lots of opportunities for accredited investors (more on this in a moment) to invest with smaller companies who you can interact with, know, vet, and become comfortable with before investing.
She got me very interested about the concept of real estate syndication investing as another source of passive income.
So I made the next logical step in the process — I started educating myself…
Real Estate Syndication Education
After the AMA I chatted with Annie a bit via email. She sent me some links to review as well as a copy of her book, Investing for Good (which I read in a couple days).
I supplemented this with online reading to get a broader perspective on the subject.
But the most beneficial part of my education came from the Millionaire Money Mentors forums. There were several real estate syndication investors in there, and they took a lot of time to answer multiple questions for me and others.
In addition, I had a couple private forum conversations (via direct message) with two very experienced real estate syndication experts. These interactions saved me a lot of time and energy plus pointed me in the right direction on my investing journey — something they had to learn by trial and error over many years.
Networking for Success
From there, I contacted several syndicators/General Partners (based on recommendations from forums members) including:
These four all have pretty much the same on-boarding process which I will detail below.
FYI, all but Goodegg are actual investors in properties. From what I can tell, Goodegg is more of a marketing entity that comes alongside others (like Passive Investing, as we’ll see in a moment) to help them market and fund their offerings.
The Process
If you want to be on “the list” to receive offerings from each of the General Partners (GP) above, you need to follow a process as follows:
- Contact them and ask to be on their list. This could be via email or on their website’s contact page (I did both).
- Set up a call with them. I think they want to make sure you’re legit and not some yahoo. So you have to talk to them before anything else happens. This is actually to your benefit as well since you can use the call to see if they employ philosophies and strategies you support.
- Assuming all goes well on the call, you get added to the list to receive/review deals.
Now that I was on the lists, I was ready for some action.
Here’s how I’ve seen a couple deals come through now, so I believe it’s a rather general process:
- The GP sends an email to their list giving a very general deal overview. At this point, potential investors can make a “soft reserve” which basically holds you a spot to make a potential investment. You tell them how much you’d like to invest and what class of investment if that’s offered. I have generally seen two classes, one that’s simply an interest payment for X years and another that’s a lower interest payment for X years PLUS part of the upside when the property re-sells in 5-7 years.
- Once you make a soft reserve, you are sent a detailed investor packet to review (generally a few days later). If you want more information, you can call them. In addition, many GPs also offer a webinar a week or so after this point to explain the investment in detail.
- Next comes the hard reserve. At this point you need to confirm if you’re in or out. If you’re out, the process ends here. If you’re in, it continues…
- Once you commit, you are sent a formal document to sign. Imagine a complex legal document created by a high-powered lawyer and you’ll have a good idea of what it looks like. It basically says you are investing $X in X property with the estimated payouts as included in the document. You sign this electronically and it’s sent back to the GP.
- Next you have to confirm you are an accredited investor.
Here’s the law on accredited investors:
Under the federal securities laws, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The federal securities laws provide companies with a number of exemptions. For some of the exemptions, such as Rule 506 of Regulation D, a company may sell its securities to what are known as accredited investors. The term accredited investor is defined in Rule 501 of Regulation D.
And here’s the definition of an accredited investor:
An accredited investor, in the context of a natural person, includes anyone who:
- earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
There are other categories of accredited investors, including the following, which may be relevant to you:
- any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, or
- any entity in which all of the equity owners are accredited investors.
- In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.
Some companies will take your word that you’re an accredited investor and some won’t. More on that below.
- When this is completed, you have to send them the funds. You can do so by check, wire, etc. — the standard options.
- Once that happens, you get a formal letter of your investment, you wait for the property to close, and the investment begins according to the terms set in the agreement.
Given those, here’s the tale I have to tell…
My Process
I contacted Goodegg first, completed some preliminary info, and set up a call (which was two weeks down the road since the time choices didn’t really work with my schedule).
A week or so later, I contacted the other three companies.
As my call was approaching with Goodegg, I scratched my eye and had to go to the eye doctor (it was nothing but I wanted it to be checked out). So I canceled my call with them.
