← Real Estate Rookie
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- [00:00]
A
If you've been around real estate investing for more than five minutes, you've probably heard the word syndication thrown around. And if you're a rookie, you're probably thinking, what is that? And should I even be paying attention to it?
- [00:12]
B
Yeah, it's one of those terms that gets tossed around, like everyone's just supposed to understand it, but no one explains it in plain English. What it actually is, how it works, whether it even makes sense for where you're at right now. So today we're breaking it all down. What a syndication actually is, how people make money with them, what risks are there, and then how it compares to owning rentals yourself.
- [00:33]
A
And we're also going to talk about the other side of it, what it really takes to run a syndication, because that part gets glamorized a lot. And the reality is very different than what you see on social media. This is the Real Estate Rookie Podcast. I'm Ashley Karap.
- [00:52]
B
And I'm Tony J. Robinson. And with that, let's talk about what a syndication is like in plain English. So a syndication, without any of the crazy jargon is basically a group of people pooling their money together to buy something. Together. You can technically syndicate anything. You could syndicate a racehorse. Our friend Mauricio Raul talks about syndicating racehorses. You can syndicate a restaurant. You can syndicate buying a business. Like, that's what private equity is. It's basically a big syndication of people pooling money to go buy businesses. But obviously, this is the Real Estate Rookie Podcast. When we talk about syndications in our industry, it's a real estate syndication. So generally speaking, you have two groups of people inside of a syndication where we talk about who's involved. The first group of people are your general partners, and the second group of people are your limited partners. Your general partners are the folks doing all of the work associated with the deal, and your limited partners are the people bringing the capital to the deal. So generals are the ones doing all the work. Limited are the ones bringing the capital. Those two groups work together to buy whatever asset it is is being purchased through that syndication.
- [02:07]
A
So the next thing is a syndication, just a fancy word for using someone else's money. If you're pooling money, can you just say, hey, everybody, give me your money and I'm going to go and buy something? But really, there is a lot more to that. There is the general partners and there are the limited partners. And depending what side you're on, this could be a passive investment versus more active. When we think of your normal day Real estate investing, you're going out and buying it is more active. When you are investing in a syndication, you are passive. You have no control. You may have some, like, voting rights, right, Tony? Compared based on different things in a syndication, depending how it's structured. But other than that, you are not operating the deal, you are not finding the deal, and you really don't get a say in much at all. Also, there's a difference in kind of control versus convenience. If you're just buying a property yourself, or maybe you're in a small partnership with a syndication, you have no control. But it's also convenient. You just give your money and you let them do all the work. And hopefully you're getting some dividends, you're getting a return, or you're getting a big cash out when they sell the property in the end. So there are differences as far as that as to investing. So when you think of a syndication, really think about, first of all, what side of the syndication you would rather be on. And we're going to break into that more as to what each side looks like. But first we're going to talk more about the passive side when you are invested as a limited partner and you're just giving money to be in the deal. So this is a question that's probably popping into your head. Do I need to be rich to invest in a syndication? We often see, you know, if somebody posts about a deal that's saying it's a $50,000 minimum, $100,000 minimum to invest. And there's two different. Actually, there's probably more that I don't even know about, but there's usually two SEC regulations. Okay, so that's another thing we haven't talked about is that syndications are regulated by the SEC when where if Tony and I just went and partnered on a deal, we are not, you know, obligated to follow the SEC regulations. It's when you pool a large group of people's money and there are people that are not active. So even if it is a couple people, if they're not active in the property like Tony and I, if we invest in a deal, we both need to actually materially participate. Even if that's just Tony reconciling the bank account every month and me doing the rest, they have to have active, immaterial participation in the deal to not be under. Sorry, to not be under the SEC rules and regulations. Tony, do you want to break down the two kind of five oath? Yeah, these are those.
- [05:19]
B
Yeah, I'll break down the Differences between the types of syndications that are most commonly used. So again, Ash and I are not, you know, securities attorneys. So go talk to someone who's qualified. We're just giving you some general education here, but There is a 506B and a 506C.
- [05:36]
A
Okay?
