Investor's Most Commonly Asked Questions (Part 2)

[Jorge Abreu]

How do private real estate syndications compare to real estate crowd funding sites?

In the past few years, real estate crowd funding sites have become quite popular as a way to invest passively in real estate. Sites like RealtyMogul, RealtyShares, and Fundrise have helped millions of people invest passively in real estate.

Real estate crowd funding sites can be a good place to find real estate syndication offerings. However, there are a few things you should keep in mind.

Most of these platforms require that you be an accredited investor in order to invest in their real estate syndication offerings. Some of these platforms do offer REITs (real estate investment trusts) as an alternative for non-accredited investors. Typically, you can invest in these REITs with a low minimum investment (you can invest in Fundrise's eREIT for just $500). If you're investing in a REIT, just be aware that you are not investing in a real estate syndication. Rather, you are investing in a fund. When you invest in a REIT, you're investing in a company that buys real estate; you don't have direct ownership of the underlying asset yourself, like in a real estate syndication. You would likely still get good returns, you would just be investing in a bunch of assets rather than a single one, and you wouldn't get the same tax benefits as with a real estate syndication.

What is the minimum investment?

Most often there is a $50K minimum investment, but this is not always the case.

How long will my money be invested?

Most often 3-7 years, unless it requires a lot of rehab, in that case, 7-10 years.

What kind of return can you expect from one of these deals?

We look for a minimum of 8% yearly COC return. Most deals are better than this! (More on this later) If you invest $50,000, each month you would earn $333. If you invest $100,000, each month you would earn $666. That is not it, however, the bigger return comes on the backside of the deal! When the sponsors sell or disposition the property after they have forced the value up by doing updates, increasing the income, decreasing the expenses, etc.; the big value comes. The profit from sell gets distributed to all the investors and sponsors according to their pro-rata share of ownership. Typically, the passive investors (that's you) will get the lion's share of all cash flow and profits. (EX: 70% investors/30% sponsors split) This often time results in a 18%-20% overall yearly return within 3-7 years!