In today’s economy, one thing is guaranteed. The world is attempting to ditch the US dollar as the reserve currency and keeping your money in CDs and money market accounts is straight forward unsafe. For decades savers and investors found it safe to keep their money parked with their banks however the current near zero rates of interest and volatility of the U.S. dollar are justified reasons that compel more folks to find better investment strategies for their money. That’s why many investors start looking for investments which keep up with inflation (real estate, gold/silver, commodities, and certain foreign currencies and stocks.)
If Real Estate investing has been on your mind but aren’t sure where to invest, how to find the best deals or how to properly evaluate one, you may want to explore the opportunity of a passive way to invest in aSyndicated Real Estate Fund. A real estate syndicate is simply a group of investors who pool their money to purchase real estate. By pooling their money together these investors are able to purchase larger real estate properties with or without bank financing. This method of real estate investing has been a popular method of financing the purchase and sale of commercial properties such as shopping centers, office buildings and warehouses.
Private Real Estate syndicates raise funds through a private placement which is a security – an ownership interest in a company that owns and operates investment real estate. Unlike the REITs (Real Estate Investment Trusts), these investment vehicles are not publicly traded and are not priced to market on a daily basis. While REITs may have high dividend returns their publicly traded shares are subject to a significant degree of price volatility, an event less likely to occur with private syndicated funds.
Many real estate syndicates are offered as private placements, so it is important for you to understand the process and risk factors related to private placements. One of the most common risk is that the underlying investment is real estate, as a result these investments may be less liquid than shares in a REIT; when time comes the fund may be unable to sell the real property at a high enough price to generate the expected profits; or outside factors such as a further deterioration of the economy might negate the value added through rehabilitation work. Then, there is that uncertainty of unforeseen future expenses, taxes, and liability, all of which being typical real estate issues that seasoned investors are familiar with. My recommendation is that you thoroughly evaluate the risks directly from the private placement memorandum.
Syndicated real estate funds are carefully crafted by using the expertise of attorneys, accountants, contractors, investment bankers, mortgage bankers, and real estate brokers. They are structured in form of a partnership agreement or limited liability company (LLC), whose code of ethics requires full disclosure of all material facts. To further determine whether this kind of investment is for you, you’ll want to find out the experience and accomplishments of all directors and managers, the minimum required investment, the time-frame of your investment, and the potential annual return and capital gains on your money.
What I found enticing is the fact that one can invest in a private real estate syndicate by using his retirement account (IRA). A self-directed IRA is a unique hybrid tool that uses a self-directed IRA custodian and a specialized legal structure. Investments made with a self-directed IRA may grow untaxed provided the income generated is passive income.
Some other potential benefits associated with investments in these funds are:
Overall I still think it’s a smart move to diversify your investment portfolio with a hard asset such as real estate. But no matter what you invest in keep in mind that a “healthy investment” is the kind that…
Finally, if you’re seriously considering placing a chunk of your money into such a fund don’t forget to ask the hard questions such as if the managers and directors are investing their own money in the fund; how can you verify that the company is real and not a hoax; what could go wrong and if it does what happens to your investment. Use common sense and your own instinct, learn as much as you can, make decisions, and act on them quickly so that when the economic dust finally settles, your egg nest will still be there, intact and unharmed.
Contact me if you think investing in a Private Real Estate Fund is for you.