5 Reasons NOT to Invest in a Multifamily Real Estate Syndication

It’s not for everyone.

Yes, that’s absolutely right. As good as a syndication is, it’s not the right path for everyone.

Did you know that there are actually reasons why someone wouldn’t want to invest in a multifamily real estate syndication?

Here are five reasons why you wouldn’t want to invest in a commercial real estate syndication. (Reason number five is my favorite.)

1. You need your money quickly.

When you’re investing in these large commercial real estate deals — whether it’s multifamily or another type of commercial real estate through a syndication structure — keep in mind that you’re investing for the long term. Typically these deals are held for five to seven years.

So if you’re investing in a deal in year one and something happens in your life and you need your money out in year two or three, keep in mind that your money is in that entity. While your money’s not going anywhere, it’s in there for the long term until the deal gets sold.

And the reason is there are sometimes 50 or 100 investors pooling their money into these deals. It would be a total mess if people could sell their shares and have other people acquire and enter the deal. It just wouldn’t make any sense. So your money is in the deal for the long term.

So if you think something’s coming up in your life or you’re the type of person who can’t sleep at night knowing your money is locked away in the deal and you can’t take your money out right away — even though it’s making some very healthy returns and you get all these benefits like cash flow and tax benefits — then maybe a syndication is not for you.

2. You have to be in control.

The great thing about a syndication is, you can be an expert in your career — as a lawyer, accountant, programmer, etc. You can make a good income, live a great lifestyle, and still have all the benefits that come along with investing in real estate. You can be a brain surgeon for example and have your real estate portfolio through passive investing, through syndications.

But if you’re the type of person who wants to make every decision about a deal — if you want to choose the color or if you want to vet every single tenant — if you want to be hands on with your property and not let real estate experts who’ve been in the business for years make those decisions for you, a syndication isn’t for you.

Because that’s the beautiful thing about a syndication — you are investing passively. You have nothing to do with the project; you are simply investing your capital. But if you want to be hands on, a syndication is not for you by any means.

3. You have no money to invest.

These large commercial deals require large minimums. Sometimes the minimum to invest is $50,000. Sometimes it’s $100,000 to $300,000, depending on the project. So if you don’t have that nest egg sitting aside for you to invest, then syndications aren’t for you.

And if that $50,000 is every single penny that you have left, well, you shouldn’t be investing in a syndication. You should be building up that nest egg. And then, once you are very comfortable with that, then you can be putting some money into deals as long as you meet all the other criteria, whether you’re an accredited investor, etc.

So if you don’t have any money to invest, a syndication is not for you by any means.

4. You prefer no learning.

I’m going to be a little contradictory here. In point number two, I said real estate syndications are great because you don’t have to be an expert. You have real estate professionals making all those decisions for you and you’re just investing your capital.

But still, you have to learn a little about commercial real estate because I want you to be making real estate decisions that will put you in investments that fit your criteria and risk tolerances.

So you have to know how commercial real estate is valued. You have to know how value is added to these deals. You have to learn about how markets react to different forces. You have to learn about the different syndications, syndicators, and all the various structures and how tax benefits work.

You don’t have to be an expert, but you have to have beginner’s knowledge so you can start making decisions and can decide whether opportunity A, B, or C is best for you.

So you have to hit the books a little bit. There’s tons of resources out there, whether it’s my podcast, Purchase to Profits, TV shows like mine, or other resources. The Internet is full of really successful real estate investors sharing some really great value. So you have to be able to learn and be willing to learn about real estate, and the specific ones you will be investing in.

5. You enjoy paying taxes.

In real estate — I have mentioned this many, many times before — especially multifamily real estate syndications, you get so many tax benefits through cost segregation and depreciation.

Through cost segregation, you can wipe out a large chunk of your tax liability through these benefits and the tax credits the government gives us. So if you like paying more taxes than you should — if you like handing all your hard-earned money over to the government — then a syndication isn’t for you.

Because when you invest in the syndication, you get all the benefits of depreciation and cost segregation. Then you get all this strong cash flow, but then you’re not paying very much tax because we take advantage of the tax code.

So if you enjoy paying your taxes, don’t invest in real estate. Don’t invest in a syndication and just hand over your hard-earned money to the government.

The Bottom Line

Those are the five reasons why you would not want to invest in a real estate syndication. But I can think of probably 200 reasons why you would want to invest in a real estate syndication.