- [05:36]
B
506B. 506C. I like to think of the. I'd like to think of the 506B as the 506 buddy. And the 506C is like the 506 commercial. Okay? So on the 506B, as Ashley said, you can raise money from people that you are already buddies with. Your friends, your family, people who you have pre existing relationships with. Where if someone from the SEC came and said, well, hey, Tony, Ashley gave you, you know, a million dollars for your deal, I can point to, you know, 700 plus episodes that we've recorded together, all of these text messages and emails, all the meetings we've been on together, the vacations we've gone on. Like, I have a pre existing relationship with Ashley, so it's okay for me to raise money from her under this 506B. Now if I just met someone today, you know, and then they gave me a million dollars, well, it's a little bit harder to establish that pre existing relationship. So 506B is for people that you already know. These are like warm contacts. These are friends, family, people that you have a relationship with. Under a 506B, you can't go and advertise on social media or any platform, really. There's no general solicitation is what it's called. So I can't go send out a mass email to 80,000 people. I can send one email to one person. But if I send it to a big list, that's soliciting. If I post on my social media, that's soliciting. If I buy a billboard, that's soliciting, right? Any type of general marketing activities that's one to many is considered soliciting. Right? So that's not Approved through a 506B, a 506C allows for general solicitation. So I can go and get on the podcast, I can get on YouTube short form. Know, I could put it in a magazine ad if I wanted. I can do whatever I want. Right? But there are limitations around who can invest in a 516. You have to be what's called A, and you have to be what's called an accredited investor. Which takes me to my next point that you have to be what's called an accredited investor to invest in a 506C. And that's basically kind of like a fancy way of saying you have to have some level of income or net worth to be able to prove to the SEC that you're what they call like a seasoned investor. Right. So the requirements for being an accredited Investor are either $200,000 if you're an individual of annual income over the last, I think it's like two or three years with reason to believe that that will persist going into next year, or if you're a married couple, $300,000 or a net worth of at least $1 million, not including your primary residence. Okay. So it can either be based on income or based on net worth. I've heard rumblings of them changing those figures because it's been the same for a while now. But I believe as of today that's still what it is. But that's the, that's the trade off. Right. 506C. I can go in mass market. So if I've got a big brand or a lot of folks, I can go market it, but I can't get the kind of everyday investors 506B. I can't market it, but I have a, maybe a wider kind of demographic of folks that I can then go market it to.
- [08:24]
A
So then the next question is, what do you actually own in a syndication and you're actually owning a percentage of the property or properties that are in the syndication deal. You'll notice that your name isn't specifically in the deed because there will be some kind of company set up that you will be a limited partner in. You are going to most likely put your money into the syndication. So give your money and then they are going to go and buy the property. So you'll mostly commit to the purchase of the property before they actually own it. Then you'll buy the property and then when they go and refinance or sell the property, that is oftentimes when you're going to be repaid or even bought out of the property. So it will really depend on the term you sign on for when you're doing the syndication. Like oftentimes you'll see it's a three year commitment where they're going to hold on to the property or they're not going to refinance for three years and they're going to stabilize the property. Tony, how do you have your hotel set up? Do you have a certain time frame as to when investors will be paid back, where you're going to refinance or
- [09:45]
B
sell the property not explicitly stated. Our Note is a 10 year note. So that's kind of the time frame that we're up against more than anything is just making sure that we either refinance or exit within the first 10 years of owning it. So we've got some flexibility there. But just going back to your point earlier, Ash, on like the structure piece, just like as an example, let's say that I'm the general partner and I need to raise, you know, just for like basic numbers sake, let's say that I need to raise $10, right? And of that $10, all of that's coming from my limited partners. If I buy, you know, say Ashley is a passive investor and Ashley buys two shares, so she spends $2. That means she owns 20% of that limited partner pie. Right, but remember the limited partner piece, not the entire pie, because me as a general partner, I own call it maybe 30%. So Ashley, with her $2 investment, owns 20% of the 70%. Okay, 20% of the 70%. So on a property, this may be worth, again, for just like round number sake, let's say the Property is worth $100. 70% of 100 is $70. 20% of 70 is 7 times 0.2, which is 1.4. Right. So Ashley owns $14 out of that $100 pie based on her 20% ownership. Right. So I know the math gets a little tricky, but just trying to break it down for you as best as we can, that when you invest in a syndication, your ownership is based on the amount of money that you put into the deal for your investment. So unless you put up 100%, you're typically not going to own 100% of that deal.
