If you’ve explored our site, you know we’re ardent advocates for real estate syndications. We champion the merits of these investments, encouraging individuals to consider the passive wealth-building potential they offer. However, we acknowledge that real estate investments, particularly syndications, are not a one-size-fits-all solution. In the spirit of transparency, let’s delve into the top four reasons why real estate syndication might not be the perfect choice for everyone:
1) Lack of Liquidity: Commitment for the Long Haul
Real estate syndication demands commitment. When you enter a syndication deal, you’re bound by the terms and projected hold time outlined in the agreement. Unlike more flexible investments such as stocks or mutual funds, your invested capital remains illiquid for the deal’s duration, typically ranging from 3 to 10 years. If the idea of locking away a significant sum, say $50,000, for an extended period makes you uncomfortable, real estate syndication might not align with your preferences.
Upon entering a syndication deal, you’re required to sign the Private Placement Memorandum (PPM), a comprehensive document specifying hold time, liquidity, and other crucial details. If the prospect of limited access to your invested funds for several years raises concerns, it’s wise to reconsider your investment choice.
2) High Minimum Investment: Not for the Faint of Wallet
Real estate syndications often come with a substantial minimum investment requirement. In our case, it’s $50,000 – a significant sum that could be allocated to various other financial goals. While the potential returns can be lucrative, it’s paramount to ensure this investment aligns seamlessly with your financial strategy.
Our advice? Exercise caution and refrain from investing $50,000 unless you’re unequivocally certain about committing this capital to real estate syndication. Moreover, if you have a slightly larger sum, like $51,000, in your savings account, think twice before earmarking $50,000 for a syndication deal. Ensuring a robust emergency fund, addressing short-term goals, and having additional funds for general life expenses are prudent considerations.
3) Learning a New Process: Passive Investment Dynamics
Real estate syndication introduces a paradigm shift in the investment process compared to traditional rental properties. While conventional real estate mimics Monopoly gameplay – acquiring, renting, and managing properties – syndications flip the script. Passive investors rarely engage in property visits, lack direct interactions with lenders or management teams, and remain detached from tenant relations.
Investing passively means entering the investment journey when the asset is on its way to closing. The allure of passive investing lies in its name – minimal day-to-day involvement, allowing investors to retain time freedom throughout the process. If the prospect of this hands-off approach feels alien or uncomfortable, real estate syndication might not be the right fit.
4) Surrendering Control: From Driver’s Seat to Passenger’s Perch
A fundamental distinction between passive investing and other approaches lies in the level of control over daily decisions concerning property, renovations, and tenants. Traditional real estate investments afford creative control, empowering investors in decisions like property enhancements, tenant screening, and determining the sale timeline.
In contrast, real estate syndication positions passive investors in the passenger seat, relinquishing the daily responsibilities that accompany property ownership. Trust in the sponsor team becomes paramount. If relinquishing control over these aspects feels challenging or unsatisfying, it’s a sign that real estate syndication might not align with your preferred level of involvement.
Conclusion: Honoring Individual Preferences
While syndicators laud the virtues of real estate syndications, no investment is flawless, and not every investment style suits everyone. If any of the outlined reasons resonate with you, perhaps passive investment in real estate syndications doesn’t align with your preferences – and that’s perfectly acceptable.
Empower yourself to make decisions that align with your unique situation, family needs, and financial objectives. Realize that the power to choose rests with you. Be honest about your comfort level and intuition. If real estate syndications don’t feel like the right fit based on the highlighted reasons, explore other investment avenues that resonate more closely with your investment philosophy. Your financial journey is a personal odyssey – choose a path that feels right for you.
