Using debt to purchase into RE syndication?

[Elliot Landes]

I'm considering buying in to a syndication with some cash on hand.

BUT! I have plenty of avenues to use leverage to increase my syndication buying power (HELOC, Pledged Asset LOC, 401k loan). Everyone talks about using these as a means of buying rental properties, but what about using them to buy into a syndication deal?

Direct ownership in rental properties just isn't right for me personally (at this point in life), but I'd love to use leverage to increase my wealth.

Interest rates are all low enough (4-5%) that it makes sense on paper, even if the ROR doesn't hit its full targets (15%).

I don't think I'll be over-leveraged (but that's a relative term around here since a lot of the BP audience seems to leverage like crazy). I'm a high W2 earner, with a stable job, and I don't have any other investment related debt currently. My current debt-to-income ratio is about 30% - includes car, home, vacation property, and credit card (used for expenses and purchases and is paid in full monthly).

What does BP think?

[Brian Burke]

Investing in a syndication with borrowed money can enhance your returns, but it comes with the trade-off of increased risk.  

The downside comes in two different forms:  If the investment doesn't work out and you incur a loss, you'll add insult to injury by being left behind with debt to pay off.  And if the investment returns are less than expected, or there is no cash flow at all, you can be left with partial or complete debt service out-of-pocket.

If you use debt, be sure that if the investments had zero cash flow you could still service the debt without altering your lifestyle.  If you are comfortable with the risks and going into it with your eyes wide open, that's one thing.  If you are stretching it, that's a whole different story.

As a sponsor, I'd really prefer that investors don't invest in my offerings with borrowed money, and if asked, I'd discourage them from doing so.