- [11:28]
A
It's some smaller percentage and you have to look for what percentage is available to the limited partners. Like in your example, you would use 70%. So there is no way that you would be able to own 100% of the property because it is two separate pools there. Okay, so now that you've invested your money into the syndication, I put my $2 into Tony's syndication. How do you actually make money in a syndication and when. So now, Tony, this is on the passive investor side and we'll go and we'll talk about the general partner side later and how they make their money. But what is your first opportunity when you put money into a syndication to actually see some money back to you?
- [12:14]
B
Yeah, well, first I'll say that most syndications, at least in the real estate space, probably aren't returning anything for the first couple of years, right? They're spending the first couple of years to really stabilize that property and stabilize that asset, improve income, decrease expenses, to be able to eke out profit and improve that profit as time goes on. So 2025 was our first operating year, like, our first full year operating the hotel. And we didn't do any distributions, right? Like. Like all of the cash stayed within that business. But we did a really, really good job, especially in the back half of 2025, of starting to reduce our labor expenses and increase our income. Like we're recording this right now in February of 2025. January and February are the slowest months of the year for a hotel. Like, incredibly, incredibly slow. But we. We doubled our January revenue year over year, but we also cut our labor expenses in half for January of 2025, right? So those are the things we're really working on in this indication, is trying to improve operational efficiency, increase revenue and all those things. So first, it takes some time to really get to that point, but usually the first opportunity you have to realize any sort of return from a syndication is through distribution. So it means that there's cash flow being produced by the property. That pile of cash flow gets to a point that's big enough to say, hey, we've got enough in this pile here to start sending money back to all of our limited partners. And it's usually a very small percentage as you start, and again, that number starts to ramp up as that deal matures and progresses. So cash flow would be the first, the second, and this is where a lot of kind of those bigger chunks of cash start to come back, is if there's a refinance. So let's say that someone buys a deal initially, maybe on some sort of bridge debt or basically like hard money, and then they refinance at year two or year three, and during that refinance, because they've again increased the income, decrease the expenses, increase the profit that's being produced, a bank looks at that and says, hey, you bought this for 2 million, but now I think it's worth 4, so I'll give you a loan for 3 million. So now there's a million dollars that they just made that they can go send back to a lot of their folks who have invested into that deal, right? So that's one way. And then the biggest thing that we typically see is that the biggest payday comes when that property sells, right? So they buy it for two, maybe 10 years later, five years later, it's worth 10. And now they just made 8 million bucks. And that's when those private money investors get a really big check at the end.
- [14:43]
A
We're going to take a quick break, but when we come back, we're going to cover what it is like to be a gp, a general partner of a syndication and running the deal. We'll be right back.
- [14:52]
C
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- [16:40]
D
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- [17:23]
A
So what's the big difference between being a passive investor in the LP side or, or being the sponsor and being part of the general partnership? So, sponsors, Tony, what is the actual duty and responsibility of a sponsor of a deal?
- [17:42]
B
Basically everything. They're the ones that are sourcing the market, deciding on the market. They're the ones that, within that market, they're the ones that are sourcing the deal. Once the deal is found, they're doing the underwriting. Once the underwriting is confirmed and they're negotiating on the contract. Once the contract is signed, they're doing all of the due diligence. Once the due diligence is done, they're the ones that are going through the, you know, managing the rehab, you know, repositioning the property, whatever it may be. And then managing the property long term oftentimes comes down to either the GP or they're maybe managing a property manager as well. So every single part of the transaction falls under the responsibility of the general partner. Again, the limited partners are really there just to bring the capital to the gps, do literally everything else.
- [18:26]
A
And when we say the sponsor, that's not necessarily one person, that's a group of people. Tony, how many people are actually in your general partnership?
- [18:36]
B
So for us, we actually set ours up slightly differently because there's only four of us involved on that deal. We didn't actually syndicate this deal. We did this as a, as a joint venture now.
- [18:46]
A
Oh, I didn't know that. Oh, then we can cut this part out or we can.
