The Dangers of Syndications

April 12, 2020 | By: Noemi | 0

Grant Cardone Capital suspending distributions to all investors.


“It’s headlines like these that remind me that many investors partake in deals with happy ears only to be left with a 3,5,10 year capital commitments with the unknown of what will be made of their hard earned capital” – Co-founder of Betterturnkey

Given the recent news of arguably one of the most famous real estate investing “gurus”, we thought it necessary to provide a little overview of syndication to be sure you are checking off the items you need to know. If you have a self-directed IRA or substantial investment funds, you no doubt have considered investing in real estate. However, you may lack the funds to invest on your own or the desire to deal with the hassles of property management. A viable option for you may be to invest in a real estate “syndication” (i.e., a group real estate investment, also known as a Private Placement Offering) as a passive investor.


Schedule a FREE strategy call today!
Schedule Here


What is a Real Estate Syndication?
In a real estate syndication, a “sponsor” or “syndicator (which may be an individual or an entity) will typically identify a real estate asset, such as an existing commercial or multifamily property (or vacant land for development) or single-family fix-and-flips that will yield a sufficient return to pay themselves and their investors from cash flow during operations and/or equity on resale.

The sponsor may obtain institutional financing for a portion of the purchase price and then pool funds from private investors to finance the down payment and closing costs, or he or she may raise all of the purchase money from private investors. The sponsor’s job will consist of finding a suitable property, putting the group of investors together and managing the asset on their behalf. In exchange for these efforts, the sponsor will receive fees and/or a percentage of the “distributable cash” (i.e., profits) left after all expenses and loan obligations have been paid.

What Kind of Returns Do Syndications Offer?
Typical investor returns can range from 6 % to 12% (or more) annualized, calculated against the amount of money invested. The range varies, based on the type of investment and the level of risk to which an investor may be exposed. The higher the return offered, the greater the risk.

For example, an investor or self-directed IRA might take a position as a “debt partner,” in which case the returns will be calculated as interest on the amount invested. Such returns may be in the lower ranges, but the debt partnership position may be “preferred” or “secured” by a lien against the real estate, which is a lower-risk position.

Another option for investors is an “equity partnership” position, where the distributable cash is split proportionately between the group of investors and the sponsor, whose compensation can range from 25% to 50% of the distributable cash. In this case, the investor returns may be greater, but they will be dependent on the performance of the property and the sponsor’s ability to maximize returns by increasing income and minimizing expenses.

What Information Should I Get from the Syndicator?
Prior to accepting any investor funds, the sponsor is required by securities laws to provide a set of offering documents that explains the terms and discloses the risks of the offering to prospective investors. Further, sponsors typically answer to their investors by means of periodic newsletters, financial reports and/or teleconferences. Unlike a stock investment, investors may also have some limited voting rights regarding major decisions affecting the company or their investment.

Checklist: 10 Things You Should Know
Before investing in a real estate syndication, you should carefully review all of the offering documents provided by the sponsor and look for (or ask) questions regarding the following things:

  1. The Sponsor’s background, education and experience with similar investments, if any.
  2. The team members involved in acquisition and operation of the property, including attorneys, CPAs, other members of the sponsor, property managers and affiliates that may receive fees, etc.
  3. Cash distributions to investors during acquisition, operation and disposition of the property, including the proposed timing and anticipated percentage returns.
  4. Sponsor fees and cash distributions.
  5. Anticipated duration of the investment.
  6. Property information, including its type and condition, the purchase price, financial history, proposed “value add” and exit strategies and pro forma financial projections.
  7. Dispute resolution provisions.
  8. Voting rights of investors.
  9. Provisions for removal of the sponsor.
  10. Information about the law firm that structured the offering and drafted the offering documents, and whether the firm is experienced with securities offerings.


Seek Professional Advice
In addition to satisfying yourself with respect to all of the items listed above, you should seek the advice of your own attorney, financial adviser or accountant regarding the investment.

Your attorney should determine whether the offering complies with applicable securities laws. A sponsor that disregards the applicable laws (or drafts its own documents) may expose itself and the entire investment to unnecessary civil or criminal liability, or it may be unaware of its fiduciary obligations to its investors.