A couple days later I was sent a deal through Goodegg for an investment offered by Passive Investing. This was interesting in a couple ways: 1. I guess I was on the list even though I hadn’t done a call (not sure if this is “ok” or if I simply fell through the cracks) and 2. two of my contacts were partnering on the same deal.
I put in a soft reserve for $50k. No harm in holding a spot, right? It committed me to nothing, so I still had 100% flexibility at this point.
I was sent the info, reviewed it, and watched the video. It seemed like a decent enough offer (7% per year plus part of the upside gain when it sold in 7 years), but I had nothing to compare it against.
But I decided to proceed anyway for several reasons:
- I had $50k sitting around and earning nothing (it was actually losing value as it sat)
- I wanted to learn the ropes of real estate syndication investing (and there’s no better way than to jump in)
- Two of my recommended companies were involved. That’s better than even just one of them, right? 😉
So I committed in the hard reserve round.
Then I signed the papers (electronically) and got verified online as an accredited investor. They gave me two options for being verified as an accredited investor: I could either get a letter from my CPA or use an online service like VerifyInvestor.com. I did the latter (I had to send them credit reports and a Vanguard statement) and was certified as an accredited investor into January 2021.
Finally, I sent them a check. They received my money and at the time of this writing (early December), we’re waiting for the deal to close.
Other Companies
While all this was happening, I was also talking to the three other companies noted above (I never did reschedule my call with Goodegg.)
They asked me questions and I asked them some.
I liked them all and they liked me, so I’m on the list with all of them now.
I did receive two other deal options in November. One was for a storage facility with Spartan Investment Group (storage facilities are their specialties). They weren’t paying anything the first couple years of the deal and since I’m looking at this as a passive income opportunity, I decided to pass.
The second was with Life Bridge Capital and was an apartment building in Colorado Springs, my home market. I had another $50k to invest and the deal looked good (even better than my first one — 8% annual interest payments plus upside on the sale of the property in 5 years), so I jumped in.
Their signing process was much easier and they took my word for the fact that I was an accredited investor.
As of this writing the property is set to close in December.
Note that this is a VERY GENERAL overview of what I know and what I’ve done so far. I’m still very far from being an expert here.
How I Decide to Invest
Similar to purchasing dividend stocks or buying real estate, each investor has his or her own process for evaluating a syndication deal and deciding to proceed or not.
Here are the main factors I look at:
- General Partner — As Jeff said in the previous posts, who you are doing business with is as important as the details of the deal (maybe more so). After talking to all the groups above, I feel very comfortable with them and trust that they 1) know what they are doing and 2) are good people. Of course, time will tell whether or not I’m right.
- Strategy — I want to know what the GP’s plans are for the property. I want to feel it’s a reasonable strategy and one I can believe in. For instance, buying a complex that was last updated 15 years ago, remodeling the units, and raising the rents is a good strategy IMO (it’s what I did with my places) and one I can support. If it’s something else, I will evaluate those on a case-by-case basis.
- Conservative projections — I like to see a lot of margin for safety. For example, I like a low occupancy level (like 50%) to be required for the deal to still be above water. I also like to see regular and reasonable growth projections, not something like 15% growth needed per year to make things work. I also prefer shorter deals to longer ones (five years is better than seven for me).
- Health of the market — Of course you are investing in the market of the property as much as the property itself. I like to see growth in jobs, population, rent, and so on. I also like any other intangibles that could be potential positives (like being next to a major company’s headquarters that’s set to be built in 2-3 years.)
There are a few other things I might look at, but these are the major ones.
If you’re an experienced real estate syndication investor, let me know your thoughts on these as well as the criteria you use to evaluate deals.
My Thoughts on Investing
There are a few more things about real estate syndications I want to point out, especially to those who might be considering investing this way.
My situation is unique and whether or not these are right for you will vary based on your unique goals, situation, and so forth.
Some of my thoughts:
- The money I am investing here is completely AT RISK and ILLIQUID. I would probably never have invested like this earlier in my investing career though others have/do. It depends on the risks you want to take and your goals and I’m not a big fan of either large risk or illiquidity. So before you invest this way, know it’s on the upper end of the risk scale. There’s a reason they want accredited investors for these deals.
