checapitalOctober 14, 2019Passive Investor

Evaluating Real Estate Syndication Deals for the Passive Investor

As a passive investor, you want to make sure that your real estate syndication deals are worth your time and money. The good news is that there are several ways to evaluate these deals before you commit. In this blog post, we will discuss some of the criteria you should consider when evaluating a real estate syndication deal.

The Investment Opportunity

The first step in evaluating a real estate syndication deal is to understand the opportunity being presented.

  • What type of property is it? 
  • What are the current market conditions? 
  • How much capital needs to be raised, and what is the estimated return on investment?

Knowing the answers to these questions can help you assess the potential of this investment opportunity and whether or not it aligns with your financial goals.

The Sponsor

The success or failure of a real estate syndication often depends on who is sponsoring it. Make sure to do your due diligence on any potential sponsors before investing in their deals. Research their portfolio, track record, and experience level; read reviews from past investors; and ask for references if necessary. 

You want to make sure that you’re working with someone who has established credibility and expertise in this industry. 

Here is the simple list of tasks they must complete:

  • Evaluate potential real estate investments
  • Negotiate deals and contracts
  • Develop Exit Strategies
  • Manage funding sources and lenders
  • Perform due diligence
  • Handle financial reporting, accounting, and audits
  • Oversee the day-to-day operations of the investment property
  • Communicate with investors, governmental agencies, and all vendors.

Drone Image of New Multifamily Development in Central Texas. Credit to Henry Che

Financial Modeling

Before investing in any real estate syndication, it’s important to conduct thorough financial modeling on the potential returns from this deal. This includes analyzing cash flow projections, calculating cap rates, estimating expenses associated with running the property, determining how much debt will be taken out against it, and more. If done correctly, financial modeling can give you an accurate picture of what kind of returns you can expect from this particular deal—and whether or not they meet your expectations as an investor.  

As a passive investor in a real estate syndication deal, it’s important that you have all the facts before committing yourself financially. By evaluating each opportunity’s investment opportunity, sponsor’s credentials and track record, as well as conducting thorough financial modeling –you can make sure that each real estate syndication deal will bring maximum return on investment while meeting your personal financial goals. 

With due diligence upfront—you can ensure that your investments are safe and sound!

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checapitalOctober 14, 2019comment (0)Passive Investor

The tax benefits you can’t afford to ignore

Investing in real estate syndication offers a number of benefits, not least of which are the tax benefits. These tax benefits are often overlooked by new investors, but they can be incredibly helpful when it comes to lowering your taxes and maximizing your returns.  Let’s take a look at some of the most beneficial tax advantages associated with real estate syndication investments.

Depreciation Deductions

One of the most attractive tax benefits associated with investing in real estate syndication is depreciation deductions. Depreciation is the process by which an investor receives annual deductions based on the wear and tear of their property over time.  The IRS allows investors to deduct up to 27.5 years worth of depreciation for residential properties and 39 years for commercial properties. This means that an investor can write off a large portion of their investment each year, resulting in significant savings.

Tax-Free Exchange Opportunities

Another great benefit is that real estate syndications provide investors with the opportunity to complete what’s known as a “tax-free exchange” when they’re ready to move on from their investment. A 1031 exchange allows investors to sell one property and reinvest all of the proceeds into another like-kind property without paying any capital gains taxes on the sale. This means that investors can defer their capital gains taxes until they eventually decide to cash out completely or move their money into another asset class entirely.

Drone Image of New Multifamily Development in Central Texas. Credit to Henry Che

Deduction Opportunities from Pass Through Entities

Finally, when you invest in a real estate syndication, you become part owner (or Limited Partner) in a pass through entity such as an LLC or LP (Limited Partnership).  The income generated by this type of entity passes directly through to its owners and is not subject to double taxation like corporations are. As such, Limited Partners who own more than 25% interest in these entities are eligible for additional deduction opportunities such as self-employment taxes and business expenses that wouldn’t otherwise be available if they weren’t investing through a pass-through entity structure.  Real estate syndication investments offer numerous financial benefits, including potentially significant tax savings opportunities that many new investors may overlook when making their decision whether or not to invest in these deals. Investors should always consult with a qualified accountant before making any decisions about investing in these types of deals so that they understand all potential tax implications before committing their funds.  However, understanding all the potential tax advantages associated with investing in real estate syndications will go a long way towards maximizing your returns while minimizing your taxable liabilities over time.
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checapitalOctober 14, 2019comment (0)Passive Investor

How to Become a Real Estate Syndication Deal Sponsor

Becoming a deal sponsor for a real estate syndication can be an incredibly lucrative and rewarding endeavor. It’s also a way to make your mark in the industry and grow your portfolio. But it’s not as simple as just jumping into it. There are many steps that you need to take in order to become a deal sponsor, and this blog will outline the nine of them. 