- [18:53]
B
So, yeah, because there's only four of us, we actually didn't run this as a syndication. We did it as a small joint venture. Now the difference here is that one, all of our partners have voting rights. So like I'm, I'm the, the manager of the, of our nc and I'm also the property manager, but I can be voted out at any time by my other three partners because they have the, you know, voting rights to say, Tony, you're actually doing a really poor job managing this. We want to hire someone else. I can be voted out at any time. So, you know, we meet quarterly to discuss performance and do all those things. So there's, there's a certain level of involvement that all of our Partners have. I'm still responsible for the majority of the day to day, but all of the major decision making, like I can't sell it on my own. I can't refinance it on my own. I can't even hire, I can't even replace myself on my own. Right. I have to get buy in from all of our other partners. So we structured ours as a joint venture, making sure that they were voting rights, making sure that everyone had an actual say on the different actions that go into it, and then, then keeping each other in the loop and kind of leveraging each other's expertise to make those decisions around what we do at scale for the property.
- [19:52]
A
Yeah, I honestly had no idea. This whole time I thought you did a syndication, but like, honestly a joint venture, I would way rather do that than just indication deal all day long.
- [20:01]
B
Let me just do that. Because we, we had attempted two syndications prior to that, and neither one of those were able to raise enough money to actually close in those deals. First deal, I think we raised like 4 million out of 6 million that we needed. The second deal we got like halfway on a $3 million raise.
- [20:18]
A
And I think clarify that when you mean raised, it's not like you, you know, had people give you money and then you sat with it in your bank account.
- [20:27]
B
No, that's exactly what happened. That's exactly how it happened. So we, we raised everyone's money. Right. So like we, we had all these different webinars.
- [20:35]
A
Oh, okay. I thought you would have just got commitment, but you actually got to the point of taking your money. Wow.
- [20:41]
B
We had money wired in the bank. We had 4 million bucks sitting in a bank account for this deal. And then as the funds kind of dried up, we had to go back and wire all those funds back and have other people to say, hey, we didn't get to the raise. So it was, it was a very, I think, a lot of learning. Right. Obviously very frustrating. We, we learned a lot through both of those processes, which is why for the, the third go around, we're like, hey, let's just go a little bit smaller. Let's try and simplify this process. And that was one that we were finally successful with. But, but that, that's how we set up the hotel to make it easier on ourselves.
- [21:12]
A
I, I was going to do a syndication too. I think probably it was around the time maybe when you were going to do the West Virginia one. Was that the one of them? Okay. Yeah. And mine was a campground, and we got the campground under contract. I put $100,000 earnest money deposit down, but gave myself like 60 days due diligence period or something like that. But know, I met with attorneys, everything like, okay, what do I need to do for a syndication? And then, you know, during my due diligence period, I just found so many more issues than I expected with this campground. And we ended up getting out of the deal, getting our earnest money deposit back. And I am so thankful because I don't think that I understood the responsibility of being a GP and like how much you are, you know, responsible to other people. And I just don't think that I have the first of all, I don't like to take a phone call. So having to first of all pitch to investors, you know, following up with them, like what's going on with the property. And I know there's all systems and processes to set up like that. But I really like the fact that if I make a mistake or I decide against something or I don't take action on something, and if I lose money because of it, it's me losing money and I'm not losing it for anybody else. Like if I decide to go hang out with my kids for one day and it's going to lose me $100 because I'm not doing something one day sooner, like, that's okay. It hurts me like I'm taking the loss because I want to do that. But I, I learned a bunch of things about the syndication process, but not to the full extent that you definitely have going through the deals.
- [22:54]
B
Yeah. So it's. I, I do think that for a rookie, doing a syndication on the GP side as your first deal would probably be a bigger undertaking because there's a lot that goes into it. So if you are interested in syndication as a gp, as a general partner, the person putting the deal together, my strong recommendation would be to find someone who's already done a few successful syndications and see what value you can bring to them. So, like, if someone came to me with the hotel and said, hey Tony, I've got a great hotel, that it's under contract, I just need your help with everything else. I need your help raising the capital, needs your help managing the rehab. I need your help, you know, managing it once we, once we get it, I need your help with all these different pieces. I would love to give someone a piece of the pie because they brought together the deal that maybe they couldn't execute on themselves. Right. So if you are a rookie that's listening one, send me a DM. Tony you know, on Instagram, @tonyj. Robinson, if you find something. But second, partner with someone who I think can fill those gaps for you to make it a little bit easier to get that first one.
