#175 Part 2: Real Estate Syndications in 10 Steps

Hey everyone. Hope you're doing great. It's funny, I've done a poll in the past for where people are listening to when they hear this podcast. I would say half of you are listening in your cars right now. Is that truly the case? Let me know. I'm just curious. It's always funny to hear a lot of people also listen while walking their dogs. Taking a walk around. That's awesome. Hopefully you're enjoying a nice blue sky in front of you right now. Today we're going to dive back into the world of syndications. You know, whether you new to real estate investing or you're like a seasoned investor, remember this is part two of the Real Estate Syndications in 10 Steps. That's tailored and created just for you. This is like a syndication 101 very basic level. But if you make sure these are checklists or things to think about in every single deal, I promise you you are doing more than 95% of people that are investing in these indications. If you haven't listened to my previous episode, make sure you pair that with this one because that's going to give you all 10 steps. Welcome to the Passive Income MD podcast where we talk about creating your ide ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now, let's get on with the show. The question I'm trying to answer is what are the things that I need to think about when I invest in a syndication? Again, for those who aren't familiar with the concept that term, it's in really pulling your capital to invest in a real estate deal. Mostly you're investing in someone else who's putting together a deal and you and many, many other investors, or maybe just a few, get together and you pull your capital and go ahead and buy a property that maybe you couldn't do on your own, but the person you're investing with is going to aggregate that capital, run the business plan, bring all their knowledge, experience to the table, and do their best to provide returns for investors like you and me. Again, I believe it's one of the most passive types of income that's possible out there. I know we talk about money in your sleep, but to be honest with you, that doesn't just happen overnight. It takes a lot of work upfront to get the rewards later. Investing syndications is absolutely passive, but you got to do the work up front to understand these things before you turn your hard earned capital over to someone and then you sit and wait for the distributions and of course, for the returns and the quarterly updates to let you know how things are going. Just for a quick recap, in last episode, we talked about the five steps. This is understanding the structure, looking at risk and rewards, doing the proper due diligence, understanding investment terms, and knowing the tax implications of a deal. Okay, step six. You have to understand the fees and what's called the sponsor promote. What is that? That's how the sponsor or the general partner gets paid. And I know a lot of us are allergic to fees. I hate paying fees. I don't know about you, but I also know that if somebody's working for me, they've gotta be incentivized. Many of you have heard of Charlie Munger. He works with Warren Buffett. He has this amazing quote about incentives. He says, show me the incentive, I'll show you the outcome. And that's like everything in life. Everybody's human. We work on incentive. So if there's no incentive for these sponsors, they're not going to do a good job. But you want there to be incentives, but you want to make sure they're aligned with you as an investor, meaning that they're going to win if you win, they're going to lose if you lose. And so they want to do a great job not only for you as an investor, so that they can profit as well. So understand all of the different types of fees that are involved and what the implications of those fees are. Understand on the back end how the profits are being split up. That's often called the waterfall or the sponsor promotes. And understand the order. Are they giving you your money back first in your returns before they get their profits or their profits? Are they going to get that early on before you get your returns? I don't know about you, but I would rather get my returns as an investor first, then they get to share in some of the profits later. And that's what I'm looking for. So you got to understand that over the last 35 years, MLG Capital, they focused on making smart investments in real estate and building relationships with their investors. They call it an investor centric fund structure. That's what they focus on. Where accredited investors, they can invest their money with confidence in funds that target diversification. They prioritize cash flow as well as low leverage with a what they call a unique dual sourcing strategy. So if you're unsure about investing due to rising inflation or volatility in the stock markets, well, I want to let you know that investing real estate, it's been historically one of the best hedges against inflation. In fact, I've been investing with this company per year. So if you're a medical professional and you'd like to learn more about investing with MLG Capital, make sure you visit passiveincomemd.com MLG Again, that's passiveincomemd.com MLG now back to the show number seven. I mentioned this before, but you got to understand the exit strategy. The exit strategy determines how and when