- In addition, there’s no control. At least with my own properties, I’m driving the ship. With these investments I am a fly on the wall and along for the ride, which makes these even less desirable.
- Those said, I had cash on the sideline earning nothing. I was losing money to inflation having it in “high interest” accounts. That’s a known loss, so it effectively reduces the risk a bit.
- In addition, the amount I have invested is meaningless in the grand scheme of things. If I lost all $100k I’ve invested so far, it would have zero impact on my lifestyle, future, etc. I would not lose a minute of sleep over it. (Not that I want to lose it, but it wouldn’t hurt to do so.)
- My main goal is to get more/new passive income at decent return rates and this fits nicely into that goal. If your goals are different, this may not work as well for you.
- I am planning on reducing risk in a few ways. I will be diversifying by general partner, area of the country, and type of real estate (apartments, storage units, etc.) In addition I will ladder my investments, jumping in every several months or so. That way I’ll create a cycle where (eventually) I’ll always have one deal coming up to close and will use the proceeds from it to either cash out or reinvest into a new deal.
In the end, I’m not sure how much I’ll put into real estate syndications. I’ll play it by ear for now, but will likely do at last a couple more deals, so my minimum will be $200k or so. Time will tell.
That’s the series covering real estate syndication investing as well as what I’ve done personally with it. Any questions or comments?
Thank you for the walk through and details. You have demystified this for me. As a property developer, my husband finds the deals but also does the contracting and even some physical labor related to remodeling and/or building office buildings and private residences. As he ages and the physical work becomes less doable, it sounds like passive investing could allow him to stay in the game.
I appreciate you doing this analysis and walking us through, step by step, on your real estate syndication investing journey.
Similar to your thoughts, I would want to see conservative estimates rather than inflated estimates and never achieve those targets. Better to underpromise and over deliver.
Since I’m still early in my investing career, I prefer to maintain liquidity, which is why I have not yet dabbled in real estate syndication investing, but am planning to do so at some point, once I feel like my investments in the stock markets have become sufficient.
Thank you for sharing your thoughts!
Fiona
Seems risky for an 8% return. How much is “part of the upside when it sells?”
I didn’t list it since who knows what it will be, but the median estimate is that it would raise the annual return to 15%.
M121: Most of these deals have an Equity Multiple of 1.75-2x which, as a former and still current Vanguard Index fund investor, I have yet to be able to duplicate those types of returns in the market.
The equity multiple is basically your total return divided by your total investment.
Some examples from here https://cadre.com/insights/how-to-use-equity-multiple-to-evaluate-real-estate-investments/
Equity Multiple = Total Distributions / Total Invested Capital
Example 1: Calculate the equity multiple of an investment based on the following assumptions:
1. Assume an investor purchases a property for $100,000
2. Assume the property is sold for $200,000
In this case, the deal delivers a 2x equity multiple. If the investor only receives $150,000 back, the deal delivers a 1.5x equity multiple.
Example 2: In a more realistic scenario, we’ll calculate equity multiple based on the following assumptions:
1. Assume an investor purchases a property for $100,000
2. Assume that property pays $7,000 a year in net operating income
3. Assume the investor sells the property for $165,000 after six years
In this case, the equity multiple calculation would be $207,000 divided by the initial purchase price of $100,000, or a 2.07x equity multiple.
The EM can then be equated to an annual return based on the time frame the investment was held.
Great article for understanding the mechanics of this type of investing. I started my syndication journey this time last year and currently have investments in an apartment in a sub market in TX and closing on a fund that specializes in double and triple net lease properties this month.
My initial experience has been similar to yours thus far regarding finding and interviewing different syndicators. Luckily I work with a guy that had previously invested with the GP I ended up partnering with so that gave me more confidence as his experience had been positive over multiple investments.
