01/2024 - Thoughts on Syndications / Investment Clubs

[Andres Mata]

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

[Dan M.]

Investing in a syndication is good if you want to be purely passive. Its hard to believe that any syndication would buy a property where they don't hedge the downside by buying right, or have a plan to increase rents with the market over a period of x years. It would be foolish that any syndication would not assume worst case scenario of rents coming in and be able to cover their debt for a fairly long period. I think your investing in experience and they will make the right move, just do your homework if that's the route you go.  Make sure management has a good track record and the deal they are talking about makes sense. Make sure they are investing their own money into the deal. 

However, my two cents, is investing in syndication you forgo a lot of profits yourself by being 100% passive. Yes you can make money, but its not as good as if you did it yourself or just had a partner where you have a large amount of equity in the deal. The syndicators putting the deal together usually get free equity and usually management fees to boot. 

[Chris Seveney]

@Andres Mata

Question also is what type of syndication? Is it office, multifamily, NNN, car wash, self storage, debt fund etc.

Lots of opportunities are out there as well as bad deals- what I will say is don’t put more than 20% of free cash in any one deal.

[Carlos Ptriawan]

investing in syndication is far from passive when you understand it from the whole picture. 

If you as good as bank's underwriter, then invest.

Try to get LP education from this guy, I contribute to some of his teaching as well.

[Carlos Ptriawan]

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

everything you said is actually "not accurate", I really suggest you get good and proper education, join some PRIVATE UNBIASED alumni investment club and such. If you are circled with folks that's 10x smarter (and wiser) than you, then you may get good result in any investments.

It's really not about "2 or 3 years".

[Todd Dexheimer]

The answer is now is a great time if...

1. The financing is solid with high DSCR and fixed

2. The location is good with growth metrics

3. The deal cash flows or has a clear defined path to achieve solid cash flow

4. The sponsor has an excellent track record

5. The business plan is clear and well thought out and fits your criteria

6. The underwriting is actually conservative. Rent growth at or below market historicals, sales price matching current comps/cap rate, etc

Thats a start. By your post it sounds like you should take a bit more time to be sure you fully understand what you're investing in. 

[Brian Burke]

Quote from @Dan M.:

 Its hard to believe that any syndication would buy a property where they don't hedge the downside by buying right, or have a plan to increase rents with the market over a period of x years. It would be foolish that any syndication would not assume worst case scenario of rents coming in and be able to cover their debt for a fairly long period.   

And yet, you might be surprised how much foolishness you’ll uncover if you peel back some onions…

[Carlos Ptriawan]

Quote from @Brian Burke:

Quote from @Dan M.:

 Its hard to believe that any syndication would buy a property where they don't hedge the downside by buying right, or have a plan to increase rents with the market over a period of x years. It would be foolish that any syndication would not assume worst case scenario of rents coming in and be able to cover their debt for a fairly long period.   

And yet, you might be surprised how much foolishness you’ll uncover if you peel back some onions…

 one thing that I learnt from all these syndication mistake that is that before joining "such private club" is that "I thought I know most of the risk but I found out any investment project (even outside typical syndication) can fail to some unknown circumstances"......

from plumbing to comps ............ there're just so many that i don't know. 

To the OP: your self-criticism could save you money at the end of the day.

[Brian Burke]

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

Syndications are simply a business structure where a group of people combine to carry out a business or project. It doesn’t have to be real estate—syndication as a structure is used even to fund start-up companies, oil drilling, and even race horses. So worry less about whether it’s a good time to invest in syndications and instead focus on whether it’s a good time to invest in the underlying asset class.

So if you are thinking of investing in a syndication that is acquiring multifamily real estate, for example, ask yourself if this is a good time to invest in multifamily real estate. If it is, then investing in such a syndicate is similarly well-timed.  

If you are interested in hearing some differing opinions on the multifamily market, check out the BiggerPockets podcast episode I just recorded with Matt Faircloth:  https://www.biggerpockets.com/blog/real-estate-876

Despite my current negative feelings on the large Multifamily market, you’d likely be better off investing in a syndication today than 1-2 years ago—it was the shift in the environment (rent growth, interest rates, etc) that caused the ills in the industry that sparked much of the posts you’re reading.  Done properly, an investment made today should have “priced in” the factors the were previously unexpected and resulted in trouble. 

