Remember the story of the flooded rental house? That really happened. The tenants moved out in winter without telling anyone, they left the heat off and the pipes burst during a freeze. Because the property was unoccupied, and the owner didn’t notify the insurance company, the insurance company refused to pay for the repairs. And they didn’t.
My friend was left with a house that was nearly destroyed by the flood. All the walls and ceilings were ruined, there was damage to the electrical system from the water and it started to mold.
He ended up selling that home for about half of what he paid for it, and still had to pay off the mortgage. Luckily, he was good at running his business and could afford it, but he bought that house to make money not to lose it!
Just the other day I was in my front yard washing my boat, getting ready to take the family out on the river, and my neighbor stopped as he drove by.
“Taking the boat out today?” he asked. “Yeah, what are you guys up to?” I replied
“I’m just heading over to our rental house to work on it and get it ready for the new tenant” he told me.
We talked a little more, then I went and called for my family to jump in the truck, we were ready to go.
You see my neighbor spent his Saturday working (and he already has a full-time job), and his family was at home on a beautiful day waiting for him to return. We spent the day on the river, wake surfing, inner tubing and meeting up with other friends on the water.
And that rental house? I’m sure it will be a great investment for them, though it still works managing the tenants and maintaining the property.
We Started That Way Too.
Like many people, we believed that owning single family homes was the only way that average people like ourselves could realize our goals and the benefits of investing in real estate.
And we were actively involved in the real estate business! I worked as a real estate salesman in a well known real estate company in Seattle, and after working my way up through the company, ended up purchasing it.
Our firm had many clients who owned investment real estate, but most of those clients owned single family homes.
As our portfolio of homes grew, we learned how much work investing in single family really is. Dealing with tenants, maintaining the properties, cleaning, cleaning and more cleaning between tenants, and those emergency calls.
And the more houses we owned, we arrived at the conclusion that we couldn’t continue adding properties in a way that would really grow exponentially. It just doesn’t scale.
We didn’t even think about buying large commercial properties because we thought those investments were out of our league, not for the average investor like us.
Finally, we learned there was a better way.
What is a Real Estate Syndication?
Simply put, a real estate syndication is basically where a group of people join together and purchase a property. Usually, these investments are medium to large commercial buildings, like apartment buildings, self storage facilities, industrial or office buildings.
Most of the efforts of the people in the group is limited to contributing towards the down payment and purchase costs. They just invest their money. Other members of the group, the Sponsors or General Partners, are tasked with the work of owning the property and executing the business plan that is unique to each investment.
Look, many people are good at their job or their business. They’re working hard, often long hours, have put in the time to gain the education and expertise in their profession and are earning good money. They don’t have time, or the desire, to add another job (owning single family rentals) to their plate, but they are aware that owning real estate is a smart way to secure their financial future.
That’s where investing in a real estate syndication comes in.
In these investments, there are Limited Partners, aka Passive Investors, and there are General Partners, aka Sponsors. The General Partners are the ones who do all the work for the ownership group. They find and analyze potential investments. Negotiate and execute purchase agreements. Arrange financing and close the deals. They do all the day-to-day work with the Property Manager, Contractors, Service Providers, and others to insure the property is run well and is profitable for the entire group.
The Limited Partners don’t do any work. They are free to continue putting their efforts and energy towards what they are good at and leave all the real estate work to the Sponsors.
Let me say that again, Limited Partners get to invest in real estate without having to do ANY of the work.
Not in our Backyard
Our investing journey originally kept us tied to our local market. Often the local real estate market where we live is not the best market for investing. The average price of homes in many areas makes it hard to buy a home and actually have any money left over after paying the mortgage, taxes, insurance and maintenance. God forbid we have a major repair.
With a real estate syndication, you are not stuck just investing in your local market. Instead you can put your money to work where it will earn the best returns. We are Passive Investors in many other areas, even in cities we have never been to.
Why are we comfortable doing that? Because we are putting our money to work with experienced General Partners who ARE experts in those cities. We read about the area and verify the information on the local economy, and make sure we agree with their analysis, but at the end of the day, we just have our money working for us in a region where we can earn higher returns.
What Return on Investment is typical?
Just like any investment, real estate or otherwise, return on your investment can vary, based on the type of asset, the marketplace and what changes can be made to the asset to increase the income.
The deals we invest in, as well as the deals we share with our investors, we typically look to double our money within three to five years. There are many metrics to measure the value of an investment, but we mostly focus on how much additional money did the investment generate for us when it is all done.
Risk (Nearly) Free Real Estate Investing
One of the characteristics of this type of real estate investing, is the properties MUST pay for themselves. The banks who lend money on apartment buildings will only do so if we can prove that the rent income, minus all the expenses, is enough to pay the mortgage payment and still leave a large surplus of cash left over.
The bank’s appraiser will analyze all the numbers, the history of the building, how hard or easy is it to attract tenants, determine if the renovations we might plan will result in the rent increases we are projecting, etc. The bank will only lend money on the property if they are confident it can pay its own bills and still have money left over.
How to Invest in a Real Estate Syndication
This isn’t like buying a rental property. You don’t search Zillow for a real estate syndication, and due to SEC regulations, many of these opportunities can’t be advertised. You have to know someone who knows someone.
To invest in a syndication, you must find a Sponsor that has an opportunity. And usually, once a Sponsor starts accepting commitments to invest, the spots fill up quickly. It’s not unusual for an investment to fill up in just a few days.
That’s where we come in. Specialty Investment Group specializes in finding good investments and sharing those opportunities with people like you. We do the heavy lifting of finding the best investments in the best markets and making them available to our investors.
Why do we do this?
After many years of helping people invest in houses, we wanted to help others reap the benefits of owning real estate without all the work.
When we are the General Partner, we earn some of the sponsor fees and equity in a deal. We invest our money too and earn returns just like all the Limited Partners. As an investor, you don’t pay any fees, you invest your money directly into the deal and your returns are calculated on your initial investment.
We know that if we help enough people reach their investing goals, that we will reach ours. By joining forces and collaborating on investments together, we all win.
Want to learn more?
There is much more to discuss, we haven’t even talked about the tax benefits that pass through to the investors, nor have we discussed how real estate investments are insulated from the wild gyrations of the stock market. What is a Business Plan when talking about an apartment building?
If you aren’t already in the “Group”, the best way to learn more about this process and to hear about upcoming opportunities, is to join the Specialty Investment “Group”, our investor group.
Through the Group, you will continue to get information about this topic as well as first looks at all the deals we offer. We’ll work with you to understand your real estate investing goals and help you find the best opportunities to reach them.