- [23:50]
A
Yeah, it's definitely a lot of things to figure out and a lot of legal implications. And also a big thing is having someone sign for the debt. Like, if you're doing a huge deal, they're going to want. What's the word for it? The person that's going to sign on the debt that has the high net worth.
- [24:08]
B
A kp. A key principal.
- [24:10]
A
A kp.
- [24:10]
B
Yeah. And what they're looking for is someone who's like, hey, if we're going to write you a loan for, you know, millions of dollars, we need someone on your team who has the. The net worth to kind of COVID this debt that we're giving it to you. Because even if you found a great deal, even if the numbers look fantastic on paper, who knows what could happen in the future? So the banks want to make sure that they have some form of guarantee to say, hey, someone's got it. The buck has to stop somewhere. Like, we got, you know, we got to get paid. Right. So the buck's got to stop somewhere. But. But what I will say also is that depending on what size of property you go after, like our buy box specifically asked for, our hotel was. We wanted seller financing. And while that limited us on some options, it also gave us incredible flexibility in that initial acquisition because we were able to negotiate terms that. That really played really. It was a win win. Right. It worked out really great for the sellers, but also worked out really well for us. And when you have to jump through the hoops that a traditional bank might have. Might have made us jump through. So there are other levers there. I think that they might work as you're looking to put the deal together also.
- [25:18]
A
Okay, then kind of another topic if you are thinking about being, you know, a sponsor of a deal, is do you need your own money in the deal? And technically, no, you could raise all the money. But I would say, like, probably anybody that's teaching or talking about investing in a syndication, when they talk about how to vet the sponsor, how to vet the deal is one. I would say this is probably in the top five of the first questions you should ask is, are they putting capital into the deal themselves? So are they putting, you know, having some skin in the game? And I think that just shows, like, you know, they believe in this deal too. They're committed to this deal that they're investing their own capital. So I would say yes. Like you're going to have an easier time finding people to invest in the deal if you're showing that you're committing your own money and putting it into the deal too.
- [26:12]
B
I will say even, even if you are able to find a deal, raise all the capital without putting any money into the actual deal yourself, there's still other costs that you as the general partner are responsible for. There's, I mean, just putting together all of the paperwork for a syndication is tens of thousands of dollars. Like, it's, it's not a small expense to put together this, this paperwork for the deal. I think on our last indication, we spent like 3, 30 or $40,000 on paperwork. Like just on the, on the paperwork that people are going to sign was 30 or $40,000.
- [26:46]
A
And just think that's not even, like it wasn't guaranteed either. You know, like you ended up sending money back and it didn't happen.
- [26:53]
B
Yeah, like that, that's a, that's a college tuition, you know, that we just spent.
- [26:57]
A
Sorry, Sean, you're not going to college. Here's some documents, though, we blew up.
- [27:02]
B
Here's the TPM you can, you can read through. So there's that right there. There's the legal cost, there's the due diligence, just getting out to the property, you know, paying for inspections, like, even just like, like an appraisal on a commercial property is significantly more expensive than an appraisal on a single family home. An inspection on a commercial property is significantly more expensive than a single family home. Even your, your earnest money deposit, like the first, the first syndication that we attempted, we probably put in, we put in about 50 grand for our EMD. Like our EMD alone was 50 grand. And then we spent, I believe, another maybe 50 or 60 grand between our legal docs and our initial due diligence. So we were all in for about 100 grand on this deal that did not close. Right. So, like, you've got to make sure that you, someone's got to foot that bill. So if it's not you, that you have a partner who's willing to commit that, that sort of capital. But it is definitely a more capital intensive game to get into.