Step 1 – Get Educated

Before you launch into syndication, however, it is imperative to make sure you are educated about the process.  Get familiar with the local market trends, understand the financial structures involved, and research the basics of syndicated investing.  This knowledge will give you confidence prior to joining a syndication team and will help to ensure your success as a deal partner or sponsor. Taking the time to become educated on real estate syndication will definitely pay off in the end.

Step 2 – Build Your Network

Once you have a good foundation of knowledge, start building relationships with others in the industry who could potentially become partners or investors. This includes brokers, attorneys, accountants, lenders, title companies, general contractors, property managers, civil engineers, architect, etc. Networking is key to becoming successful in any field but especially in real estate syndication where relationships are everything.

Step 3 – Find Deals

While there is no one-size-fits-all approach to finding lucrative commercial deals, this list will provide you with 7 different strategies that have proven successful for many syndicators.

  • Network with local professionals in the real estate industry to get tips on where to invest. 
  • Connect with brokers, who often know listings before they hit the market. 
  • Join professional organizations like CCIM, REIA, ICSC, BOMA, SIOR, NMHC and NAIOP. 
  • Utilize online platforms such as LoopNet, CoStar, Crexi and Ten-X Commercial Marketplace.
  • Attend conferences and trade shows to meet potential buyers/sellers and learn about trends. 
  • Use social media to connect with potential partners/customers. 
  • Establish relationships with other investors to stay up-to-date on market activity and possibly hear about exclusive deals.

Step 4 – Analyze Deals

After you’ve identified potential deals that fit your criteria, analyze them deeply to ensure they meet your goals and objectives (e.g., cash flow projections). If there are any issues with the deal that cannot be addressed through negotiation with the seller then it’s best to move on unless you have plans for mitigating those risks down the line.

Step 5 – Negotiate Terms

It’s important to negotiate terms up front so that all parties involved are clear on what their responsibilities are throughout the process (e.g., due diligence period). You should also look at other deals similar to yours so that you can use them as bargaining chips when negotiating with sellers or investors (e.g., asking for better terms than another investor has received). This could help you get more favorable terms than if you were just relying on negotiations alone without any leverage points.

Step 6 – Assemble Team

Once you’ve negotiated terms with sellers and investors alike, assemble an experienced team of professionals who can help make sure everything runs smoothly throughout the process (e.g., attorneys). Having a great team not only ensures that all legalities are taken care of but also helps build trust between all parties involved which is essential for success in real estate syndication deals. 

Step 7 – Due Diligence Period

During this time frame (usually one to several months), conduct extensive due diligence on potential investments such as running background checks on tenants and inspecting properties for damages or code violations etc… Make sure all inspections are completed before closing so there aren’t any surprises once ownership changes hands! 

Step 8 – Raise Capital

Once due diligence is complete and all parties agree on terms, it’s time to raise capital from your network of investors (limited partners) so that you can acquire the property(ies) being offered up by sellers/sponsors etc… Use this opportunity not only to raise capital but also build relationships with potential partners/investors for future projects down the line!

Step 9 – Closing/Funding Processes

Be prepared for closing/funding processes which usually involves signing documents such as loan agreements or partnership agreements between all parties involved as well as transferring funds from limited partners into escrow accounts etc… Ensure all paperwork is properly filed before proceeding with closing date set by seller/sponsor(s).  Becoming a deal sponsor in real estate syndication deals requires taking several steps along the way; from getting educated on local market trends and understanding how financial deals work to finding potential investments worth analyzing further and assembling an experienced team of professionals who can help make sure everything runs smoothly during due diligence period until the final closing date set by seller/sponsor(s). By following these steps closely while building relationships along the way, anyone interested in becoming a successful real estate syndication deal sponsor will be able to achieve their goals!

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