Real Estate Syndications: How I Dipped My Toes In

It was time to dip my toes into the water… or rather land. You may have noticed that there are no posts about real estate on this blog. That’s because up until very recently, I knew very little about it and had no spare cash to invest in it until we paid off my student loans earlier this year. But I finally took the plunge into real estate syndications, and I wanted to share how that unfolded.

Where I Started

As I mentioned, when I first got started with my financial goals and plans, I was laser-focused on my student loans. This is the first year I opened up a regular brokerage account at Vanguard. Up until now, I’ve been resisting all the advice to learn more about real estate and get some money in the game. Like many of you, learning about finances is a journey and requires continuing education. What’s great about being in this physician finance space is having access to folks who have experience with real estate investing.  But, even with offers of direct mentoring to buy my first rental property, there was also this fear of the unknown. I was filled with thoughts like, “Ugh, it seems so complicated and a lot of work,” and that kept me from taking that first step. Then I discovered real estate syndication and decided to take another look.

Real Estate Syndications for Dummies

First, what is a syndicate? A syndicate is a way for multiple investors to pool their money into an entity to purchase real estate. Why? This allows them to invest in much bigger properties than any individual investor could do on her own. Think large apartment buildings, self-storage facilities, senior resident living homes – these are examples of commercial real estate.

Sponsors and Investors in Real Estate Syndications

Syndicates consist of a sponsor and investors. The sponsor is the one person or company that has experience and manages the deal on behalf of the investors. They generally have skin in the game too, often putting up between 5-20% of the total equity. The investors are people like you and me who would like to invest in this type of real estate, but prefer to be a passive investor, or what’s called a limited partner. Syndications are generally set up as an LLC and the investor owns an interest in the LLC. Let me back up a bit, though. You may be wondering why these seem “new” – at least I did. Up until recently, general solicitation for private offerings was prohibited (meaning no public advertising of securities to investors – like through the internet). You basically had to know someone–a friend, a neighbor, and so on–who did these deals. That’s where the term “country club” equity comes from. The JOBS Act of 2012 relaxed general solicitation rules as long as certain conditions were met, including that each investor is accredited. An accredited investor is an investor who meets 1 of the following criteria:

  1. She has annual income of at least $200,000 for the last two years with the expectation of earning at least $200,000 in the current year or
  2. If she’s married, they have a combined income of at least $300,000 each year for the last two years with the expectation of earning at least $300,000 in the current year or
  3. She has a net worth of at least $1 million, excluding her primary residence, either individually or jointly with her spouse.

As you can see, many physicians will qualify to be an accredited investor a few years after residency.

The Pros and Cons of Real Estate Syndications

Investing in real estate syndications is relatively passive, making it attractive for busy folks like us. Like all investments, however, the investor should do their own due diligence and understand what they are investing in. Another attractive feature of this type of investment is its favorable tax treatment. Real estate sponsors can use depreciation to offset income and reduce the amount of current taxes on cash distributions. The taxes can be deferred until the property is sold, at which point gains on the sale would be taxed at a lower capital gains rate versus ordinary income rates. These tax benefits are passed on to investors in a real estate syndication. Investing in real estate also provides increased diversification, given that real estate has a low correlation with other major asset classes like stocks and bonds. There are other important considerations to investing in real estate syndications. A major con is the illiquidity of the investment as the money is often tied up for several years. You cannot just sell your part of the investment if you want to. You’ll have to wait until the property is sold. You also don’t own any actual real estate outright; you own a share. For a real estate newbie like me, investing in syndications is the perfect introduction to real estate. Put some skin in the game and learn along the way in a relatively passive way. Trusting the sponsor is paramount. So one may ask, how do I know if I can trust a sponsor? There is no easy answer. Spend time talking to sponsors and asking about their experience in putting together deals. A vetted introduction by someone you trust is probably how most people start.

How I Got Started with Syndications

So whom did I ask when I was ready? My friend Dr. Peter Kim at Passive Income MD. He introduced me to Alpha InvestingWhat I love about Alpha Investing is that you’ll always talk to a senior partner of the firm. They are a private group of experienced investors with strong relationships with high-quality sponsors. Alpha Investing aggregates investments from its members into a syndicate and invests into sponsor projects. This structure allows members to access exclusive real estate projects at significantly reduced minimum investments. So I jumped in. I invested in an equity deal through Alpha Investing where the sponsor acquired a $260 million high-rise 20 miles outside of the heart of Manhattan. Are you ready to jump in? Alpha Investing is an invitation-only private capital network but readers of Miss Bonnie MD can request access here. Is there anything that surprised you about real estate syndications? Have you made real estate part of your portfolio?

8 Comments

  1. Xrayvsn on November 19, 2018 at 10:24 pm

    Welcome to the world of syndication. I started investing since May of 2017 and really like the concept.

    I solely invest in multi family large apartment complexes because it is a relatively stable reliable asset class. I am happy with the returns I get and the essentially passive nature with this form of real estate investing.



    • Miss Bonnie MD on November 21, 2018 at 10:51 am

      Thank you!!! My plan is similar – stick with multi family complexes



  2. Sara on November 20, 2018 at 8:13 am

    What kind of questions do you ask as part of your due diligence? I did something like this last year with a residential home builder but they start paying you back immediately with a little each month plus 10%



    • Miss Bonnie MD on November 20, 2018 at 11:42 am

      I’ll be writing more about this in the future – but you’ll want to access to their financials (typically the last 12 months) and information about the property and location. Typically a Sponsor provides a packet of information and a call or webinar to discuss the deal and take questions.



  3. Kristine on December 6, 2018 at 6:48 pm

    What is the minimum investment on something like this?



    • Miss Bonnie MD on December 6, 2018 at 8:42 pm

      Depends on the deal. Many are 50K and up. Some start at 10K.



  4. The Real Estate Physician on December 14, 2018 at 12:02 pm

    Thanks for sharing your experience. It can be daunting at first venturing into syndications learning the terminology and knowing who to trust. I agree with you, syndications can be a great way for physicians to invest in real estate passively. Congrats on getting your toes wet!



    • Miss Bonnie MD on December 15, 2018 at 12:36 pm

      Thanks Cherry! Looking forward to learning more about these from you!



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