All Forum Posts by: Luis Vaca

Real estate in and of it self is not  risky. Given enough time you will gain appreciation. How much time you need to gain appreciation depends on the asset, the sub market, and most importantly the investor choosing and managing the asset, and in the most extreme example your lifespan.

Risk in real estate investing comes from two sources. 

the 1st and biggest contributor is investor error. If the investor fails to accurately appraise the value of the asset at acquisition, you can lose money. If the investor fails to properly manage the asset you can lose money. If the investor over estimates rents you can lose money. There many mistakes an investor can make to lose money.

The 2nd is a economic contraction causing a lose in value such that the investor cannot continue to hold the asset through the contraction.

If your goal is to simply limit risk I would go with passively investing in a syndication. MF syndication allows you to achieve scale that you couldn't achieve on your own. Nothing protects against risk better than scale. You'll be able to get into a large institutional sized asset that historically have preformed in all parts of the market cycle. You'll have the advantage of a professional property management team. You'll have an asset manager/s with nearly inexhaustible resources to run the business plan and keep an eye on key performance and economic metrics that would indicate the necessity to execute a contingency in the business plan. 

In the current market conditions I look for sponsors that have the following:

experience in all parts of market cycle

are acquiring large assets no less than 100 units 

a proven value add strategy

offering a true preferred return (7%-8%)

a 70/30 or greater equity split

monthly cashflow distributions

invest along side their passive investors

running a 5 year business plan and have debt terms that exceed the length of the business plan( this will become important if you have to hold the asset longer than the initial business plan)

assets located in markets with strong economic indicators

To piggyback off this reply, if one's goal is to achieve "financial freedom" by having residual monthly income, is investing passively in syndications a good route? Since they are usually 2-5 years in length. Unless you keep reinvesting your earnings into other deals one after another, would that kinda be a similar way of achieving a monthly income stream?