We have been touting the benefits of investing in real estate syndications for years. In fact, we believe apartment investing is the best way to consistently accelerate your path to financial self-sufficiency, and the freedom to live life on your own terms.
But while we passionately advocate for real estate syndications, we understand they might not align with everyone’s situation.
Here are the top four conditions where real estate syndications might not be the best investment for you.
1. You Need Liquidity
Imagine your money being unavailable, tied up in a real estate syndication deal for several years. Unlike stocks or mutual funds that allow you to get your money back quickly, this investment requires patience.
The typical hold time for a syndication is 5 years, meaning you need to plan to be without these funds for at least 5 years, maybe longer. That’s because syndication are illiquid, and your funds can’t be accessed until the property is sold.
So, consider your need for financial flexibility. If you are in a period where it is important for you to have access to your funds for a particular purpose or just for peace of mind, real estate syndications may not be a good fit at that time.
2. The Minimum Investment Would Overly Deplete Your Savings and Emergency Reserves
Getting involved in a real estate syndication opportunity means you’ll need to put down a substantial amount upfront, usually starting at $50,000 (though sometimes you can co-invest with friends/family to lower your amount). The question is whether you can comfortably invest from funds not needed for lifestyle or possible emergencies.
If you invest $50,000, will you be left with ample savings to cover other necessities like another car, private school for the kids, or a 3-6 month emergency fund. Our advice: Don’t invest unless you have adequate savings or reserves for these types of eventualities you are considering, otherwise you could put yourself in a stressful, harmful financial situation of having to scramble or go into debt to meet obligations.
3. You Are Not Comfortable with The Passive Investment Process
Traditional real estate investments often require you to be actively involved. Like playing the game of Monopoly, you check out the property, buy it, rent it out and collect the rent each month.
In contrast, real estate syndications take a more laid-back approach…that’s why it’s called passive investing. Passive investors typically never visit the property (of course, you can if desired), they don’t have a relationship with the lender, they don’t have a relationship with the property management team or the tenants, and they don’t have a relationship with the broker that will help sell the property. In fact, it’s very similar to owning stocks and bonds, where you have no involvement in managing the underlying companies.
In summary though, syndicating is a totally different way of owning real estate for most. Many investors like being able to make returns that outpace the stock market without having to swing a hammer themselves. Occasionally though, there are investors who struggle a bit getting comfortable with this model.
4. You Are Not Comfortable Surrendering Control
Unlike individual real estate ventures like house flipping or AirBnB’s where you have control over improvements, tenant selection and more, syndications require you to trust a professional team to manage all the day-to-day details of your investment. Important decisions are no longer solely in your hands; they become collective choices made by experts.
A big advantage of passive investing is the fact that you, the passive investor, does not need to be involved in the details of managing the property. You invest, collect mailbox money monthly or quarterly, then get a big check when the property is sold that includes your original investment and a return of your original investment.
But if the idea of giving up control feels challenging, this could be a temporary hindrance to your investing in syndications. However, what we have found is that long-time “control” operators will often come around to investing in syndications when they tire of active property management and meet sponsor teams where they develop a level of trust.
Syndicators and sponsors sing the praises of real estate syndications as tremendous wealth-building assets. But no investment vehicle is perfect, and none is perfect for everyone.
If any of the four conditions above describes your situation, that’s okay. It is important to be critical and only pick the investments that fit well with the goals you have set for your family and your family situation.
But maybe you don’t have total clarity. If you are still unsure whether or not real estate syndications are right for you, we’re here to help! Let’s chat about your plans, goals, and all other questions you may have by scheduling a wealth acceleration call to receive personalized advice based on your specific situation and risk tolerance.
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Thanks for being a part of our community. Until next time, keep growing your ability to accelerate your wealth and legacy building—we’re thrilled to be a part of this journey!