I agree about the positives and negatives. This is totally passive which fits a lot of needs for me in that I am a full time employee, husband, and father which leaves me little time to mange my own real estate deals. Downside is the long term illiquidity, lack of control and inherent risk of the investment. With that said I only look at properties in markets that have steady or growing population and where job growth is happening so rental increase over time will be all but a guarantee improving the NOI and value of the property for an eventual refi or exit. I highly recommend studying and understanding the impact of increased NOI to the value of the asset to really understand why this may be an investment vehicle worth considering.
I do also own a single family rental that cash flows nicely each month. I make all the decisions on that deal, get all the cash flow and appreciation, but I also get the occasional call about the water heater, AC, etc. and have to manage the lease and renewal, so that really is the trade off in looking at different types of RE investments.
Great summary of the process and opportunities. Syndicates and similar platforms seem really hot right now. Have you seen a methodology & data source that effectively prices these opportunities. The ideas that come to mind are quantity of new construction, vacancies, rental price direction, etc. Going with a syndicate seems more akin to buying an actively managed mutual fund. Besides picking a good management team, you need to get the sector and geography right. With so many options, how do you evaluate?
In the MMM, there are several of us now looking at these deals, so we will see many points of view, thoughts, etc. to evaluate a wide range of deals. Then each individual can pick out what they feel works for them best.
Without something like that, you’d need to do the work on your own. I believe some people focus on specific qualities (location, type of RE, etc.) but I’m not sure as I’m new at this too.
I’ve started investing in syndications in mid-2020, and now have 6 total invested, and about 15% of my investable assets in these. I agree with your criteria for investing, and would also add that I think it’s important to really go through the cost estimates, and learn where they are budgeting things. I know the real estate space well, and a lot of deals make or break with accurate cost estimation. Easy to miss on those, so I go through the cost estimates and recent actual costs to make sure they make sense. It’s tough on your first deal, but once you’ve looked at a few, it becomes a little easier.
I think the markets are really important. I’m concentrated in apartment redos in FL and TX, in hot commuter areas, and I think those are really strong growth opportunities the next five years in addition to the passive income play.
ESI:
Regarding your process: “Set up a call with them. I think they want to make sure you’re legit and not some yahoo. So you have to talk to them before anything else happens. This is actually to your benefit as well since you can use the call to see if they employ philosophies and strategies you support.”
Depending on if the deal is a 506 B or 506 C https://www.debtfreedr.com/506b-vs-506c/, the phone call is required by the SEC.
If someone sells securities under the 506(b) exception, here are the general guidelines:
General solicitation or advertising of the securities is prohibited
Allowed to sell to an unlimited number of accredited investors (current accredited investor requirements are a $200,000 annual income individually ($300,000 jointly) or a $1 million net worth (individually or jointly) and up to 35 non-accredited (but “sophisticated”) investors
Must provide the non-accredited investors with disclosure documents, including an audit of the fund’s balance sheet
Issuer may rely on investor self-certification
Issuer must have a substantive, pre-existing relationship with investors
The major differences between the 506(b) and 506(c) are:
Solicitation is prohibited for 506(b) but permitted for 506(c)
Non-accredited investors may invest in 506(b) but not 506(c)
Self-certification of investor status is permitted for 506(b) but not 506(c)
You must have a substantive, pre-existing relationship for 506(b) but not 506(c)
So basically if you’re investing in a 506 B, the sponsor MUST have some type of relationship with you BEFORE they can offer you access to their deal.
If you see a deal advertised online such as on FB, etc., then it’s a 506c offering. If it were me, I’d STILL would want to talk with the sponsor plus get multiple recommendations from previous clients BEFORE investing with anyone.
Is it possible to invest in these with funds from an IRA?
From an AMA session with a syndicator in the MMM forums:
“Yes IRAs can be used to invest in these type of investments through a self-directed retirement account. About 25% of our equity in each investment comes from these types of accounts.”
Hi Ray,
I invested in a syndication in 2008 with an IRA $80,000. The sponsor would only allow the IRA investors to earn interest only, we were not able to participate with ownership%. This had to do with the UBIT (unrelated business taxable income) We earned 10% (this was simple interest) in hind site I would have asked for accrued interest. We held the investment for 6 years. The other investors earned a 18% return.
