Your first step in syndication due diligence is deciding if this type of real estate investing is right for you.
To help you determine if syndication is the correct type of investing for you, Sarah Sullivan, founder, and owner of SuGo Capital, shares her wealth of knowledge on syndication investing.
In general, Sullivan argues that determining what kind of investing is right for you requires you to consider four concepts:
Watch Sarah's presentation to get a detailed breakdown of Syndication Structure and Due Diligence. To help you determine whether syndication investing is right for you, we'll cover syndication, due diligence, and potential benefits.
Characteristics of a real estate syndication:
The structure of a real estate syndication consists of
The capital needed for syndication comes from the general partners, limited partners, and a loan. Here is Sullivan's example of how capital and ownership would work.
|General partners pay 10%||General partners own 30%|
|Limited partners pay 30%||Limited partners own 70%|
|Loan for 60%||N/A|
The general partners execute the business plan and exit strategy when appropriate and pay the limited partners their share.
Because the company is an LLC, there are certain tax benefits that a limited partner is entitled to. For instance, asset depreciation passes through the LLC and can be claimed by the limited partners when it comes time to pay taxes on your gains.
A real estate syndication should double your money in five years or less.
Suppose you make a $100,000 investment into a real estate syndication. Your return on investment ideally would play out like this:
Sullivan advises her clients that a real estate indication that performs less than this level is not worth investing in.
For syndication due diligence, you want to start your evaluation with the people involved, consider the market, and then the property.
The people involved in the deal will be a critical factor in whether your investment is a success or failure. Evaluate the sponsors, property management team, and extended team by:
Evaluate the market and compare it to what's happening in the United States. Some of the factors include:
The property is the final piece of the puzzle. When checking the property, evaluate the following:
Finding the right type of investment for you is an essential component of your overall strategy. As you determine what type of investing might be right for you, it's crucial to do due diligence. Through careful research, you may decide that real estate syndication investing is right for you.
Some things to keep in mind when it comes to syndication:
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