#174 Part 1: Real Estate Syndications in 10 Steps

I was talking to a doctor the other day and he was saying that he's just scared to make a mistake investing in real estate. He's just worried that he's not going to make the right decision and things are going to go badly for him, his family, his money. I was there too. I've overcome that, number one through action, which we talk about quite a bit. But also by educating myself, putting myself in the right communities of people who are like minded, are encouraging me, uh, I'm helping me see the possibilities. And then of course, on top of that, education, just create little checklists for myself, things that I can make sure that I'm going through, that I'm checking all the boxes to make sure that I haven't missed anything major just so that I can avoid making any mistakes and hopefully it'll result in great gains. So for today's episode, we're going to take a quick dive into the world of real estate syndications. If you don't know what that is, you're going to find out when we talk about the things that you absolutely need to at least check off that list. So to make sure you're thinking about these deals correctly to ultimately get the rewards on the other side of it. So stay tuned. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, be sure to hit subscribe. Now, let's get on with the show. Before we get started, I just want to honor all of you who are listening to this right now. You're taking time out of your busy days and I know that time is precious and it's the most precious thing you don't get back, but you're using it to educate yourselves, to help you and your families ultimately get where you want to be. I think that's amazing and I want to thank you for tuning in each and every week. And I just want to let you know, all of this education, spending this time, it's worth it. It may not seem like it, but you're getting closer and closer to your goals just by doing it. So I know many of you out there might have asked yourself, why syndications? Why should I even consider investing in these things? If you don't know what they are, it just means essentially investing in someone else's deal. People pull their capital together to go out and buy potentially bigger properties, get more professional management, essentially have access to better, bigger deals that they wouldn't necessarily have on their own. It's probably the closest thing to true passive income, especially when it comes to real estate that I can think of. You find a sponsor or general partner or operator, they might be called different things, maybe they're also called a syndicator. You find someone who has a deal and you as an investor, make sure you do your due diligence, make sure you're partnering with, with the right people, make that investment, and next thing you know, you're on the ride with them. For however long this deal goes on for, however, it doesn't require any additional time for you. Well, except maybe to read the quarterly updates and figure out what your money is doing and how well they're performing. But it truly is a situation where you do the work upfront and reap the benefits of real estate investing later on. And if you put together your portfolio correctly of these type of investments, you can really create a nicely diversified portfolio so that you can really mitigate your risk and also have a chance to increase your upside. Why I'm talking about this right now with the current environment in real estate is because I absolutely believe that we're coming into a time, if we're not already in it, where there is so much opportunity. In this space, if you've been sitting on the sideline, you've been thinking about it, you've been educating yourself, well, I'll say your type Take Action is coming up very, very soon. So this week I'm going to talk about five things to help get you started with syndications. Things that I'm sure you need to think about that I think about whenever I look at a deal. And then next week I'm going to talk about five more things. So altogether, it's going to be 10 steps. But in this episode, we're going to go through the first five things I want you to understand. Number one, you have to understand the structure of the syndication. As I mentioned, a real estate syndication is essentially a group investment where investors come together to buy a larger property. This investment is ultimately led by a company, a business, an individual that, that puts together this deal, puts together the business plan, operates, manages and makes sure that the business plan is carried out and that everybody profits from it. At the end. You should understand who is at the top, who's involved in this deal, what your role is as a limited partner, what you can and cannot do in terms of rights, and to understand kind of the legal framework of the syndication, it takes a little time to get used to. Not every syndication is created equal. But I'll tell you, when I first started investing in syndications, I had no idea. So if you're listening to this, you're already further than I was when I started investing in these things. So before investing in this thing, make sure you understand the structure. Who's at the top, who is leading this, who's the person or the sponsor or the company that you're going to be investing with and how is this deal going to be legally structured and organized. Something that you also need to do is look at the risks and rewards. I as you all know, investing in syndications, like all investments, carries a degree of risk, including some potential loss of capital that's your hard earned money. However, that flip side of having that risk is that there's potential for great returns on the other side. And so understanding each deal is looking at the risk and the reward scenario, what the probabilities are of each, and figure out whether it fits within your profile in terms of your risk tolerance. Make sure it aligns with your financial goals and it all makes sense for you. I promise you that risk and reward are usually paired, meaning that the greater the risk, the greater the reward. I mean, it's not always the case. Sometimes we talk about situations where you try to minimize that risk as much as possible but still have the upside. That happens a lot with diversification. But when you look at all of these syndication deals, figure out and identify the risks and the rewards. Be super clear on both of those. I'll tell you, when I first started investing, I used to just look at the rewards. For the most part. I used to look at what the potential gains were. I looked at that number and oftentimes I looked at two deals and I compared them by the potential gains. I don't know if you've ever been like that. That 18% looks better than that 15% or that 22% looks better than that 12%. And that's how I would make my decisions. That is a big mistake. We need to make sure first to identify the risk, then kind of put the reward up against it and see how it compares. Hey everyone, I have a quick question for you. Are you looking for a secure and reliable long term investment strategy? Meet Eckerd Enterprises. 