you might get your investment back plus any profits. Are they going to just sell this property in 3 years, 5 years, 10 years? Are they planning to do any refinances where they'll be able to refinance this property and give you back some of the profits along the way? Understanding this exit strategy will help you understand if this aligns with your goal, your timeline, and whether the returns at the end match what you expect. And you should always ask, what if the market doesn't cooperate? What is your plan? All right, number eight, this is the key on do they have good communication? Meaning that this company, obviously you want to look at their materials. They you want it to look nice. But the thing that really matters is when push comes to shove, do they communicate with you? Well, do you have a clear line of communication with somebody at the company that you can talk to if you have any sort of question? You got to make sure that you get regular updates, good or bad, and understand how the investment performance is going. There's nothing worse than making an investment and just being left in the dark for months and months and months and not knowing how things are going. One thing that you can do is ask investors, already current investors of that syndication company, how well they communicate. Having a transparent and open line of communication is absolutely important. Fosters a healthy investor sponsored relationship. It's all about trust. And I say you're trying to create a long term relationship. It's like your relationship with your spouse, partner, kids, colleagues. It's all about communication. There are always going to be miscommunications, but how do you resolve those? And are you able to talk about things that to make sure everybody's on the same page. So for sponsor, I want to make sure I get quarterly updates at least and I want to know that I can call somebody if necessary to talk to somebody in person. I don't often do that, but it's just nice knowing that you have that option. Okay, number nine, you got to look at the legal documents. They're like the operating agreement, it's the contract, subscription, agreement, whatever it might be called. It basically states everything that you need to know in terms of what your role is in the investment, what your rights are and what you can expect for the duration of of this deal. Now, don't gloss over these. I know these are long. I've looked at so many of these and you won't understand every single word in there. However, I would do your best to look over these. Look over especially the major terms that are involved. Make sure there isn't any discrepancy between what's on paper and then what they promise to begin with. And of course, when in doubt, you can consult a legal professional. If you do this enough and you look at enough of these, oftentimes you don't need a legal professional because you know how to comb over this pretty quickly and know what the key things are in this, what's called the PPM as well. And then at the end, I kind of circle back to where I started in the beginning. Whenever I look at an investment, does this fit within my investment goals? Are you a cash flow person? Are you trying to stash some money and you don't need it till 5, 10 years from now? Are you trying to get a quick hit, meaning that fix and flip type situation, or are you trying to get long term cash flow now that you've looked at the entire investment again, does it make sense to invest in this, considering the risk and where you're trying to go? I will tell you that I probably suffer from FOMO worse than anybody listening to this, meaning that I always wonder, what if I don't do this deal or everybody else is doing it, should I do it as well? But it's at that exact moment that you need to step back and make sure to look at the bigger picture to see if it makes sense. And maybe you need to let go of a few deals to understand that there will be more deals down the road. At the same time, you want to let so many deals go by that you never take action. So yeah, it's a hard balance to make. But the more deals you look at, the more you invest in, the more you'll understand how to make quick decisions and that are decisive and ones that you know will help you out ultimately long term. All right, there you have it. A Beginner's guide to Real Estate Syndications. As always, do your own due diligence. Don't just rely on anyone else you can trust, but make sure you verify on your own to understand the structure, the risk assessment, the goals. All these things are your best friends in this journey. And again, if you want to join the thousands of other people that are part of our community that are learning together to build confidence when making investment decisions when it comes to syndications, so they know they're doing the very best that they can do on their end to make sure they're making a great investment decision and avoid making poor mistakes. That's our course in Community Passive Real Estate Academy. You can go to passive realestateacademy.com we're building a wait list. We're going to be opening up enrollment in the next couple months. It's not just about knowledge, it's also about confidence and having a community to help you along the way. Well, thanks for the time everyone. Hope you're having an amazing week. 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