The syndications require no work from you, the groups that put these deals together often have a track record of returns. I would hate to be involved in a hotel or retail now.
In comparison, we invested $156k in a multifamily apartment building we controlled using our self directed IRA in 2013. We own this today and it’s net equity is $1.5M value less loans. If I sold today my IRR would be 24% I would net $1.5M for a $156k initial investment, not bad. Currently my cash on cash return is 23% We currently are doing in-kind distributions yearly to remove our IRA from this investment.
Interesting post. I hope I dont come accross as a troll, but I am trying to better understand the value proposition of this approach to investing. Some thoughts:
Although you seem to have entered into a partnership where you own part of the property, you are not in control. So seems like partnering with someone you trust is key. How do you do that in a reliable way?
A promise to receive a 15% return I assume is not assured. When I hear that high a figure I start thinking “Ponzi scheme”. Sounds too good to be true.
The general partner is using you as a bank. However, instead of the GP having to go through an approval process for you to loan the money, they are making YOU go through the approval process to loan THEM the money. They are also making YOU feel special because you will be on “The List”. Again, red flags all over…
This may be legit and legal, but looks fishy to me, especially when you are the one being asked to jump through hoops when it should be the GP that should be jumping to show they are good at managing. You have the money, you dont have to prove you are an accredited investor, you would have already given them your money. ( legally you do, but factually proving to someone that you can loan them money is weird).
When you review the deail, do you have opportunity to discuss in detail with the GP? I have been brought deals in the past and I have always had significant questions that required meetings to discuss to understand the proposal.
One more thing, the GP has to be taking an extra cut correct? I assume a finders fee and a yearly management fee? Would be nice to understand that piece as well. and I would imagine its not insignificant.
Looking forward to your future reports. Sincerely hope it works out!
I don’t think you’re a troll but I’m also not sure you’re really “trying to better understand the value proposition of this approach to investing.”
Why do I say that? Someone with an open mind and trying to learn doesn’t start with “Ponzi scheme” and “too good to be true” as well as include “fishy”, etc. Just color me skeptical.
So I’m not going to put in the effort to address these questions when I don’t think you really want to honestly consider them.
Besides, I’m not trying to persuade anyone that this is great or not great. I’m telling you what I’m doing. I’m presenting information. You can like it or not. And if you don’t that’s your choice.
Many people don’t like other things I’ve gotten into like buying a business, dividend stocks, direct ownership of real estate, and many more. But all these work together for me as part of an overall plan. And now I’m adding real estate syndication to that plan. And I feel I’m doing it in a way to meet my objectives (more income with growth potential) while also spreading out risk.
I would say these things however:
1. Read the previous two posts in this series including the comments. Some of these questions have already been addressed.
2. If you want to Google for about three seconds you will see that real estate syndication deals are a real thing, they are valid, and many advanced investors invest in them. Are there bad people in these deals? Yes. Are there bad people on Wall Street and pushing stocks? Yes.
Said another way, just because you have never heard of something or aren’t familiar with it doesn’t mean it’s “bad” and just because you are familiar with something doesn’t mean it’s “good.”
3. There’s really no difference IMO between these and private loans EXCEPT you are getting both the depreciation write-offs and a chance to earn some of the upside.
4. If you want control, it’s better for you to buy your own real estate directly. That has it’s own plusses and minuses as you probably know. In addition, don’t buy stocks because you certainly don’t have control over the company, their decisions, the market as a whole, and on and on.
5. Regarding #4, you better have a whole boatload of money to buy 200-unit complexes over multiple states. If you have less than a boatload (or want to spread out your risk and ownership), syndications are built for that.
I could go on, but you probably get the point.
And as I said, it’s risky (just like private loans, just like dividend stocks, just like buying a business, etc.) so it has to fit into your overall plans, which it does for me.
I appreciate the response. You state “Said another way, just because you have never heard of something or aren’t familiar with it doesn’t mean it’s “bad” and just because you are familiar with something doesn’t mean it’s “good.”…”
You are right about posting my response about this article with my “shields up”. Unfortunately I have been burned before by opportunities that seemed very attractive and when I read your article I went to that mental state. The main area of concern for me is when we are offered opportunities to make a good return but the way the opportunity is presented puts the effort to prove you are worthy on you and not the other party. Maybe this is part of my misunderstanding. I need to read up more to better understand this approach. I will read future updates with interest and will continue reading up on the subject.