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That means making sure you do your research to look at a deal and understand all aspects of it as much as possible. Again, this took me years to absolutely get and I'm still working on it. I'm still learning so much. I've made mistakes and I continue to make some mistakes, but overall it helps me get smarter and smarter, make better decisions. It's in any sort of market when you do your due diligence. I've done podcasts all on this, so please look out for those episodes. But the number one thing you need to look at is the sponsor. Who are you investing with? What is their track record? How well have they done in good times, in bad times? Because the best sponsors will make an average deal better. However, a poor sponsor will even take a good deal and really create a poor result for you. Now I've been on the receiving end of those unfortunately, but it's taught me a lot about who I'm investing with and what I should be looking for. You also need to do analysis of the property's financials. How's the deal doing itself? What's the, what are the projections? What are the assumptions that will allow for these returns to come? What's the market condition? Is this in a growing market, shrinking market, better job market, good employment, whatever that is. Make sure the winds are at your back, not in your face. And lastly, you have to understand the actual investment terms, understand how you can get paid, understand how the sponsor or the person running the deal is going to get paid, understand the different exit strategies and what some of the options are if the market doesn't necessarily cooperate. All of this is part of your due diligence. I know a lot of this stuff comes with experience. You're not going to get it all at once, but little by little you can start to understand. And the more deals you look at, obviously you'll start to figure out what looks right, what doesn't, and fits again within Your profile and what you're interested in doing, it could definitely seem a little intimidating. So I understand how so many of you feel. By the way, that's one of the reasons we developed Passive Real Estate Academy. To help you build that confidence, to help you make sure that you're investing in good deals and trying to avoid a lot of the mistakes. If that's something you're interested in, make sure to join our wait list. Our wait list has grown quite a bit. We're gonna have an amazing community this fall of people within our course. And again, once you're in our community, you're in our community for life. And we share deals together, learn from each other, and I hope you're part of it. Either way, make sure you learn how to do the proper due diligence, because it is all the work that you do up front before you invest in the deal. The fourth checkbox that I always look at are the investment terms. And these things can vary from syndication to syndication. What I mean is that you want to know how much the minimum investment amount is. We talked about due diligence and this is kind of an offshoot of that. But look at the expected returns, how long the hold of the investment will likely be, and again, what some of the extra strategies will be for them to actually create a favorable outcome for everyone involved. If you're about to invest in something and somebody asks you about the deal, you should be able to spit off real quick the returns, the expected duration of the deal, what's the major business plan, Meaning are they taking a property that's a C class or lower class, trying to bring it up a level, meaning do renovations? Or is this a newer property that they're just going to hold onto for the long term and expect it to do well in the future. You have to have absolute clarity when it comes to these investment terms because that is your hard earned money and you want to know where it's going and why it's going to work out well for you. Okay, number five, tax implications. I talk about this all the time. There's so many amazing tax benefits of investing in real estate. They can generate passive income for you, but they can also create paper losses for you, meaning that there's something called depreciation where you can actually create a paper loss from investing this money, which could offset some of your other gains from, from other investments that you have. One of the most powerful things about investing in real estate is taking advantage of all these tax incentives, I like to call them, to help high income professionals like you and me to shelter some of these gains but still get cash flow at the end of the day. I think that's the goal to get tax protected cash flow, hopefully tax advantaged cash flow that we can use to really offset some of our income, to spend more time with our families to do all of that. And that's made possible that not only through the cash flow from these properties, but from the tax benefits from them as well. I think it's absolutely important to reach out to your tax professional and figure out and understand a plan to use these real estate investments and these syndications and the tax benefits to help you further your goals. And those are five steps into understanding a syndication. Next week we're going to dive into five more steps and if you have those 10 down, at least from a very basic level, you know you've done the work on your side to look at this deal, make sure it's going to work out for you. You got to do your due diligence, understand the structure, risk assessment, make sure you understand your goals. They're your best friends on this journey. It's going to help you make smart decisions at the end of the day. And if you haven't already, make sure you subscribe to this podcast. We try to bring value to you every single week. There's going to be some really fun episodes coming up. You don't want to miss those. Really excited. Thanks again for listening and have an amazing week. Take care everyone. Don't let distance stop you from joining the most anticipated event of the year for physicians and high income professionals. Get your virtual ticket to PIMDCON, the physician real estate and entrepreneurship conference happening on September 21st through 23rd. Our virtual ticket will give you exclusive access to all featured speakers and keynote sessions along with expert led panel discussions. You're going to be able to participate in the conference from the comfort of your own home with the ability to engage with a virtual community of like minded individuals and network with with high achieving professionals like yourself. But that's not all. With your Virtual Ticket you can have lifetime access to all session recordings post event allowing you to re watch some of your favorite sessions and continue to learn from our expert speakers. So don't miss out on this incredible opportunity to gain valuable knowledge and insights, network with other high achieving professionals and take your real estate investing and entrepreneurship game to the next level. Get your Virtual ticket to pull PIMDCON now and join us for an unforgettable event. Thanks so much. Bye.