Private Real Estate Syndicate Funds – A Passive Way to Invest in Real Estate
In today’s economy, one thing is guaranteed. The world is trying to get rid of the US dollar as a reserve currency and keeping your money in CDs and money market accounts is downright insecure. For decades, savers and investors considered it safe to keep their money parked in their banks; however, the current near-zero interest rates and the volatility of the US dollar are justified reasons forcing more people to find better investment strategies for their money. That’s why many investors start looking for investments that keep up with inflation (real estate, gold/silver, commodities, and certain foreign currencies and stocks).
If real estate investing has been on your mind but you’re not sure where to invest, how to find the best deals, or how to properly evaluate them, you may want to explore the opportunity for a passive way to invest in a syndicated real estate fund. . A real estate syndicate is simply a group of investors who pool their money to purchase real estate. By pooling their money, these investors can purchase larger real estate with or without bank financing. This method of real estate investment has been a popular method of financing the purchase and sale of commercial properties such as shopping malls, office buildings, and warehouses.
Private real estate syndicates raise funds through a private placement that is collateral: an ownership interest in a company that owns and operates investment real estate. Unlike REITs (Real Estate Investment Trusts), these investment vehicles are not publicly traded and do not have a daily market price. While REITs can have high dividend yields, their publicly traded shares are subject to a significant degree of price volatility, an event that is less likely to occur with private syndicated funds.
Many real estate syndicates offer themselves as private placements, so it is important that you understand the process and risk factors involved with private placements. One of the most common risks is that the underlying investment is real estate, so these investments may be less liquid than shares of a REIT; At some point, the fund may not be able to sell the real estate at a price high enough to generate the expected profits; or external factors such as a further deterioration of the economy could nullify the value added through the rehabilitation work. Then there is the uncertainty of unforeseen future expenses, taxes, and liabilities, all of which are typical real estate problems that seasoned investors are familiar with. My recommendation is that you thoroughly assess the risks directly from the private placement memorandum.
Syndicated real estate funds are carefully put together using the expertise of attorneys, accountants, contractors, investment bankers, mortgage bankers, and real estate brokers. They are structured in the form of a partnership agreement or limited liability company (LLC), whose code of ethics requires full disclosure of all material facts. To further determine if this type of investment is for you, you’ll want to find out the experience and achievements of all directors and managers, the minimum investment required, the time frame of your investment, and the potential annual return and capital gains. on your money
What I found attractive is the fact that one can invest in a private real estate syndicate using their retirement account (IRA). A self-directed IRA is a unique hybrid tool that uses a self-directed IRA custodian and a specialized legal structure. Investments made with a self-directed IRA can grow tax-free as long as the income generated is passive income.
Some other potential benefits associated with investments in these funds are:
* Earn net cash flow through passive investment. Owning real estate individually requires skills in assessing property value, negotiating purchase agreements, financing, negotiating leases, and property management. An investor in such a fund has access to a group that has proven knowledge and experience in dealing with all aspects of real estate.
* Achieve higher returns by investing in larger, more profitable properties. By pooling the funds of multiple investors, real estate syndicates can achieve better returns overall than many individual investors.
* Leverage the struggling commercial real estate market by using the expertise of vulture investors.
* Hedging against inflation. Because inflation erodes the value of hard-earned money and reduces individual purchasing power, diversifying into hard-asset investing may potentially represent a more desirable way to maintain your current standard of living.
* Potential profit from property appreciation. The value of commercial real estate is determined by its level of stabilization. High occupancy rates, stable income, carefully considered expenses, and experienced property managers generally contribute greatly to increased value.
* Favorable tax treatment. Check with your tax advisor about private real estate syndicate tax savings that may not be available when investing in a public company.
* Various Investment Positions. As an investor, you can choose from a variety of positions the one that best suits your investment needs.
Overall, I still think it’s a smart move to diversify your investment portfolio with a tangible asset like real estate. But no matter what you invest in, keep in mind that a “healthy investment” is the kind that…
* generates substantial income for you during good times and bad;
* is made from real assets that won’t fade;
* does not lose its earning potential over time;
* maintains its capital value;
* keeps up with inflation;
* is made up of goods that satisfy one or more human needs (housing, food, energy);
* can be passed on to your heirs and generate passive income for them.
Finally, if you’re seriously considering putting some of your money into such a fund, don’t forget to ask the hard questions, like whether the managers and directors are putting their own money into the fund; how you can check that the company is real and not a hoax; what could go wrong and if it does, what happens to your investment. Use common sense and your own instincts, learn as much as you can, make decisions and act quickly so that when the economic dust finally settles, your nest egg is still there, intact and unscathed.