Two general questions on the downside risk:
1. What are the rules for the end of the deal? For example your first investment, they will sell at the seven year mark. Can they sell before that? If the real estate market is at 2008 levels can they hold it longer? If they sell at a loss, do you have downside risk from your $50k initial investment?
2. Are there any provisions or penalties if they are unable to meet the annual return payments?
I don’t think there are standard answers to this. Each deal has it’s own “rules” which is in the offer package.
So the answer is, “You’ll need to read the offer package.”
Part of the benefit of Real Estate is the outsized annual returns when a property is mortgaged (20%+) the drawback in the liquidity. That’s a trade off
The Syndicators I have met all have Preferred Returns <10% and they want a 30% – 50% promote fee.
If you could share some Sponsors that you use that have been good I would appreciate it.
Are you talking to me? If so, I shared the two I’ve partnered with so far.
Sorry Yes I was asking if you found any with fair terms.
I keep looking, but l am doing a bad job of finding them.
The ones I’ve spoken to keep offering low preferred returns and back end promote fees that a really high.
Look at the two I’m working with…give them a call.
IMO, your return is what matters — the total amount you make.
What the syndicator makes is not relevant as long as you get your money. FYI, I addressed this question in the comments on one of the two previous posts about real estate syndication.
Thank you for publishing this information. We have had excellent luck with our hard money loans receiving about a 10% rate of return over the last decade. We do not loan on what we do not want to own and try to stay below a 70% loan to value ratio. We had a few late payments during Covid but all loans are current now. We currently have 20 loans outstanding on mostly first trust deeds with a few seconds. We just invested in 5 loans with Equity Multiple, LLC, a broker I have been watching for a couple of years in New York, similar to what you describe here where we get an equity position and 7 to 9% rate of return and several additions points when the property is sold.
We have cash as well as self directed IRA money in these loans and we derived most of our retirement income from these until recently when we took crazy profits from our stocks and my wife’s online financial business literally exploded with the Covid lockdowns. Life is good 😀. These are wonderful investment vehicles so thank you again for educating ESI students.
@ESI – I’m so glad our paths crossed and that you decided to invest in our most recent deal. I know there’s a lot of skepticism out there regarding real estate investments, and particularly syndications, so I’m glad we could get a lot of this information out into the open.
And I’ll tell you – I was completely skeptical before I got into passive real estate investing as well. As a busy mom of 2 boys, the last thing I wanted was an investment that would be risky or cause more headaches.
It hasn’t all been roses, but I can tell you that, in the 3+ years I’ve spent researching and networking within the world of real estate syndications, I’ve discovered some incredible general partner teams – good honest people who genuinely care about the communities and their investors – and those are the people I personally invest with.
You made a good point toward the end of your article that when you invest in a real estate syndication, you don’t have any control over the investment. While this may seem like a downside, for me (as a busy mom) this was a huge plus.
My husband and I have invested in multiple rental properties in multiple markets over the years, and some have been smooth and easy, while others have been nonstop trouble.
When we started investing in syndications, it was a huge comfort and benefit to us to know that we did NOT have to personally manage the properties, and that professional teams with strong track records would be managing the investments on our behalf. That way, we could spend more time focusing on carpools, soccer games, and other family time.
Regarding your question about whether you’d “fallen through the cracks” of our system with the investor call, good question! As Jeff mentioned in a previous comment, there are 2 types of 506 offerings – 506(b), which requires that we have an established relationship with you first, and 506(c), for which a prior relationship is not required.
The deal that you invested in was a 506(c) offering, which means that it CAN be publicly advertised, but only accredited investors can invest in the deal. With 506(c) deals, you must also certify that you are an accredited investor through either the CPA letter or the Verify My Investor process, which you touch on in the article. (With a 506(b) deal, you would self-certify as to whether you’re accredited or not).