- [28:04]
A
Now let's talk about why a lot of people want to be sponsors and how they get paid. So here's the important thing to know right here is that they make money on the purchase and the sale, but during the actual operation, that's very minimal that they end up making especially if the property isn't performing well, if you're not seeing distributions, they're not getting distributions. You know, they can be the operator, the property manager and take, you know, charge fees for that, but it tends to be very minimal compared to the money that they make up for. So there's usually an acquisition fee, which is a huge chunk of money, and that is for paying them for their time to source the deal, to get it under contract to cover some of those, you know, upfront expenses for their time to do the due diligence and the time to collect everybody's money and get all the paper signed, everything like that. There's usually a huge sum that they're making up front from just the acquisition of the property.
- [29:07]
B
Yeah. So the acquisition fee is definitely one big piece. And then to your point, Ash, there's the asset management fee that a lot of syndications will charge, where that's on a regular basis, could be monthly, could be quarterly. The general partnership is charging the syndication a fee for continuing to manage this asset on an ongoing basis. And that's separate from the property management fee. Like there's usually again, a separate property management fee. The asset management fee is for being the person just overseeing the property to make sure that everything's moving correctly. And then the third fee would be the property management fee. Some syndication or syndicators do this in house, others farm this out. But for the ones that really want to make sure they've got cash flow coming in, they'll do property management in house. So they collect the property management fee, they collect the asset management fee, they get the acquisition fee up front. And then if there's a big capital event, sale, refinance, et cetera, they'll get some percentage of the proceeds from that as well.
- [30:00]
A
Okay, then kind of the last piece here for, you know, if you're going to be a sponsor is you need a team along with any other partners you have on the deal. You need an attorney, a cpa, you need a lender, property managers. You need somebody who's going to be able to support you in different elements. You can not do all of this yourself. And if you're buying a multimillion dollar property, sorry to say it, I really, really love Tony's short term rental calculator. I really, really love the bigger pockets calculator. That's not going to cut it. To underwrite a $100 million multifamily property, you're going to need something more complex then also just asset management support. My one really good friend is the sponsor for a syndication. And there was this one time we went on a family vacation and literally half the time she was on the phone trying to get insurance quotes for these properties and negotiating the insurance and figuring all this out. So there definitely is a lot of work that goes into the deal upfront when you're acquiring it and like throughout. So if there are things that you don't want to manually do or take care of, you're going to need to hire somebody on your team to take care of those things.
- [31:17]
B
I guess we're going to take a quick break, but while we're going, if you're not yet subscribed to the real estate rookie YouTube channel, you can find us there at Real Estate Rookie. That way you can not only hear mine and Ashley's voices, but see our faces every Monday, Wednesday and Friday. And we'll be back with more right
- [31:30]
D
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C
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- [34:55]
B
All right, we're back. So we talked about the syndication from the side of the limited partnership, the people putting money into the deal. We talked about it from the side of the general partnership, the folks who are actually managing and putting everything together. Well, let's kind of finish off by talking about how do we know if a syndication is a good deal or just total garbage. So what are some of the red flags look out for? Why sometimes projected returns can be a little misleading and just the importance of focusing on the operator's track record. So red flags In Pitch Deck, I think first and foremost it is the, it's maybe the underwriting piece that Ash talked about before we took our last break. We want to make sure that there's a level of realism, I guess, inside of the projections that we see. It's almost like, like when you see any deal and you see a pro forma from the person that's selling it, those are always like the rosiest, most optimistic, sometimes unrealistic projections that you could see. And if someone's pitching a deal to you based on the pro forma, so we're given to them by the seller, by the, by the, the broker who's on, on the deal, that will be a big red flag for me. I want to see a lot of research that went into how this deal was actually put together. Like for example, when we, like, for example, when we pitched our hotel to our potential partners, one of the things that we did to put all of our data together, we did not use my Airbnb calculator. Like, like Ashley alluded to before. Right. Because to her point, that doesn't work on a big deal. What we used was a custom underwriting tool that we paid someone a few thousand dollars to build out for us for all of our hotels. Right. Because that was the strength that we needed in our underwriting. We went through and we looked at every single calendar for all of the comparable hotels in that same town and we manually clicked through their calendar for 12 months out to get a sense of how their pricing was. We got data from the brokers on what is the average ADRs in the market and what is the average occupancy in the market. We look through all of the one bed and single room Airbnb listings to see what they were charging both historically and looking for to give us a better understanding of what the property could do. So you just want to see a level of rigor in their underwriting to make sure that they're presenting the right data. The second thing is you also want to see that they've stress tested this deal. Like what happens if the assumptions are off by 5% or 10%? What happens if they're off by 20%? Like did they just assume best case scenario or did they give some variance in, in how that property might perform? The last piece that you want to see is what is the actual business plan? Like what are we trying to execute on here? Is the goal that, hey, this is actually a really good property, but it's just maybe being mismanaged? Do we need to improve the marketing, right? Like, like if I'm buying a hotel, are they only on their own direct booking website and they're not on booking.com or Expedia or all these other travel platforms. Is there an opportunity there just to exact same property and, and maybe get more distribution? Is it a, a heavy rehab? Are we going through and are we rehabbing every single property? Is it maybe an expansion? Is there room to add more units? Like, like what is the business plan and what are the underlying economics that make that business plan sound? And then the final piece I think would be the team, like who's on the team, what's their track record? How much of this have that have they actually done before? What was the level of success on those deals or if there were failures, what did they learn and how were they incorporating that into this deal? So those are, those are the things I'm probably looking for.
