Are Real Estate Syndications Just As Good As They Appear?

by | Feb 24, 2023 | Investing Advice

Is REI too good to be true? Before investing in real estate syndications, it’s natural to wonder about hidden risks and what goes on behind the scenes. This shows that you’re being thoughtful and conducting due diligence.

 

What Are The Pros & Cons of Real Estate Syndications?

Real estate syndications’ advantages and disadvantages depend on your investment goals, financial position, and timeframe.

 

Pros:

  • No active responsibilities
  • set it and forget it
  • passive income.

Cons:

  • No control
  • locked in long-term
  • profits are split among many investors

 

What Factors Contribute to Real Estate Syndications Not Being Suitable for All Investors?

Real estate syndications may not be suitable for everyone since not everyone has easily accessible cash of $50,000 or more, and some may not be well-informed or trust a complex deal with multiple moving parts. Additionally, timing may also be a consideration.


Life Events

One should also consider life events that may pose financial challenges such as weddings, adoptions, graduations, or college expenses. Such events could deter someone from investing $50,000 or more in a real estate syndication for a long period of time. Depending on one’s financial situation and the timing of such life events, it may not be the right time to invest in real estate syndications, regardless of the state of the market.


Accreditation

Currently, becoming an accredited investor is a significant obstacle. Accredited investors have the ability to invest in almost any opportunity. To become accredited, you must have a net worth exceeding $1 million (excluding your primary residence) or earn an annual income of $200,000 ($300,000 combined income) for at least two years and plan to maintain that level of income this year. However, even if you are not yet an accredited investor, you can still invest in real estate syndications, although such opportunities may be more difficult to locate since they cannot be publicly advertised.

 

How Trusting Are You?

Passive investing in real estate syndications demands significant trust in the sponsor team’s decision-making, hiring, and renovation choices. If you tend to be a control freak, this investment may not suit you. However, if you prefer a laid-back approach and enjoy receiving passive income, then read on.

 

What Are the Ways to Lose Money When Investing in a Real Estate Syndication?

So, let’s address the elephant in the room. Yes, you could lose money investing in a real estate syndication. Real estate syndications are not risk-free and investors could lose some or all of their investment capital. However, smart investing and careful selection of deals can minimize the risk of loss.

 

Conclusion

Investing in real estate syndications may provide passive income, but it requires due diligence and critical thinking upfront to maintain trust in the investment and the sponsor team. Smart investing is not truly passive, but with research and connection with the right people, it can lead to a fabulous experience. Real estate syndications have risks and rewards and are not for everyone, but for those willing to put in the work, it can be a great opportunity.

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