Critical Mistakes That Real Estate Syndicates Make
The following are significant errors that promoters who syndicate real estate make which cause them to fail in the running of their business.
Be certain that if you get involved in a real estate syndication project that you watch out for the following: 1.
The property selected does not have enough upside potential: The issue is that in order for the syndicate to benefit from a property, in which he shares revenue with the investor, the proper potential must be very great or there won't be room for the syndicate to participate.
2.
Tax structures are ineffective: Ever since the Tax Reform Act of 1986, real estate syndication has been much less about tax and much more about economic gain.
But there are still opportunities for tax preference and treatment that must be attended to, especially if one is using an LLC structure.
3.
Syndicates tend to put too much of their profit on the back end: A great amount of effort will be expended throughout the process of syndicating and ultimately managing the property before it's sold.
Therefore, it's a critical mistake to put too much emphasis on back end profit and not enough emphasis on being paid for services that are rendered along the way.
If they aren't careful, the syndicate could run out of money long before they reach the liquidity event that they've been waiting for.
4.
Debt structures are unfavorable: It's important when syndicating real estate to create a debt structure that is reasonable for the property and the investors that you represent.
As a fiduciary to the investors, you have to make sure that you don't take unnecessary risk.
5.
Investors don't fully understand the deal: If the investors don't fully understand the deal either the financial opportunity that you are offering to them or the nature of the properties that you will use the funds to acquire - then they won't move forward.
Clarity is king in investment transactions.
Be certain that if you get involved in a real estate syndication project that you watch out for the following: 1.
The property selected does not have enough upside potential: The issue is that in order for the syndicate to benefit from a property, in which he shares revenue with the investor, the proper potential must be very great or there won't be room for the syndicate to participate.
2.
Tax structures are ineffective: Ever since the Tax Reform Act of 1986, real estate syndication has been much less about tax and much more about economic gain.
But there are still opportunities for tax preference and treatment that must be attended to, especially if one is using an LLC structure.
3.
Syndicates tend to put too much of their profit on the back end: A great amount of effort will be expended throughout the process of syndicating and ultimately managing the property before it's sold.
Therefore, it's a critical mistake to put too much emphasis on back end profit and not enough emphasis on being paid for services that are rendered along the way.
If they aren't careful, the syndicate could run out of money long before they reach the liquidity event that they've been waiting for.
4.
Debt structures are unfavorable: It's important when syndicating real estate to create a debt structure that is reasonable for the property and the investors that you represent.
As a fiduciary to the investors, you have to make sure that you don't take unnecessary risk.
5.
Investors don't fully understand the deal: If the investors don't fully understand the deal either the financial opportunity that you are offering to them or the nature of the properties that you will use the funds to acquire - then they won't move forward.
Clarity is king in investment transactions.
