Rental Property Investor · Philadelphia, PA · Member since 2020 · 23 posts · 15 votes
I'm considering buying in to a syndication with some cash on hand.
BUT! I have plenty of avenues to use leverage to increase my syndication buying power (HELOC, Pledged Asset LOC, 401k loan). Everyone talks about using these as a means of buying rental properties, but what about using them to buy into a syndication deal?
Direct ownership in rental properties just isn't right for me personally (at this point in life), but I'd love to use leverage to increase my wealth.
Interest rates are all low enough (4-5%) that it makes sense on paper, even if the ROR doesn't hit its full targets (15%).
I don't think I'll be over-leveraged (but that's a relative term around here since a lot of the BP audience seems to leverage like crazy). I'm a high W2 earner, with a stable job, and I don't have any other investment related debt currently. My current debt-to-income ratio is about 30% - includes car, home, vacation property, and credit card (used for expenses and purchases and is paid in full monthly).
Investing in a syndication with borrowed money can enhance your returns, but it comes with the trade-off of increased risk.
The downside comes in two different forms: If the investment doesn't work out and you incur a loss, you'll add insult to injury by being left behind with debt to pay off. And if the investment returns are less than expected, or there is no cash flow at all, you can be left with partial or complete debt service out-of-pocket.
If you use debt, be sure that if the investments had zero cash flow you could still service the debt without altering your lifestyle. If you are comfortable with the risks and going into it with your eyes wide open, that's one thing. If you are stretching it, that's a whole different story.
As a sponsor, I'd really prefer that investors don't invest in my offerings with borrowed money, and if asked, I'd discourage them from doing so.
Thanks for the reply. Yes, I have made my way into the high earner category over the last 2-3 years. I've always had a good salary but only recently would I qualify it as high-earning. Its only been in the last 12-18 months that I didn't have a per-determined use/purchase/renovation for that new money coming in. So now I'm exploring how to put this money to work.
The thought to use debt was essentially a means of kick-starting my involvement in a big way early rather than save to invest and grow down the road. Through the great discussion points here, I am NOT going to use debt for syndication. Instead, I have some cash right now that I'm ready to deploy, and I'll add to my syndication positions as more money comes in.
HELOC would be better for when you would benefit from rapid access to funds for investing when you could refinance shortly thereafter. Right now Rates are in the 4.5% plus range and if you are using variable terms, there is the potential to be 5.5 or 6+ in the expected 3-5 year syndication deal (although often the turn over faster . Seems if you're really looking to use your equity funds to invest in a three to five term syndication, you'd really be better off doing a refinance with cash out option and then your money would be at probably 2 1/2 To 3% Amortized over 30 years. Once you're into a small handful of syndications, each deal comes to fruition anyway and then you have that cash to invest without having to leverage in such high risk terms. 
Hi @Elliot Landes. About nine months has gone by since you posted this. You got some great responses here. Has your thinking evolved since your last post above?