There are several investors looking forward to investing in the real estate business, especially in multifamily properties. Well, there are several great reasons behind why one should consider doing this. The foremost reason behind the same is that the prices of multifamily property have risen in the past few years and the reason behind the same is the availability of the property. The availability of this property is minimum and limited and thus the prices keep on rising for the same reason. Well, if you are a passive investor and are looking forward to investing in real estate then the best way to get started for the same is through syndication. You must be wondering why is that so, well a syndicate or a general party will form an entity that will allocate shares in the entity to individual investors based on the amount that each investor is investing. If you happen to invest with a syndicator, you will be able to enjoy the tax benefits, income, and potential appreciation without any kind of hard work. Just like any other kind of investment, there are risks with syndication but then again there are several ways that you can opt to stay ahead and away from the risks. We will have a look at the list later but you need to understand that due diligence is important and plays an important role even if you are investing in syndication.
You must be wondering the importance of due diligence in real estate investment. Well, it is considered important as it allows the buyer to assess the value of the business and to verify the information related to the business in order to determine and decide whether to make the purchase or not. This is why it is considered important and of great value. The process of due diligence remains the same when one is investing in syndication, the difference is that now you will be accompanied by the syndicator while conducting for yourself. Let us have a look at the list of risks that one might face while investing with syndication and the ways to avoid these risks.
You might lose your money Though the chances of losing your money are slim, it could happen. The more likely chances are that you might not get or earn the returns that were outlined by the syndicators. Well, the solution to the same is that you can diversify your investments among different markets as well as different syndicators. The reason behind the same is that if there happens to be a recession each and every market would be affected in a different way. Thus, by spreading your investments across several markets you will be able to minimize your overall risk. By making investments with several syndicators, you will have the chance to participate in several deals that have unique investment criteria. Limiting your investment to a single syndicator can keep you away from other opportunities that might be more advantageous to your investment goals. Again you need to make sure that you do your due diligence. Make sure that you enquire about how experienced they are while you are investing with syndication. Look whether they have managed to perform well and if you share the same appetite for risk as they have. Well, there are syndicators that are very conservative and while others are not. Make sure that you look for a syndicator that looks for a conservative approach. For instance, the best way to analyze and notice how conservative a syndicator is to analyze how they see the exit cap versus the in-place cap. It is an important factor to consider before looking for investing. Make sure that you always ask the syndicator what cap rate they purchase the property at and what they are expecting the exit cap rate to be. If you are conservative then you will be thinking and wanting to invest in a deal where the exit cap rate is higher than the in-place or the market cap rate.
Losing your passive investor protection The term passive investment refers to the investment where the investors do not get along with putting the deal together. Such investors do not have any knowledge about real estate. Well, that is considered to be the role of syndicator or lead investor. The only real areas that you should not be passive about are vetting the deal or the sponsor, and also doing the part of your due diligence on your property. The law will save you from bearing any kind of responsibility on managing the property. You personally won’t be sued for the same. The syndicator will only be the one at risk. However, you will lose the protection, if you happen to take an active role in looking or managing the asset in any way. Well, the solution to this can be that you refrain from the active roles.
Lack of transparency There is a reason why investors pay syndicators fees when investing. That is, so that they do not have to worry about any aspect of managing the property. Passive investment feels good where one is at ease and is comfortable. However, make sure that you feel comfortable with the person who is managing your money. If you do not maintain or they do not make any communication, you will not know what is going on with your investment and you will not know if it is going well or not. Well, the solution to this can be you should be comfortable with the type of communication you are being offered. For instance, get monthly reports and updates on your property. For help with tracking and getting updates on your property, you can seek help from Better Capital and get the best help on the same.
In a nutshell, by avoiding the biggest risks in syndications you will have peace of mind when you happen to invest your money and in a better state of conducting the due diligence. For more information, you can visit our site https://www.bettercapital.us/about and get the best help for your real estate investments.