Your CPA or financial adviser should evaluate the financial merits of the investment based on past financial statements for the property and pro forma projections provided by the sponsor, as well as its suitability for your investment portfolio.



May 25, 2020

We Beat the S&P 500 on Risk AND Return. Here’s the secret formula

Over the past several years, we have beat the S&P 500 on both risk AND return. In this article, I’m going to show you how we did (do) it. You see, when people talk about their portfolio...

By: Noemi

May 11, 2020

COVID-19 Economic Update

The closely watched monthly employment report released on Friday contained the anticipated levels of historic job losses.  States and the federal government continue to grapple with controlling...

By: Tom Staub

April 17, 2020

Fannie Mae: Home sales to decline by 15% in 2020, what about property prices?

Meanwhile, low interest rates are expected to keep mortgage refinancing volumes high throughout the year. At the end of last year, economists expected that 2020 would be a strong year for...

By: Noemi

April 12, 2020

The Dangers of Syndications

Grant Cardone Capital suspending distributions to all investors.   “It’s headlines like these that remind me that many investors partake in deals with happy ears only to be left with...

By: Noemi

March 18, 2020

The places a COVID-19 recession will likely hit hardest

At first look, it seems like the coronavirus pandemic is shutting down the economy everywhere, equally, with frightening force and totality. In many respects, that’s true: Across the country,...

By: Betterturnkey

private money
March 09, 2020

Private Money Lending: The most passive form of real estate investing

Our lender average an annual return on their capital of more than 12%! Private money lending is a different kind of real estate investment with plenty of attractive benefits. If you’re...

By: Betterturnkey

February 24, 2020

2020 Real Estate Update from Harvard University

Despite slowing demand and the continued strength of new construction, rental markets remain extremely tight. Vacancy rates are at decades-long lows, pushing up rents far faster than incomes. Both...

By: Betterturnkey

January 30, 2020

Is Huntsville, AL a Good Investment Market?

Should You Invest In Huntsville Real Estate In 2019? Huntsville Turnkeys are hard to find these days a solid ROIs. Investing in real estate is touted as a great way to become wealthy. Is Huntsville...

By: Betterturnkey

July 02, 2019

Difficult Market? Here’s How to Begin Investing Elsewhere

You want to get started in real estate investing, but your local market seems tough. Is it time to look elsewhere for opportunities? Probably! If so, when and how should you start investing...

By: BiggerPockets

May 21, 2019

The Wealth Function, Fed Cycles & Permanent Losses

By Daniel R. Amerman, CFA In the previous analysis we explored the relationship between a new generation of heavy-handed Federal Reserve interventions – and the highest asset prices in...

By: Betterturnkey

May 19, 2019

Top Real Estate Investment Strategies

Investing in real estate is one of the best ways to make money, partially because of the many options it gives to both part-time and full-time investors. However, due to the many different...

By: Betterturnkey

May 12, 2019

The Top Ten Cities For Investing Considering Risk Versus Reward

Here are the top ten cities to invest in according to Compound a New York-based real estate technology company which creates city-specific investment funds. Compound recently released its Q1 2019...

By: Betterturnkey

April 20, 2019

Why You Need to Stop Trying to Predict the Next Real Estate Market Crash!

Where’s the real estate market going in 2019? Everybody wants to know. It’s been a little squirrelly, going up and going down—it’s kind of all over the place. So a lot of...

By: BiggerPockets

April 12, 2019

Pay Less in Taxes: Essential Deductions for Rental Property Investors

Want to keep more of your hard-earned dollars in your pocket? Making sure you are maximizing tax deductions on your rental properties is one of the best ways to do that. How to Lower Your...

By: BiggerPockets

April 11, 2019

Home Prices Up 0.6% in February—Smallest Year-Over-Year Gain Since March 2012

Prices fell more than 8 percent in San Francisco and San Jose, up over 10 percent in Newark, Milwaukee and Buffalo. U.S. home-sale prices increased just 0.6 percent in February...

By: Betterturnkey

Send to Friend

Email Agent