- [38:19]
A
Ash, I think one thing too that we've seen more and more often is oh, they have a social media following that they're probably good to invest with. And I think that's for all things, not just syndications as oh, this person has a following, they must be trustworthy, other people must believe in them or they must be good at what they do if they, they have a huge following. So I think make sure that you're not basing doing a syndication off of, you know, popularity I guess, and really doing your due diligence on the person and the deal and the team members. So the last thing here before we wrap up is what is the worst case scenario in a syndication? If you are investing in a syndication deal, the worst case scenario is you lose it all and you get nothing back. So if you're looking at $100,000 minimum and you put in $100,000, that can mean over a two, three year span that you are getting nothing. You don't get any, you know, payouts, no dividends, nothing disbursements over that period of time and then the property fails and it could be foreclosed on by the bank, taken by the bank and you are left with nothing. There's could be sold at a loss where maybe you get part of it returned. So there are different outcomes. But when you are doing a syndication you have to understand that you are not in control. So if the property does fail, there's nothing you can do about it to turn it around and you have to rely on the people that are the operators that, that are part of the gp. So make sure you are doing your due diligence. Because in the end, you can blame the people who brought you the deal, you can blame the sponsors as much as you want. But this is a risk you have to know can happen when you are investing in a syndication that you could not get any of your money back. And I think that's one thing that I really like about being a smaller investor is that I have control over the deal and that if the property is poorly performing, that I feel like I could do some things to at least get a partial return on my investment. And I think that's a lot harder to do when you're talking huge multimillion dollar properties to be able to turn them around quickly or to exit quickly. I think we've seen a lot in the last several years. And 2021, it was, everybody became a syndicator. I mean, I almost became a syndicator. Tony almost became a syndicator. It was like the next, you got to do it. Once you're investing in real estate, the next step up is doing a syndication. That's the next big thing. And it was, deals were just flowing and there was so much opportunity, there was low interest rates and we could do a whole nother episode on what happened during the last several years. And, you know, if that's something you would be interested in, go ahead and, you know, put in the comments here on YouTube. We can kind of go over how so many syndication deals have struggled the last several years of, you know, what they, you know, went through. And a lot of it obviously has to do with the change in the market, the change in rates. And don't worry, we'll bring an expert on for you guys to, to talk about that and dive deep into the numbers on that if you guys are interested. Well, thank you so much for listening. I'm Ashley, he's Tony. And rookies, remember, syndication. Not the best way to start out in real estate investing as a rookie. Get some experience under your belt or partner with someone like Tony, find him a hotel and DM at some Tony J. Robinson. Or you can DM me if you find a lake house at Wealth Room Rentals. Okay, we'll see you guys next time. Thanks so much for listening.
- [42:23]
B
Hey, rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real estate Rookie Podcast. Now look, you don't need to be an expert, you don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener
- [42:41]
A
as a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story. Give your experience on how you got it done to help someone else get their first deal.
- [42:54]
B
So head over to biggerpockets.com/guest if you want to be a part of our show again. That's biggerpockets.com/guest and we'd love to have
- [43:03]
F
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