But before you invest a single dollar, please thoroughly educate yourself on these investments—while they can be great, there are land mines and you need to know how to spot them.  Fortunately BiggerPockets happens to have a book written by yours truly to assist with this knowledge.  You have plenty of time to read it—this is hardly a rapidly-rising market that you’ll miss out on if you take your time…

[Evan Polaski]

@Brian Burke, but this is BiggerPockets, so the only investment is real estate, and the only syndication is multifamily real estate... :)

Thank you for sharing, that a publicly traded REIT is a syndication, by definition, as is EVERY public company. Most sports teams are owned by syndication groups, most corporate debt is syndicated between multiple lenders, etc.

@Andres Mata, I would agree that trying to time the market is a great way to lose. The challenge most investors have, and people in general in all areas, is they get excited about something and dive in head first. I am fine with this when it comes to learning, but when it comes to placing capital, I disagree. Idle capital is generally not good, but when you are getting into a new investment approach, stagger your investment. just like you likely do with your 401k (through consistent payroll deductions) or an IRA through annual contributions, if not monthly.

Is now a great time to buy: maybe?  Maybe not?  Most people stopped buying when COVID really hit the world hard in spring/summer 2020.  Many people on these very forums said they weren't going to buy unless a deal penciled at 20% vacancy with 10% annual rent declines for next three years.  This meant many people didn't buy deals in the run up to one of the fastest surges in pricing in a generation, if not ever.

Regardless, the point is: there are some warning flags.  First, many syndicators have had to pause distributions on otherwise good assets because they planned a 5yr hold.  For those 2019 properties, even if they have fixed rate, long term loans, when the loan transitions from Interest Only to Amortizing, that can eat a lot of cash flow.  Additionally, if their capex budget was only forecast for 5 yr hold, and they are now anticipating 10 yrs, they may be seeing roofs, exterior repaints, other exterior repairs (stairways, railings, parking lots) that they assumed they wouldn't need to address, but now need to.

Things to look for: positive DSCR TODAY, not on pro forma numbers. Leverage used only when accretive to equity (i.e. going in cap rate is below interest rate). With DSCR, you can have a strong 1.25+ by going in with more equity, but you may still be borrowing at a rate above going in cap rate, which means equity returns are diluted. This is in additional to sound real estate (asset and submarket) and sound operator (operator = property management) and strong syndicator/investment manager/asset manager.

Potential upside of buying now: if rates do as the forward curve reflects, you could be buying near the bottom.  I have a feeling that as soon as the Fed does their first rate cut, the market will go crazy, expecting continual cuts thereafter. 

[Brock Mogensen]

The syndications that are going belly up right now are mostly people that overpaid, leverage bad debt, and unexperienced operators. We are in a period of lull right now, but starting to see market shift and opportunity on the horizon....in my opinion.

[Carlos Ptriawan]

Quote from @Brock Mogensen:

The syndications that are going belly up right now are mostly people that overpaid, leverage bad debt, and unexperienced operators. We are in a period of lull right now, but starting to see market shift and opportunity on the horizon....in my opinion.

 This year is so crucial I want too see whether lender like LoanCore survive this year or not … it would be easy to reinvest in 2026

[Ian Ippolito]

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

Well, first, there are two types of "investment clubs" (and it sounds like you may not realize this).

The first (and unfortunately most common) is basically a thinly disguised way for a sponsor or sponsor affiliate to advertise and push their own deals on investors. So conflicts of interest run wild and buyer beware.

A true investment club is similar to what a true investment club is in the stock market. It is allows sourcing deals from anywhere (not just the deals from the party that runs it and who is trying to channel investors into it), and allows people to perform real, collaborative due diligence to poke holes in deals (and isn't just a "rah-rah let's go" for preselected deals), etc.

It sounds like you're looking at the first type of group. Personally I see little value in such groups (and regardless of where we are are aren't in the cycle).

Second, a 2 to 3 year deal is actually very short. And short periods of time generally expose the investor to lots of extra risks including execution risk, refinance risk, interest rate risk, etc. So as a conservative investor, I generally only invest in deals that are long-term (seven years plus). And usually a 2-3 year deal would be a "deal breaker" for me.

Now to answer your question: Every investor has a different risk tolerance, different financial situation and financial goals. So what works great for one, won't work for another. And what one investor thinks is great, another will think is terrible and vice versa.

As a conservative investor, I go with a vintage year strategy. No one can accurately predict in advance whether a particular vintage year will be good or not. And in the past, some of the best vintage years ( i.e. once in a generation opportunities) occurred after downturns (like the great recession). In that situation 2009 turned out to be bad for many but 2010-2011 turned out to be exceptional for many. 

So just like I don't try to time the stock market, I don't try to time real estate. And I also don't throw all of my money into a single vintage year. Instead I just invest a little time and spread it across multiple vintage years. It's similar to dollar cost averaging in the stock market.

