By Patrick Grimes
One of the best things about real estate investing is that it has a lower entry barrier than many other kinds of investments. If someone manages to gather enough down payment money and can get a loan, they can control a property. So, you might be wondering, if it’s so easy to get into real estate investing, why would anyone choose to forego purchasing a property directly and instead join a syndication?
As you probably already know, a syndicate allows multiple investors to join forces, form an entity, and pool their money to purchase real estate. Syndicating enables this group to acquire larger properties than a single investor can do on their own.
Syndication investors can purchase large commercial assets such as self-storage facilities, large apartment complexes, student housing, or residential facilities.
Why put money into a syndication?
- It’s a way to put an end to “tenants, toilets, and trash.” As I mentioned in a previous article, “How to Shift From Investing In Single Family Homes to Apartment Investing,” many investors start their careers buying single family rental homes. While there is nothing wrong with doing so, it doesn’t take long for many of these folks to realize that they HATE dealing with the “3 T’s”: Tenants, toilets, and trash. Real estate investors love the cash flow, tax advantages, and leverage aspects of real estate. They just aren’t crazy about having to fish golf balls and baby dolls out of toilets at 3 AM.
- Leverage. When you join a group of like-minded investors who have combined their resources to purchase a larger commercial property, you achieve leverage by accessing OPM (Other peoples’ money). You can also leverage your syndicator’s talent, experience, and education. This kind of power takes years off your learning curve and helps you avoid rookie mistakes in investing.
- Greater tax advantages. As I said before, when you put money into a syndication, it’s usually so you can buy larger commercial properties. These larger properties also have additional tax benefits that can add up to more cash in your pockets.
- Diversification. Another excellent reason for choosing syndication over direct ownership is that you can achieve greater levels of diversification. When you invest smaller amounts of cash in different asset classes in various locations versus one lump sum in a single property, you achieve portfolio diversification as well as asset class and geographic diversification.
- Reduction of liability. Most upper-class and wealthy people are aware that there is a one in ten chance that they will be sued at some point in their lives. It makes sense, then, that successful people are usually less concerned with chasing after returns than they are with protecting the wealth they already have. The need to preserve wealth is especially vital for those headed toward retirement who won’t have time to make up any lost money. Unfortunately, a person who owns an apartment building directly can be a target for all sorts of lawsuits. Judgments have the potential to wipe out all of their wealth. Risks arising from lawsuits are significantly reduced when you participate in a syndication. If a syndication entity is involved in a suit, most investors will typically not have to pay more than the amount they originally invested with that syndicate.
- Too hard to find and vet deals on your own. Many people invest in syndications because they get frustrated with the time and energy it takes to find deals and underwrite those deals thoroughly.
- Even if they have the time and money to do it themselves, many would prefer to let a syndicator deal with the hassles of securing deals.
Syndications solve various problems that keep both experienced and inexperienced investors from putting money into commercial properties. Syndications can help reduce risk exposure, increase diversification, and leverage others’ money, talents, and skills.
When you carefully choose a syndicator with the unique tools and skillsets to ensure success, you can become a passive investor and spend your precious time doing the things you love ding instead of stressing over your portfolio.
If you’d like to learn more reasons savvy people everywhere are putting money into commercial multifamily syndications, read my free report, “The Smart Investor’s Guide to Passive Investing.” Get your copy now by clicking HERE.
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Patrick Grimes is a design engineer and CEO and Founder of Invest on Main Street, LLC. His real estate holdings include general partner ownership of a multifamily and single-family real estate portfolio valued over $146M, including 1,950+ units across the southeastern United States and Texas.
He has been active in real estate investment since 2007, including purchasing land and distressed assets, renovating them, and stabilizing them for long-term cash flow. To scale his real estate portfolio, Patrick moved from single-family to multifamily investing and founded Invest on Main Street, a private equity firm specializing in multifamily value-add projects in emerging markets.