Why does real estate investing have a reputation for being high-risk? Real estate investing is actually one of the safest choices you can make.
It’s a savvier choice than the stock market, that’s for sure. Real estate investments have outperformed the stock market 2 to 1 since the year 2000. People who invest in real estate tend to see steady long-term financial rewards, even during economic downturns.
At Life Bridge Capital, we want to dispel the myth that real estate investing isn’t safe. It’s a safe and smart choice – if you do it right.
The Safety of Real Estate Syndication
One reason that some people question the safety of real estate investment is because they don’t completely understand how it works. For the average person, investing in properties can seem quite intimidating and time-consuming.
That’s why we recommend making your first real estate investment with a syndication sponsor. This is an investment expert with thorough knowledge of the real estate market who uses their experience and intellectual resources on behalf of investors like you. They find a lucrative project; you reap the benefits.
Although real estate syndication has been around for years, it has recently seen a surge in interest due to the popularity of its cousin, crowdfunding. Real estate syndication brings together a group of investors who are pooling their resources on a large, profitable property investment project.
This means that you, as the individual investor, don’t need to have extensive knowledge about real estate, your local market, or any risk factors involved. Your syndication sponsor does the heavy lifting while you focus on other things in your life, which makes this a form of passive investing.
Your Sponsor is Financially Invested in the Outcome
One of the biggest reasons real estate syndication is so safe is that your sponsor has personal stake in the outcome of the project. They have a motivation to find and invest in profitable properties, then make sure the dividends are flowing to keep their investors happy.
And while their investment is certainly professional, it’s somewhat personal too. The average sponsor contributes around 5% of the initial capital investment themselves.
Of course, this varies greatly depending on the size of the deal and the financial resources of the sponsor. As you can imagine, 5% is a huge contribution to a $10 million or $20 million project.
Feel free to ask a potential sponsor what level their contribution will be and draw your conclusions from there. This will help you gauge how invested they are in the project and how successful they may be at finding future projects that will also be mutually beneficial.
Syndication Can Bring a Bigger Payoff
As we mentioned earlier, real estate syndication is a way to bring multiple investors together and pool their money. This allows the group of investors to take on bigger and more profitable projects than they might otherwise be able to handle alone.
With real estate syndication, it’s possible for an individual investor to get in the mix for just a few thousand dollars. The average real estate syndication project nationwide is worth about $3 million.
But bigger projects bring bigger payoffs. At Life Bridge Capital, our typical minimum investment is $50,000 and our average project value is $25 million to $35 million.
Reap Modest But Reliable Returns
If you’re the kind of person who likes to put their money into fast, high-stakes bets, real estate syndication isn’t for you. This is a type of investment that takes a little patience but yields respectable and steady returns.
Preferred returns typically range from 5% to 10%, with an average of 8% nationwide. That’s far better than a savings account will ever deliver. You could even say it shows the value of using your savings to invest in real estate instead of letting it languish in a bank account.
Maybe you’ve always dreamed of owning property but haven’t known how to start. If that’s the case, we’d point out that this is a much better bargain than flipping a house or buying investment properties on your own.
This way, you don’t have to read the news for the latest numbers. You don’t have to tour properties, do repairs yourself, or deal with the headaches of permits and taxes. Instead, your sponsor and their contractors do all that.
And it’s more stress-free than being a landlord by a long shot. Why endure tenants’ demands and drama when you can be a passive real estate investor and still make plenty of money?
A Safe Investment in a Tough Economy
As we head into challenging financial times post-COVID-19, you might be worried about how real estate will fare. Will it still be a good investment? We have some very good news for you.
During tough economic times, struggling people need affordable properties more than ever before. For multifamily real estate investors, this means there’s an enormous need for exactly the kinds of projects you’re investing in. You’re doing something good for the economy and good for your fellow citizens.
Real estate syndication targets undervalued and under-marketed properties like apartments, condos, and mobile home communities. A talented sponsor adds significant value to the properties, then rents/sells them for your financial benefit. And at the same time, people who are in need of affordable housing get homes that fit within their budgets.
This is a big reason why real estate syndication continues to be a safe choice, even when the national or global economy is in a tough spot. In fact, some say real estate investments are recession-proof due to their ability to bounce back.
While no investment is truly recession-proof, real estate is a reliable asset class and has been one of the top wealth builders across the world, across economies, across centuries. If you’re looking for a safe way to invest in real estate, now’s the time.