Now this doesn't mean I'm not blind to the potential risks of a cycle downturn. When I see that there are more risks ( like now such as interest rates) I become more conservative. I stick to sponsors who have at least one full real estate cycle of experience with little to no money loss...ever, conservative leverage, high skin in the game, reasonable compensation ( so they aren't incentivized to push the risk envelope) etc. 

[Bubba McCants]

Quote from @Todd Dexheimer:

The answer is now is a great time if...

1. The financing is solid with high DSCR and fixed

2. The location is good with growth metrics

3. The deal cash flows or has a clear defined path to achieve solid cash flow

4. The sponsor has an excellent track record

5. The business plan is clear and well thought out and fits your criteria

6. The underwriting is actually conservative. Rent growth at or below market historicals, sales price matching current comps/cap rate, etc

Thats a start. By your post it sounds like you should take a bit more time to be sure you fully understand what you're investing in. 

 Thanks for the response.

[Andres Mata]

Quote from @Chris Seveney:

@Andres Mata

Question also is what type of syndication? Is it office, multifamily, NNN, car wash, self storage, debt fund etc.

Lots of opportunities are out there as well as bad deals- what I will say is don’t put more than 20% of free cash in any one deal.

I have seen a couple of different ones that span from single family rentals to mobile home parks and commercial real estate such as office buildings, storage builds, etc. I haven't decided particularly in anyone yet since I am gathering the necessary information at the moment to see which one would fit my interest. Thanks for the "no more than 20%" recommendation!  

[Andres Mata]

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

everything you said is actually "not accurate", I really suggest you get good and proper education, join some PRIVATE UNBIASED alumni investment club and such. If you are circled with folks that's 10x smarter (and wiser) than you, then you may get good result in any investments.

It's really not about "2 or 3 years".

Can you elaborate more on why what I said is actually not accurate, besides the 2-3 year number? Definitely agree with you that I should surround myself with more experienced people, of course, and that's the plan. I also agree that understanding the whole picture makes this less of a passive investment. 

[Andres Mata]

Quote from @Todd Dexheimer:

The answer is now is a great time if...

1. The financing is solid with high DSCR and fixed

2. The location is good with growth metrics

3. The deal cash flows or has a clear defined path to achieve solid cash flow

4. The sponsor has an excellent track record

5. The business plan is clear and well thought out and fits your criteria

6. The underwriting is actually conservative. Rent growth at or below market historicals, sales price matching current comps/cap rate, etc

Thats a start. By your post it sounds like you should take a bit more time to be sure you fully understand what you're investing in. 

Thank you for your reply! And yeah, definitely I am still in the gathering information process. I want to understand a good couple of things better before putting any money anywhere. 

[Calvin Thomas]

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

[Carlos Ptriawan]

Quote from @Andres Mata:

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

everything you said is actually "not accurate", I really suggest you get good and proper education, join some PRIVATE UNBIASED alumni investment club and such. If you are circled with folks that's 10x smarter (and wiser) than you, then you may get good result in any investments.

It's really not about "2 or 3 years".

Can you elaborate more on why what I said is actually not accurate, besides the 2-3 year number? Definitely agree with you that I should surround myself with more experienced people, of course, and that's the plan. I also agree that understanding the whole picture makes this less of a passive investment. 

 You should look at it from business cycle and cap rate cycle , I could send you some charts when it ks more safer to invest at syndication….

The risk when market at cap rate 4 compare to when market is at cap rate 6 is vastly different , you may want to wait until cap rates are stabilizing enough before investing so your risk / reward ratio is way higher.

also you need dig deeper into supply/demand in the apt market as we are now on highest supply where there is strong pressure to rent growth.

[Carlos Ptriawan]

Quote from @Calvin Thomas:

I think anyone would be nuts to invest in syndications. Many are freezing distributions because the free and low interest rates are gone. Next some will liquidate. Rest assured, they are still receiving the management fees. It's a fools game; don't follow them. Stick with either a REIT (less risk) or buy some yourself. Stay away from Ashcroft, Open (closed) door Capital and Cardone Capital.

 This is even better advice !!

[Andres Mata]

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

everything you said is actually "not accurate", I really suggest you get good and proper education, join some PRIVATE UNBIASED alumni investment club and such. If you are circled with folks that's 10x smarter (and wiser) than you, then you may get good result in any investments.

It's really not about "2 or 3 years".

Can you elaborate more on why what I said is actually not accurate, besides the 2-3 year number? Definitely agree with you that I should surround myself with more experienced people, of course, and that's the plan. I also agree that understanding the whole picture makes this less of a passive investment. 

