Top 5 Reasons NOT to Invest in Real Estate Syndications

To be blunt, real estate syndications are not for everyone. At Madison Investing, we want to make sure our investors are the right fit for our business...because it's just good business

Investing should boil down to your personal goals. A lot depends on your own temperament and appetite for risk. This impacts the investment vehicles people prefer. Evaluating your own preferences is very important to your investment strategy. Here are key reasons many people decide real estate syndications are not for them.

5. High Minimums

The minimum can seem a bit daunting at first, but the nice thing about real estate syndications is that usually the money you put in up front is the totality of the investment you make (meaning, you wouldn’t have to keep pumping money into it to make it successful). Over a 5-10 year time horizon, it could be significantly cheaper than a single family rental, with the initial investment typically starting out at about $50,000.

$50,000 is a serious chunk of change. Any decision worth putting $50,000 into should be fully fleshed out first, which is why Madison Investing works with accredited investors only. Our goal is that your investment is worth your while, and part of accomplishing our goal is to make sure those we work with are in a situation to make this type of investment. If you have the investable capital, don’t let this minimum deter you.

4. Risk

If you don’t like to take risks in life, even calculated risks, it might be uncomfortable to come to terms with the reality that like no real estate investments are risk-free. The reality is this: with any investment, you can lose some, or all, of your capital.

Many investors balance this risk with information. There is heavy lifting involved in performing due diligence to vet each deal you are investing in. This is why Madison Investing devotes much of our time and effort on analyzing and vetting each deal that comes across our desk. We calculate risk by analyzing the market (and sub market), the operator(s), and the deal itself. Only deals that pass our vetting models are then presented to our clients.

3. Your Financial Advisor doesn’t see the point

We run into this comment a lot when talking to first time real estate investors. Real estate syndications are a niche investment vehicle. Many Financial Advisors and Certified Financial Planners (CFPs) do not have expertise or experience in this field. They often haven’t invested in one, themselves or helped their clients invest in them. Furthermore, many CFP's compensation structure does not allow them to profit from financial products beyond what they gain commission on.

Cash flowing real assets are a concept that evade many CFP's that have been diligently trained on the Four Percent Rule. The Four Percent Rule states that when in retirement, you can withdrawal 4% of your investment portfolio each year for a comfortable life.

This is why we advocate for a cash flowing investment strategy so that you can diversify your sources of income and your investment portfolio.

2. It's Too Complicated

Real estate investing can be complex, particularly when you're scaling your investment to a 100+ door multi-family apartment building or a self storage fund. We can empathize with this. When we first started investing in real estate, we wanted something we could wrap our minds around, so we invested in single family rentals.

Several years later, we realized we lost valuable time and capital on a mismatched investing strategy to our lifestyle and goals. We allowed our fear of the unknown to monopolize our investing goal setting. This is a big reason we do what we do now. Syndications can seem intimidating. It's our goal to take away the fear of the unknown and replace it with information and partnership with some of the best operators in the business.

1. Less Control

To be a passive investor, you have to trust a competent asset manager to actively take care of all the work. You are gaining time back, and giving up control to a qualified handler of the investment. That’s the trade off.

There isless control in a real estate syndication when compared to other types of real estate investing, such as purchasing single home properties.

This aspect can be difficult to overcome if you are the type of person who likes to have a lot of say in how things are managed. Real estate syndications are passive, as the investor becomes a LP (limited partner) and not a landlord that holds any of the decision making responsibility. On the flip side, this makes syndications a great option for people who don’t have tons of time on their hands.

You won’t be able to make renovations as you see fit or manage the property, but you will still be getting the returns without having to put in all that work. Less control also means less time committed.You’ll be less bogged down with the day-to-day management, while still reaping the reward.

Final Thoughts

At the end of the day, you have to do what is best for you. Real estate syndications aren’t cut and dried. They aren’t a one size fits all. It depends on what your goals are for yourself and for your financial future.

Working with the right people will take you far and alleviate the perceived drawbacks of the process. Real estate investing can play a major role in building financial freedom, and we are here to help you every step of the way. So, if you think syndications could be the right investment for you, let’s get started.