Overall, I can tell how much you genuinely care about your readers and your community, to ensure they have a clear, transparent, and honest account of what TRULY goes on behind the scenes. Thank you for sharing your experience!
How are these investments taxed?.When you get a K1,do you have to file for each state where the property is located?
Thanks for the information.
I’m not sure since I haven’t had income yet, but this is what I found on Google:
https://www.sundincpa.com/crowdfunding-real-estate-state-tax-implications/
FYI, I do have to file and pay taxes in Michigan where I own my rental properties.
Short answer – yes. You will receive K-1s and will have to file state tax returns for each state you earned income.
Thank you for the informative article. I am already looking forward to next year’s follow-up.
What did you mean by two of your “contacts” and/or “recommended companies” were partnering/involved (in your first example)?
Investment #1:
“A couple days later I was sent a deal through Goodegg for an investment offered by Passive Investing. This was interesting in a couple ways: 1. I guess I was on the list even though I hadn’t done a call (not sure if this is “ok” or if I simply fell through the cracks) and 2. two of my contacts were partnering on the same deal.”
…
“Finally, I sent them a check. They received my money and at the time of this writing (early December), we’re waiting for the deal to close.”
Investment #2:
“The second was with Life Bridge Capital and was an apartment building in Colorado Springs, my home market. I had another $50k to invest and the deal looked good (even better than my first one — 8% annual interest payments plus upside on the sale of the property in 5 years), so I jumped in.
Their signing process was much easier and they took my word for the fact that I was an accredited investor.”
Chris: I am in two deals now. Syndication deals are risky just like buying stocks and bonds. You can lose everything, but highly unlikely if you did due diligence. Many GP want to ask you to re-invest with them in future. Also, make sure that the GP also has skin in the game so they have reasons for the syndication deal to succeed also. Deals do not necessarily have an absolute time frame. Some may exit early if everyone will win. Some may exit later if selling would create a loss. I am in still in one syndication for 7+ years, but I have my initial investment returned to me so I am not experiencing opportunity loss. My biggest concern is whether I am paying too much in fees for managemnent. I can never get a good answer on what is “correct” amount, but returns of 1.5 to 2X is worth it for me for a 3-5 year investment.
How would these compare to something like Fundraise?
How would what compare?
Investing with a company like Fundraise seems very similar to a real estate syndicate in many ways, without all the hurdles. I was just wondering if you had considered them, and the advantages/disadvantags between the two. I have been considering Fundrise for passive real estate exposure without the volatility of publicly traded REITs.
Autocorrect!!
*Fundrise
I don’t know much about Fundrise, but it looks like it’s an eREIT, which is certainly different than a real estate syndication.
Here are a couple articles I found on the topic of Fundrise versus real estate syndication:
https://financialresidency.com/real-estate-crowdfunding-platforms/
https://www.biggerpockets.com/forums/432/topics/698805-fundrise-vs-investing-in-syndications-directly
Learning as much as I can about syndications and real estate funds currently and trying not to become a victim of analysis paralysis.
What are your thoughts on real estate funds instead of syndications as a starting point to reduce risk and diversify with multiple properties?
Do funds potentially complicate things with too many out of state K1s come tax time?
Appreciate this 3 part series!
If you mean a fund run by a syndicator with multiple properties in it, I think that can be a good idea.
I’m considering one myself.
yes exactly. thanks for your reply. I’m specifically looking at the DLP Housing fund and DLP Lending fund. looks like white coat investor is working with this group as well.
would love to see a comparison post from you between these types of funds versus syndications.
appreciate your content!
I probably won’t do one as I write about what I’m doing/interested in, which is what this post is about. Haha.
Questions like these are meant more for the Millionaire Money Mentors forums.
I see from your 5-year review you are up to 8 syndicated deals this year.
Do you have any feedback on working with these groups? Is there anything you’ve learned over this time you wish you would have known starting out investing in RE syndications?
Thanks!
Way too early to have any sort of data or opinions…
Could you provide an update on your experiences thus far?
I provide updates in my retirement updates, so see one of those for details.