Investing in commercial real estate is not only capital heavy but also extremely demanding. To alleviate the weight, many often turn to the idea of financing properties through real estate syndication. However, when investing, everything can seem to be a trade-off and you could easily find that the weight of the initial investment has not disappeared but simply gone somewhere else.
There are several factors to consider when investing through a real estate syndicate and it is important to know the pros and cons before you commit to one.
Pros of Investing Through Real Estate Syndication
Diversification of Portfolio:
Real estate diversification is an often sought out dream for many investors, but it is not especially easy. It is even more difficult if you are directly investing in these properties yourself. Because of this, real estate syndication is often used to bring this dream to life as it allows you to invest a smaller amount of capital. This means that you can have different types of commercial properties such as warehouses, industrial buildings, apartments, and office-spaces, without worrying about the risks that come with directly owning these properties.
Minimal Risk of Investment:
“Low-risk, high-reward” is often touted around the world of investment. Maximizing the reward of any investment should be a key desire of any investor but investing is always a risky business. Many real estate syndicates attempt to reduce this risk by listing their investors as limited partners. This means that as an investor, you are not liable for any lawsuits, mortgages, liens, etc. Your only responsibility is to invest.
You Automatically have Better Experience:
Being a beginner in commercial property investment can have many perils. It often takes a well-experienced professional to spot high-reward investments and avoid traps that a new investor might not be aware of. Real estate syndication allows investors to stand on the shoulders of highly experienced professionals to increase the returns on any investment.
Cons of Investing Through Real Estate Syndication
There is a Lack of Control:
Though some investors welcome a “hands-off” approach, this is not the case for everybody. Before investing through a real estate syndicate, you should remember that it is the syndicate that runs the property and you are simply an investor. The syndicate delegates a sponsor team to oversee the daily running and investment strategy and, in some cases, general members do not even get a vote. Therefore, it is important that — as an investor — you only join syndicates that you trust.
Investments are Long Term:
When dealing with real estate syndicates, the length of an investment is often seen as a big disadvantage for some investors. Even in the case of an emergency, it is often difficult to withdraw any funds that you have already invested. Because of this, it is generally advised to not invest a significant amount of your money with a real estate syndicate. In addition to this, even though some syndicates let you know the expected date of your returns, this is not guaranteed, and your money could be held for even longer.
Much like with any investment you might partake in, commercial market investment is subject to an ever-fluctuating market. It is important to remember that just because you are investing through a syndicate does not mean you are guaranteed a significant return on your investment and you should be prepared to take a hit on your returns should the market experience any type of significant downturn.
Investing through a real estate syndicate is a big decision to make and it might get even more complex as you begin to learn about individual syndicates and their methods of investments. There are also undeniably many more factors that could come into play when choosing to make such a decision but just like in any investment you make, you should be aware of the possible benefits and risks before you make the investment.