Venturing in real estate syndications can be an excellent way of generating passive income without dealing with the hassles of being a landlord. It insulates you from frustrations such as the volatility of the stock market, ensuring you have a steady stream of passive income.
Here are five mistakes to avoid when investing in apartment syndications:
1. Actively investing instead of passive investing
To begin, make sure you have realistic expectations for real estate syndication. You don’t need to be overly involved in your daily activities with your investment. Allow your expert syndicator to do the heavy lifting on your behalf.
Apartment syndication is a type of passive investing in which the syndicator takes care of the day-to-day details while you focus on your life. You’re losing the point of passive investment if you’re contacting the syndicator daily. Giving the syndicator power to oversee the investment details means you’ll have more time to focus on your busy profession.
2. Make sure your sponsor has hired the right property manager
Having the right property manager helming a real estate investment project is one of the most important, if not the most important ways to help ensure its’ success, especially in the multifamily sphere.
In a good market, a poorly performing property manager with a bad reputation really can cause a deal to implode. Hiring the right property manager, then, isn’t a decision to be taken lightly or dealt with in an offhand manner.
Do your due diligence and learn whatever you can about the property manager that your sponsor has hired.
3. Not reading the PPM agreement
Carefully read the contract thoroughly to ensure you understand the investment terms. Capital stack, risk, preferred returns, voting power, and exit plan are some of the concepts you might encounter.
The syndicator, like you, wants a fair arrangement with no surprises. Get the facts straight upfront, and the transaction will run more efficiently for everyone. This way, you avoid hassles that may come out of nowhere because of something you missed in the agreement.
4. Investing with a sponsor with no “skin in the game”
Determine whether or not the sponsor is putting his or her money into the project. A sponsor who doesn’t put at least a minimum amount of their own money into a project, especially if this is their primary or only deal, is a red flag.
5. Not conducting a thorough check of the sponsors and their track record
Many investors base their trading decisions only on the numbers. They consider the holding term, returns, equity multiple, and other factors. They overlook the fact that the sponsor and their team is crucial to the success of the project. One sponsor’s competitive advantage over another is found in their networks, track history, skill set, and ability to run a contract effectively.
Devote a significant amount of effort to learning about your sponsor, their track record, and their ability to make things happen.
You can have a fruitful investment in apartment syndication if you can avoid these five common mistakes. We can help you on your journey, and ensure you experience a successful investment.
How To Get Started
The first step to invest with us is to fill out our Interest Form. We'll connect and discuss your goals, then we'll find the best investments to help you meet these goals.