Episode 24: The Different Types Of Real Estate Syndications – Which One Is Right For You?

Welcome to Building Passive Income, the podcast for professionals, entrepreneurs and investors who want to build wealth, diversify beyond Wall street, and create true financial freedom through passive commercial real estate investing. I'm Wayne Courageous III, founding and managing principal of Crei Partners, a leading commercial real estate company, I created CreiColin, an AI powered resource to serve as your investor education guide. Built on the insights and experience we've developed at CREI Partners, Creicollen is here to educate you through passive invest tax strategy topics to help your journey in passive investing. Just a quick disclaimer. This podcast and CRA Colin is for educational purposes only and is not legal tax or investment advice. Always consult with your attorney, CPA and financial advisor before making any investment decisions. I've spent nearly two decades helping investors understand the power of commercial real estate. From multifamily to storage to retail. Each episode is under 15 minutes, simple to follow and and packed with insights to help you grow your income and protect your capital without becoming a landlord. If you're ready to learn quickly and invest smarter, you're in the right place. Welcome to Building Passive Income. Let's build wealth together. Here's creicollen.

Not all syndication deals are created equal. You might see one deal that's projecting a 12% IRR with low risk. Another deal is projecting a 25% IRR with high risk. One is a stabilized property with immediate cash flow. Another is a ground up development with no cash flow for two years. So which one is right for you? I'm Crei Colin and this is Building Passive Income where we give you the strategies to build real wealth through passive real estate investing. Today we're breaking down the different types of real estate syndications, from conservative core plus deals to aggressive opportunistic developments. We're talking about the risk return spectrum, what each type of deal offers, and how to match syndication types to your investment goals and risk tolerance. Because here's the truth. There's no one size fits all syndication strategy. A deal that's perfect for one investor might be completely wrong for another. Most investors don't understand this. They chase the highest projected returns without considering the risk. Or they avoid all risk and miss out on wealth building opportunities. Today we're changing that. Let's dive in. Before we break down the different types of syndications, let's talk about the risk return spectrum. In private real estate, higher targeted returns usually come with higher uncertainty and more ways things can go wrong. On one end of the spectrum you have low risk, lower return investments. These are stabilized properties with long term tenants, predictable cash flow and minimal capital needs. They often Target lower teen IRRs depending on leverage and market conditions. On the other end, you have high risk, higher return investments. These are value add deals with major renovations, opportunistic deals in emerging markets or ground up developments. They can target 20 to 30% IRR or more, or they can lose money. Many sponsors target mid teen IRRs. Though it varies by strategy and market. Most syndications fall somewhere in the middle. Your job as an investor is to figure out where you fit on this spectrum. Are you conservative, moderate or aggressive? There's no right answer. It depends on your goals, your timeline and your financial situation. Course category is Core and Core plus syndications. These are the most conservative syndication deals. Core and Core plus often involve stabilized assets in strong locations, commonly class A or B. But the defining feature is stability, high occupancy, predictable cash flows and minimal capital needs. Here's what they look Stabilized properties in strong markets 90 to 95% or higher occupancy A business plan focused on maintaining occupancy and optimizing operations. These deals often aim to distribute early in the hold period, depending on reserves and performance. Hold periods of 5 to 10 years. Projected returns often targeting lower teen IRRs with cash on cash returns in the 6 to 8% range and low to moderate risk. Who should invest in Core and Core plus deals? Conservative investors who prioritize capital preservation and steady cash flow. Investors nearing retirement. Investors who want to diversify into lower risk assets. High income earners who need passive income but don't need massive depreciation deductions. Here's the trade off Core and Core plus deals are safer, but they don't build wealth as aggressively as value add deals. The second category is value add syndications. For many passive investors, Value add can be an attractive middle ground. Value add deals offer a balance of risk and return. They're Targeting mid teens IRRs by improving underperforming properties. Here's what they look Class B or C properties in growing markets that are functional but outdated or poorly managed. Occupancy can vary, but the strategy involves operational improvement and NOI growth. Business plans include renovating units, adding amenities, improving management and and increasing rents. Cash flow is delayed. You might receive little to no cash flow in year one. Hold periods of 3 to 7 years. Projected returns of 15 to 20% IRR with 8 to 12% cash on cash once stabilized and moderate risk with execution risk but significant upside. Who should invest in value add deals? Moderate investors who want balance. Investors with a five to seven year Timeline High income earners who value tax efficiency, including depreciation that may create passive losses to offset passive income subject to IRS rules Investors comfortable with some execution risk here's the trade off Value add deals offer