The Challenges in Real Estate Syndication You Should Be Aware Of!
Real Estate Syndication refers to selling and purchasing properties like workplaces, homes, land, etc. at a high price range. The term syndication represents a group of investors together pooling capital for real estate investment.
Investing in real estate via syndication is said to be the easiest method. First, it increases the purchasing power of all investors in the group. Second, they invest in property that is 2X their investment. However, this looks good only when you quietly overcome every real estate syndication challenge.
As a passive investor, syndication gives better opportunities to invest. Investing with a syndicator is beneficial in multiple ways. You enjoy all tax benefits, receive potential appreciation, generate more income, and increase earnings based on the amount you invest.
Though it might look lucrative to you, there are risks involved. You can overpower those risks by picture-perfect planning only when you know all the real estate syndication challenges. In this article, let’s take a look at all those:
Top Real Estate Syndication Challenges
If you are someone who doesn’t want to solely depend upon your funds, then the syndication is the right choice. Syndication allows you to scale faster, increase your ability, cash flow, and more. Whether you want to syndicate or not, the decision entirely depends on you.
If you are new in the market and doing syndication for the first time, then you’ll be confused in the beginning. That confusion shapes into fear upon facing every real estate syndication challenge.
To remain in the game, you need to be a wise decision maker, and that’s possible when you have an experienced syndication team or an online real estate syndication consultant with you, the whole process becomes easy, and overcoming multiple real estate challenges doesn’t look like a mountainous task anymore.
Let’s look at all those challenges one by one:
Syndication Is Not About Timing
We always say that ‘timing is everything in life’. But, in syndication, you must move quickly to execute your property-related decisions. Quickness is required because Syndication takes a long time for the paperwork process. Documents like Private Placement Memorandum, Attorney Conduction Document, Subscription Agreement, Operation Agreement, Share Distribution Agreement, and more.
There are multiple documents whose preparation takes time, and that’s why structuring a deal without these documents isn’t possible at all. The first real estate syndication challenge to overcome is getting these documents done on time!
Losing Your Money
Though losing money is possible, it’s really unlikely. For passive investors to lose their hard-earned money is a big real estate syndication challenge. Furthermore, the challenge turns tides into waves when you stop getting returns on your investment as per the outline of the syndicate project. Losing money is a big risk!
But, it is easy to overcome it by investing with different syndicators. This removes you from investor pressure, you are not dependent on a single investor and you get to know more about the syndication; thus, making you future-ready for your real estate syndication investments.
Finding A Deal
The real estate market is competitive and increasingly becoming difficult to find a deal of syndication. You may find deals; however, the rate of returns as an indicator will not satisfy you. Short-term pain for a long-term gain while backing up all the cash flows is a crucial framework in syndication. Overpaying for a property limits the capital investment ability.
That’s why it is of utmost importance to write the deal in-detailed explanation, openly, and conservatively. Underwriting eliminates many of the deals that come with faults and a low rate of returns. Along with the deal, finding an attorney is also a major real estate syndication challenge.
Lack of Transparency
There exists an important reason behind the syndicator fees paid by investors. It is to have less worry about property management. A passive investor never wants to be in a controlled deal but expects transparency. Not having the right kind of feedback and transparency in the real estate syndication challenge.
For example, as a passive investor in the syndication network, you must get monthly updates, weekly feedback, and financial reports. This keeps the communication up & going. But, its lack makes it difficult for them!
In the space of commercial real estate, finding a great syndicator is only possible, if you overcome the real estate syndication challenges discussed above. An online real estate syndication system can help you out in real-time by guiding you to investment, while making it easier for you to meet, face, and win over the challenges.
The Underperformance of Property Management
Every syndication group hires property managers to manage the properties that they buy. But, property managers don’t perform their tasks in the best manner. As a result, investors face overbilling, misbehaving, and more damage to the property. However, this real estate syndication challenge is easy to overcome by finding an experienced property management company or manager.
One simple formula for successful real estate syndication investing is to understand both sides of the deal. By knowing every pros and cons of the deal, venturing with syndicators is easy for passive investors. Therefore, always try to think beyond buying and selling games.
Depending on your niche, real estate investment can be a lucrative venture. In some cases, real estate can even be a passive investment with syndication groups that provide rental income and capital gains. However, to become a successful investor, you must overcome every single real estate syndication challenge.
Conclusion
To avoid the big risks in your real estate syndication, you once have to identify the potential challenges that stop you from doing investments. Chances of losing money are less; however, getting the expected return from the syndicator exists as a top real estate syndication challenge.
Real estate is one of the most sophisticated industries when it comes to understanding customer needs and how to meet those needs with the right product at the right time. Overall, there are many challenges and risks involved in real estate syndication. While some are easy to mitigate, some are hard and take time.
