Real Estate Syndication and Unicorns, who knew?

Investopedia defines a syndicate as "a temporary professional financial services group formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks. There are several different types of syndicates, including underwriting syndicates, banking syndicates and insurance syndicates".

In real estate we substitute "companies" for individuals, and add real estate syndicates to the bottom of the list. Investors pool their money to participate in real estate investments that aren't necessarily available, or affordable individually, all while sharing risk across the entire portfolio. This concept is appealing to many investors seeking a passive return, all while feeling more confident investing with the "pack".

As a real estate investor myself, I constantly look for new and differing investment vehicles to diversify my portfolio. As a fix and flip, buy and hold and equity investor already, the thought of a passive investment in a crowdfunded source seemed appealing. I mean who doesn't want to walk to the mailbox and collect a check? After researching various platforms I realized my comfort level, most likely due to my investment control issues, with this type of investment was waning. Here's what stood out as negatives in my opinion and what I found in exchange.

1. Lengthy Turnaround Times. To simplify this even further, they kept my money for too long. Now I realize I am making long term investments, and I am comfortable with that, but as stated above, I am always looking for "the next deal" and having my money tied up in one investment for 3 years is too long in my book. The opportunity cost alone makes me uneasy. I would go into the investment with long term in mind, but what about a catastrophic life event in my family? The answer, one should have an emergency fund saved and ready, and I do, but I'm trying to prove a point. I don't like parking my money in a fund controlled by others for that long. Period.

2. Transparency. Now I know that within an offering I would be placed into a real estate asset, however in a climate where well calculated scams are much too common, I want to see every dollar accounted for. I blame this control issue on my 16 years as a firefighter, seeing people in their worst and dealing with downright evil people. The police aren't the only ones dealing with the criminal element, and as we joke, they need heroes too (the police). I digress. I get the feeling that I would not have access to the bank accounts to verify every transaction that was recorded. Thinking I'm paranoid yet? This all sounds very unusual I'm sure, but I have found a fund that will allow me to do just that, and in my mind it would take some David Blaine trickery to make those online bank accounts sing me a false narrative.

3. Investors paid first. I know I know, I'm really starting to sound like a very needy investor, and that may hold true (only child), but hear me out. I realize that managers and fund operators need to be compensated for their work, experience, connections, etc. as they do provide a very real and valuable service. However, I am also putting my hard earned money at total risk for loss, and I want to know I will be paid prior to anyone making a fee on my money. See #4, yeah I know you were going to read that next......

4. No Junk Fees. I'll try and keep this one simple. Don't charge me a fee for uploading my money into your system or project, I get it, managers need to be paid for their time, we covered that already. I am a firm believer that you earn everything you get. Period. So if the deals you are putting my money in is so great, why don't you pay me a decent return and take the rest for yourself? I'm happy if the managers make a fantastic return on my money, but earn it, and don't just skim it off the top to start. 

5. Diversify my funds. Now for most investors a $25-$50K investment is all they may be able to make into a syndicated fund. In some cases this invests you into a single asset. The success of your investment weighs solely on the performance of this one transaction. Individual market fluctuations, natural disasters, operator error, and unforeseen incidents can cause any project to head south, verified by the fact that I am currently dealing with water leaking through the foundation and into the daylight basement on one of my flips. How about a large amount of smaller investments spread out across the nation so the weight of any one "dud" will be offset by performing assets in the portfolio? 

Am I just dreaming now? Too many sleepless nights at the firehouse?

Have I perfectly described a real estate unicorn (REU*)?

I write this blog to let you know that I found a fund that ticked every box listed above, and the unicorn sleeps in my shop.

*REU is patent pending