higher returns than Core plus deals, but they require patience. You're betting on the sponsor's ability to execute. This is why sponsor due diligence is so critical for value add deals. The third category is opportunistic syndications. These are higher risk, higher reward deals. They're not for everyone, but for investors with high risk tolerance and a long timeline, they can generate exceptional returns. Here's what they look Distressed properties Major repositioning projects conversions or properties in emerging or tertiary markets occupancy often below 75% business plans involve major renovations or complete repositioning Minimal or zero cash flow for the first 1 to 3 years hold periods of 5 to 10 years. Targeted returns can be higher, but outcomes vary widely with equity multiples of 2-3x and high risk with significant execution market and timing risk. Who should invest in opportunistic deals Aggressive investors comfortable with high risk and long timelines Investors who have already built a diversified portfolio and are allocating a small percentage to higher risk deals Investors who don't need cash flow in the near term Investors who trust the sponsor's ability to execute complex projects here's the trade off Opportunistic deals offer the highest potential returns, but they also have the highest risk of loss. This is not the place to start your syndication journey. Build experience with Core plus and Value Add deals first. The fourth category is development syndications. These are ground up construction projects. They offer the highest potential returns and carry some of the highest execution risk in the risk return spectrum. Here's what they look Ground up Construction of multifamily self storage, industrial, retail or mixed use properties Business plans involve acquiring land, securing permits, building, leasing up, stabilizing and selling. Zero cash flow for the first two to four years hold periods of five to 10 years, including construction and stabilization. Targeted returns can be very high, but outcomes vary widely with equity multiples of 2.5 to 4x and very high risk with construction permitting, market financing and timing risk. Who should invest in development deals Very aggressive investors with high risk tolerance and long timelines Investors with extensive experience in syndications Investors who trust the sponsor's development track record Investors who can afford to lose their entire investment. Here's the trade off Development deals offer the highest potential returns, but they carry significant risk. Most passive investors should not invest in development deals, especially not as their first Syndication Investment alright, so we've covered the four main types of syndications. Now let's talk about how to match them to your goals. If your goal is capital preservation and steady cash flow, focus on core and Core plus deals. If your goal is balanced growth cash flow plus appreciation, focus on value add deals. This is where most passive investors should spend the majority of their capital. If your goal is aggressive wealth building and you have high risk tolerance, allocate a portion to opportunistic or development deals, but only after you've built a diversified base. If your goal is tax benefits and depreciation, focus on value add deals that use cost segregation. Value add deals that use cost segregation may generate meaningful first year deductions depending on timing and tax rules. If your goal is immediate cash flow, focus on Core plus or stabilized value add deals. Avoid development or heavy value add deals. Here's the don't chase returns without considering risk. A 25% projected IRR sounds great until you realize it's a development deal with zero cash flow for years and significant execution risk. Match your investments to your goals, your timeline and your risk tolerance and diversify across multiple deal types. Let's talk about how to build a diversified syndication portfolio using different deal types. Here's a sample Portfolio allocation for a Moderate investor with 250,000 to invest 50% in value add deals 30% in core plus deals 20% in opportunistic deals for a conservative investor with 150,000 70% in core plus deals 30% in value add deals for an aggressive investor with 500,000 40% in value add deals 30 percent in opportunistic deals, 20% in core plus deals, 10% in development deals. Notice the pattern. Even aggressive investors should have some allocation to lower risk deals. And even conservative investors can benefit from some value add exposure. Diversification isn't just about investing with multiple sponsors and in multiple markets. It's also about diversifying across deal types and risk profiles. Alright, let's recap. There are four main types of real estate syndications, Core and Core plus, Value add, opportunistic and development. Core and Core plus deals are low risk, lower return. Value add deals are moderate risk, moderate return and for many passive investors, can be an attractive middle ground. Opportunistic deals are high risk, higher return. Development deals carry some of the highest execution risk. Match your investments to your goals, timeline and risk tolerance. Don't chase returns without considering risk. Diversify across deal types to balance risk and return. Here's your action step. Review your current syndication investments. What types of deals are you invested in? Are you overweight in one category? Adjust your strategy to align with your goals Next week on Building Passive Income, we're bringing back TaxProtina to talk about cash flow versus appreciation, understanding return profiles, and the tax implications of each strategy. Until then, remember, financial freedom isn't a dream, it's a decision. And it starts with matching your investments to your goals. I'm Crei Collin. Let's build wealth together.

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