Real estate syndication: the good, the bad and the ugly

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
coalcracker
Posts: 780
Joined: Sat Feb 04, 2012 12:25 pm

Real estate syndication: the good, the bad and the ugly

Post by coalcracker »

My current retirement portfolio consists of a 3-fund, 70/30 index fund portfolio. I’m considering adding real estate for additional diversification, and one of the options that comes up often in my reading is real estate syndications. I would qualify as an accredited investor.

I’ve had a few threads here on syndications with a wide range of opinions. I’d love to hear personal experiences, along with the reasons you ultimately decided to diversify into syndications (or not).
JohnWild
Posts: 28
Joined: Mon Aug 03, 2015 9:22 am

Re: Real estate syndication: the good, the bad and the ugly

Post by JohnWild »

My two cents is that for the vast majority of investors, particularly those of the boglehead type, I don't think real estate syndications make a lot of sense.

To do it right, they require a lot of vetting the deals/sponsors. So way more work than index funds. If this is something you are willing to dedicate time to and understanding, then it may be for you. But for most, it just doesn't make sense. You can still do it, but I would argue when you do it without the work you are engaging in stock picking without the due diligence in a space that you can get taken advantage of.
WhatsIRR
Posts: 95
Joined: Sat Aug 11, 2018 1:52 pm

Re: Real estate syndication: the good, the bad and the ugly

Post by WhatsIRR »

I’m invested in four syndications with the same company (it was originally invite only, not sure what it is now but it’s not advertising on Instagram).

I like/understand their business model and they have been successful with their properties historically. They have not sold any of the properties I have invested in but have sold others that I have seen while I have been a member and they seem to have hit the pro forma that was presented. Their cash distributions have been as presented except for early in Covid. I get monthly property updates and cash flows and during covid it was weekly to bi weekly.

I appreciate the diversification out of the market and the properties deliver a nice cash on cash return which is important to me. All of the tax advantages are passed on so the income is presented against the depreciated losses. The other thing I like is that I can invest outside of the city/state that I live in to get some regional diversification.

When I get a proposal I’ll read through the packet and see if it makes sense to me, a couple time I’ve passed because I didn’t like the location or the upside seemed more limited. A couple times I was interested but didn’t move fast enough and the opportunity filled.

Currently it represents about 10% of my NW, I had a rough goal of keeping my taxable account and real estate investments at 50:50 but I’m not sure if I’ll hold hard to that.

I would be much more leary of public solicitations. I have met the principals behind the company I invest with in person and regularly email back and forth with them especially with questions on an offering. I usually get a response within an hour.

On big down side is there is no liquidity. The funds are tied up for the length of the hold. I would not invest any money you think you might want to get your hands on during the presented duration. The other is the minimum size of the investment, the company I work with starts at $75k.

I plan to continue to invest with them until I’m out of capital or feel like I have enough cash locked away and inaccessible.

Let me know if you have any specific questions
RJC
Posts: 1048
Joined: Fri Dec 14, 2018 1:40 pm

Re: Real estate syndication: the good, the bad and the ugly

Post by RJC »

Because focused real estate is never passive. REITs may be a better option if you just want to diversify.
WhatsIRR
Posts: 95
Joined: Sat Aug 11, 2018 1:52 pm

Re: Real estate syndication: the good, the bad and the ugly

Post by WhatsIRR »

RJC wrote: Wed Oct 13, 2021 7:48 pm Because focused real estate is never passive. REITs may be a better option if you just want to diversify.
My syndications are 100% passive after I make the decision to invest. I wire them the investment and they deposit my funds quarterly. My biggest time involvement is the 5 minutes to read the monthly emails.
JohnWild
Posts: 28
Joined: Mon Aug 03, 2015 9:22 am

Re: Real estate syndication: the good, the bad and the ugly

Post by JohnWild »

WhatsIRR wrote: Wed Oct 13, 2021 7:51 pm
RJC wrote: Wed Oct 13, 2021 7:48 pm Because focused real estate is never passive. REITs may be a better option if you just want to diversify.
My syndications are 100% passive after I make the decision to invest. I wire them the investment and they deposit my funds quarterly. My biggest time involvement is the 5 minutes to read the monthly emails.
It sounds like you are doing a good job keeping it as passive as possible, but I would just caution the original poster that you clearly are someone that understands/likes the business model. That doesn't happen overnight and if someone isn't willing to put in the time to do that they should stick to index funds in my humble opinion. With that being said, if you do want to get involved in it, the way you are doing it is one of the better ways to do it. Find a good sponsor (due diligence and comfort is key) and then look primarily at their deals. Things can still go wrong, but finding a good sponsor is a big part of the battle. I say this all as someone that has and is currently invested in real estate syndications.

WhatsIRR, what sponsor are you invested with if you don't mind me asking? Feel free to PM me if more comfortable. It sounds like you have had a good experience and identified a good sponsor.
curmudgeon
Posts: 2309
Joined: Thu Jun 20, 2013 11:00 pm

Re: Real estate syndication: the good, the bad and the ugly

Post by curmudgeon »

coalcracker wrote: Wed Oct 13, 2021 5:39 pm My current retirement portfolio consists of a 3-fund, 70/30 index fund portfolio. I’m considering adding real estate for additional diversification, and one of the options that comes up often in my reading is real estate syndications. I would qualify as an accredited investor.

I’ve had a few threads here on syndications with a wide range of opinions. I’d love to hear personal experiences, along with the reasons you ultimately decided to diversify into syndications (or not).
I haven't done it myself, sticking to direct RE. My parents did, and the original project turned out pretty much as planned. The challenge was that when that one wrapped up, the investors weren't very ready to face the tax hit, and so the group 1031 exchanged into other projects that didn't work out nearly as well. The other big pain was that taxes got a fair bit messier, and the K1s were always way late and somewhat unpredictable in how the tax situation worked out.
WhatsIRR
Posts: 95
Joined: Sat Aug 11, 2018 1:52 pm

Re: Real estate syndication: the good, the bad and the ugly

Post by WhatsIRR »

curmudgeon wrote: Thu Oct 14, 2021 12:02 am
coalcracker wrote: Wed Oct 13, 2021 5:39 pm My current retirement portfolio consists of a 3-fund, 70/30 index fund portfolio. I’m considering adding real estate for additional diversification, and one of the options that comes up often in my reading is real estate syndications. I would qualify as an accredited investor.

I’ve had a few threads here on syndications with a wide range of opinions. I’d love to hear personal experiences, along with the reasons you ultimately decided to diversify into syndications (or not).
I haven't done it myself, sticking to direct RE. My parents did, and the original project turned out pretty much as planned. The challenge was that when that one wrapped up, the investors weren't very ready to face the tax hit, and so the group 1031 exchanged into other projects that didn't work out nearly as well. The other big pain was that taxes got a fair bit messier, and the K1s were always way late and somewhat unpredictable in how the tax situation worked out.
These are both good points, the K1s usually come late in tax season and do add another layer to individual taxes. The only way to 1031 is if every investor in the project reinvest into the new project, as an individual you can’t take your profits and 1031 into a rental.
Post Reply