 You should look at it from business cycle and cap rate cycle , I could send you some charts when it ks more safer to invest at syndication….

The risk when market at cap rate 4 compare to when market is at cap rate 6 is vastly different , you may want to wait until cap rates are stabilizing enough before investing so your risk / reward ratio is way higher.

also you need dig deeper into supply/demand in the apt market as we are now on highest supply where there is strong pressure to rent growth.

 Thank you for the details. If you can send my any data/charts, I would love to see them

[Carlos Ptriawan]

Quote from @Andres Mata:

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Quote from @Carlos Ptriawan:

Quote from @Andres Mata:

Hello all!

I have been researching a lot about syndications / investment clubs lately and was getting ready to start investing away, but I have found a couple of posts that mentioned that it might not be the best time to invest in syndications due to the current market conditions (many people mentioning awful returns and many even stopping distributions). I know it's not smart to try and "time the market", but what are your general thoughts on syndications / investment clubs in these current market conditions? I understand that these tend to have a return in 2-3+ years, which I am okay with. 

Am I looking at this all wrong? Any other tips for a new real estate investor? Thanks in advance!

everything you said is actually "not accurate", I really suggest you get good and proper education, join some PRIVATE UNBIASED alumni investment club and such. If you are circled with folks that's 10x smarter (and wiser) than you, then you may get good result in any investments.

It's really not about "2 or 3 years".

Can you elaborate more on why what I said is actually not accurate, besides the 2-3 year number? Definitely agree with you that I should surround myself with more experienced people, of course, and that's the plan. I also agree that understanding the whole picture makes this less of a passive investment. 

 You should look at it from business cycle and cap rate cycle , I could send you some charts when it ks more safer to invest at syndication….

The risk when market at cap rate 4 compare to when market is at cap rate 6 is vastly different , you may want to wait until cap rates are stabilizing enough before investing so your risk / reward ratio is way higher.

also you need dig deeper into supply/demand in the apt market as we are now on highest supply where there is strong pressure to rent growth.

 Thank you for the details. If you can send my any data/charts, I would love to see them

 I have tons, this is just the beginning, you find the rest from any banks website okay :

[John McKee]

You will truly never know the inner workings of each syndication.  All you have is their track record and references from other investors to go on.  Due as much due diligence as you can, but more importantly diversify your holdings so that you don't have a lot of money in just one syndication.

[Carlos Ptriawan]

Quote from @John McKee:

You will truly never know the inner workings of each syndication.  All you have is their track record and references from other investors to go on.  Due as much due diligence as you can, but more importantly diversify your holdings so that you don't have a lot of money in just one syndication.

 Rest assured , LP investor would have 100% chance of saying "what the hell why are they doing this".
You would not believe how many LP investors are disappointed becaused they have been duped in some ways or another.

Investing in syndication is almost like black box literally, you pray the market support then and their execution would do well. And the bad thing from all of these, even if everything is done correctly, the GP is still the one that makes most of the money (well obviously). 

Even track record means nothing if the syndicator is investing at bad times. It's semi black box investing. And since it's black box it is far from passive investment as you keep think about it and complaining about it to other investors. LOL.

But hopefully if market is recover they can perform better.

[Carlos Ptriawan]

I give you one example, sometimes I have a though choice when I tried to flip hose, the seller doesn't allow inspection and the house is priced 1 mil (comp is 1.5 mil). But I know if I have to replace plumbing, the cost is max. 20k so I put that into budget.

Now if you are LP, you do hope the GP is doing proper DD to the asset. This is not first time I read 30 mil apartment, after they purchased they found major plumbing issue, cost to replace all plumbing: 5 million. True story. Once GP f**d up in their DD, the bill goes to LP, then they would issue capital call. So everything that they touch has some sort of risk. If PM is not good, then the LP would lose money too.  

If I purchase ten houses, the risk are known and all risks are mine with all return is mine as well , even the unknown risk can be calculated; with syndication it's hope and pray. Hoping no surprise, from the GP, from market, from the asset itself even from the PM.

[Carlos Ptriawan]

Few things for investment club (and this is good thing) :

Sometimes there's secondary offering of Fund investment that one new LP can buy from other investor, for example investor ABC LP is selling his investment at XYZ Fund VII, lets say the par value is 100k, then you buy from him with 10% discount or 90k, so you buy asset literally with 10% discount.

if you keep buying in secondary market hopefully your reward/risk is better as well. How it's being transacted in safely manner is between the syndication and old/new LP investors.