Syndication is a great mechanism for passive investors who do not with to actively manage their portfolio, either because they are merely interested in the returns from the cash flow and have no interest in actually dealing with a property acquisitions and management, or they lack the time to do so.
However, there is a group of people who wish to become syndicators and run a syndication business, but don’t have the knowledge, experience or the tools make it happen. They haven’t invested in real estate before – actively or passively and want to make the shift to syndication. For this group, my suggestion would be to start investing passively alongside a syndicator first, then become syndicators.
It is extremely difficult to close a deal if you have no experience in real estate, especially now because the market is hot and there is so much money chasing deals out there. Here are three ways that being a passive investor first can help you overcome the challenges above and eventually become a syndicator. In this post, I’ll discuss the challenges a person with no experience in real estate faces, and how passive investment can help remove those challenges:
1. No real knowledge about purchasing real estate and managing it
2. Lack of track record to get a deal
3. Lack of tools and track record to raise money
No Real Knowledge About Purchasing and Managing Real Estate
The Problem: future syndicators do not know much (if anything) about real estate investing, and are hesitant to invest and raise money for a deal. Being cautious is not a bad thing in this situation. After all, how can you run a syndication business without actual knowledge about real estate investment?
How Passive Investing Can Help: There is so much you can learn by investing with a syndicator, especially how they study the market, analyze deals, and create a business plan to enhance the property’s value. When you invest with a syndicator, you can learn, first hand, what works and what doesn’t, observe how the syndicator communicate with passive investors and basically learn by observing.
No Track Record To Get the Deal
The Problem: Brokers are constantly vetting buyers and make sure that only potential buyers with a high probability to close the deal will be considered to be awarded the deal. Vetting buyers is one of the main ways brokers provide value to sellers, who want to have surety of closing for obvious reasons.
How Passive Investing Will Help: By investing with other syndicators, you are able to build a portfolio that you can present the broker, especially if you are interested in investing as a syndicator in the same market you have been investing as a passive investor. Building a passive portfolio can help you build the credibility you’ll need to be considered as a serious buyer.
No Track Record To Raise Money
The Problem: Since you have no experience in real estate, you also have no track record of raising money. Most people, even those you know or even consider close friends, will not invest with you unless you have experience in real estate.
How Passive Investing Will Help: When you own real estate by investing with a syndicator, you begin to build a track record. Under the assumption the deals went well, you can prove that you know how to identify the right deals in the right markets and can present your passive experience to your new investors.
To conclude, passive investing is a great way to learn about real estate investing and a syndication business. You can how to evaluate deals, markets, and opportunities, build a portfolio, gain credibility and build a track record. By overcoming these challenges with passive investing, you are one step closer to become a syndicator.
To get your FREE copy of The Ultimate Guide for the Passive Investor, visit www.ellieperlman.com
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About the author
Ellie is the founder of Blue Lake Capital, a real estate company specializes is multifamily investing throughout the United States. She is also the host of a weekly podcast called "That REllie Happened?! Unbelievable Real Estate Stories with Ellie", a podcast that brings the true stories behind the deals, from the most successful real estate investors around the globe. Ellie started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100,000,000. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations. She holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.