Real Estate Syndication Investing

6 Replies

Good morning!

I'm looking to get into real estate syndication investing for a more passive cash flow. I don't have the time to get into rentals due to constant work travel. Id like to do my due diligence up front then be hands off. How would a deal be if offered at a 6% preferred return over the course of 5 years then 6% at the sale/refi. So a 6% cash on cash return and a 12% average annual ROI. I'm not an accredited investor but I am able to fund between 50-100k for a potential deal. I've read that between 6-10% cash on cash return is the average.

@John Rizzo depends on how aggressive their assumptions are. If their assumptions are average or lean more aggressive, those returns are not great. If they're being ultra conservative, they're not bad but also not fantastic.

You can easily find deals with 7-8% pref and 15%+ IRR projections if you're patient. Although it will be slightly more challenging for you being non-accredited. They are out there though.

It depends on what you’re looking for. We’re offering 10% preferred on deals with little to no upside and also deals at 7% pref with a 70/30 split. The 10% pref has less downside risk, but the 70/30 split has potential to return 15%+

@John Rizzo

It sounds like you have a specific deal that you're evaluating. My suggestion is to look beyond just the numbers. Do your due diligence on the operator, as well as on the market and the strategy an operator is planning to implement. Does it all tie nicely together? Do the numbers and the strategy give you a picture into the future that is in line with your expectations?  

Here're a few more posts to help you make a decision:

https://www.biggerpockets.com/member-blogs/10850/87614-interpreting-the-private-placement-memorandum-ppm

https://www.biggerpockets.com/member-blogs/10850/86626-the-pros-and-cons-of-investing-via-real-estate-syndication

https://www.biggerpockets.com/member-blogs/10850/79257-deciphering-syndication-investment-terminology

@John Rizzo totally depends on your risk profile.  The returns you're talking about are market rate returns, for a lower risk investment.  We offer an 8% preferred return that has some upside on the appreciation, but we buy for cash-flow, not value add appreciation.  Like others said above, you can get higher returns that have more upside, but they're typically value add deals that involve a little more risk.

This sounds more like a buy-and-hold opportunity rather than a value-add opportunity. Remember to always build in cushion room since assets overall are more expensive right now.

On top of what others have pointed out, what type of asset class is this and what location?  If they are giving 6% preferred on a class A asset in an urban core with population and job growth, that's a great deal.  If it's a C-class value add in a neighborhood with poor schools and higher crim,e I'd pass.  Don't get caught up with promises of high returns, analyze the deal and location and sponsor yourself first.  A lower return on a safe and growing area with a sponsor with an excellent track record may be better than a deal in a C- area with a newer sponsor.


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