Stepping Stone into Syndications?

[Troy P.]

Good morning all,

I'll try to keep this concise without ramblind too much. My current REI investments consist of a small number of buy and hold SFH properties. They're cash flowing well and I thought this would be my primary strategy moving forward. After dealing with some of your typical "active" REI issues, I've been tossing around the idea of moving into a more passive role. I'm becoming more familiar with the concept of syndications but don't quite meet the minimum requirements to be considered accredited. My main goals are equity preservation through tax deferment and long-term growth. After looking at some options available for non-accredited investors, I'm hoping to get your advice, opinions, and lessons learned for any of the other options currently available.

1. Hard Money Lending - this seems like a no-brainer win-win but I'm having trouble finding information on how this affects taxes. Is an LLC or other entity required? Are 1031s involved? Is it filed on schedule E with little to no deductions?How is this better than throwing it all in stock market ETFs and collecting 8+%? How do you get started?

2. Crowdfunding - I understand some of these are open to non-accredited investors, but I'm seeing a lot of mixed reviews.  Same as above, how are taxes involved, depreciation, etc.  I haven't dug into all of the requirements for making this a success, so any advice here is appreciated.

3. Private Syndications - My understanding is these are few and far between and you really need a strong network in order to land one of these deals.  Do you have advice or experience for one of these?  I would assume the same level of homework is involved versus other types of syndications.

Thanks in advance for any advice you can offer!

[Jim Pfeifer]

I was in a similar situation a few years ago and I decided to sell all of my active properties.  I now invest passively in real estate syndications.  You do NOT need to be accredited to invest in private syndications, though you will certainly work harder to find non-accredited deals - they are out there.

My main recommendations when people are getting into passive real estate syndications Are:

1. Read The Hand's Off Investor by @Brian Burke - it is by far the best introduction to syndications I have found and it also digs deep into analysis - of deals, markets and sponsors.  This should be required reading for passive investors!

2. Join a Community.  Real estate syndications are long-term, illiquid investments that are completely out of your control.  Finding quality operators is the most important part of syndication investing and it is very difficult to find them on your own AND be confident that they are quality asset managers.  When I started, I listened to podcasts to find sponsors and then called them up and talked to them for 30 minutes.  Then they would send a deal and I would have to decide if I was going to wire them $50,000 from just one short conversation.  That was scary and it didn't always work out.  Once I joined a Community, everything changed.  Now, I don't invest with a new sponsor unless they are recommended to me by someone in my Community who I know, like and trust and that person has invested with the sponsor.  I still do significant due diligence, but I am starting several steps ahead because trust transfers.

3. Check out this Masterclass on RE syndications - it takes you from what is passive investing all the way through how to vet an operator and analyze a deal.

Good luck!