Top 10 Rookie Real Estate Syndication Mistakes

Are you thinking about investing in real estate by joining a syndication? If so, there are some common pitfalls that can erode your financial success. 

Here are 10 important ways you can avoid making rookie mistakes when you’re new to real estate syndication.

Mistake #1: Active Investing Instead of Passive Investing

First, make sure you come into real estate syndication with the right expectations. You don’t need to be extremely hands-on with your investment in your daily life. Allow your skilled syndicator to work their magic on your behalf.

Real estate syndication is a form of passive investing where the syndicator handles the day-to-day details and you, as the investor, are freed up to focus on other things. If you’re contacting the syndicator daily, you’re missing the point of passive investing.

Mistake #2: Not Vetting Your Syndicator

Research your syndicator and ensure they have a solid portfolio of past projects. Ask for references and get an idea of their reputation. This is the best way to ensure the two of you are a good match.

Mistake #3: Thinking Too Small

Some people prefer to think small. Others think big. Which type are you? If you have a modest amount of money to invest but want to be part of something big, you’re a good fit for real estate syndication.

Syndication allows you to invest in bigger projects than you’d be able to tackle alone. By joining other like-minded investors, you can pursue large projects like revamping distressed multifamily housing.

Mistake #4: Not Reading the Agreement

Always read the contract thoroughly and understand the investment terms and conditions. You might see terms like capital stack, liability, preferred returns, voting rights, and exit strategy. Ask what they mean.

Just like you, the syndicator wants a fair deal with no surprises. Get clarity up front and the deal will go more smoothly for everyone.

Mistake #5: Focusing on the Short Term

Real estate syndication is a much longer-term strategy than many other types of investments. This is not like the stock market. You will not see results in one day or even one month in many cases, so don’t get obsessed with the short term.

Instead, focus on the bigger picture and talk to your syndicator about a realistic timeframe. Look at actual investment summaries for these types of projects. It’s common for a project to include 5 to 7 years’ worth of projections for investor returns.

Mistake #6: Assuming You Need Real Estate Knowledge

Good news: You don’t need any real estate knowledge to join a real estate syndicate. In fact, that’s exactly why syndication exists.

A talented and trustworthy syndicator understands that the investors rely upon their intellectual capital for smart investments. That’s why they put a massive effort into making good choices and keeping their investor group updated on each project’s success.

Mistake #7: Not Meeting the Requirements

You’ll need to be a certain type of investor to join most syndication groups. But don’t let this scare you off. Talk to the syndicator about what it takes to join.

The minimum investment is usually $50,000. Ideally, the investors should be accredited or sophisticated, as defined by the U.S. Securities and Exchange Commission (SEC).

Mistake #8: Misunderstanding Value-Adding

If you’re not familiar with the idea of value-adding, here’s a quick summary. Value-adding involves identifying undervalued/undermarketed properties, investing in them, adding value, then selling or renting them to bring investor returns.

Value is added through activities like remodeling, installing new features, adding amenities, making cosmetic and aesthetic changes, targeting new audiences, and deploying fresh marketing approaches. Your syndicator handles all of this.

Prepare yourself for the idea that undervalued properties may need a significant period of value-adding before they bring returns. There will be a time when money goes into the project, followed by a much longer timeframe where money flows back out to the investors in the form of returns.

Mistake #9: Not Taking Advantage of Tax Strategies

Real estate syndication comes with significant tax advantages you should use to your benefit. Although we won’t go into it all here, you can ask a financial advisor for the details or download our Guide to Passively Investing in Commercial Real Estate for more explanation.

Mistake #10: Waiting Too Long

Curious about real estate syndication? Don’t wait too long to invest. Every day you aren’t investing is a missed opportunity to make money. As the ancient proverb says, “The best time to plant a tree was 20 years ago. The second-best time is now.” 

Life Bridge Capital is here to help you seize the day while avoiding rookie mistakes. For more information, contact us to talk about your investment future.

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