Evaluating Real Estate Syndication: Risks and Considerations

Real estate syndication can be rewarding, but requires financial stability and thorough due diligence.

### Navigating Real Estate Syndications: Understanding Risks and Rewards
* 🏢 "Are dumb doctor deals always dumb? The majority of my net worth is in the **stock market**, and I'm considering **debt-free exposure to real estate** through syndication."
* 💰 While there are successful private equity and real estate syndication investments, they are often **exceptions rather than the norm**, with many individuals entering deals they do not fully understand.
* 📊 Real estate syndications require a level of sophistication that differs significantly from simply buying publicly traded stocks, necessitating a **solid financial foundation first**.
* 📋 Before engaging in syndication, it's crucial to assess the general partner's commitment by checking how much of their **own net worth** is invested in the deal and if **family members are also involved**.
* 🔍 Conduct thorough due diligence, including understanding the **operating expenses** and reviewing the **track record of the syndicate**, as many present enticing opportunities without **substantial experience**.
* ⚠ Entering real estate investments prematurely, before reaching the appropriate financial step, can lead to poor decisions, especially if **essential financial goals are neglected**.
* 📉 Recent market fluctuations, such as rising interest rates, highlight the need for investors to be prepared for **potential capital calls or lack of distributions**, emphasizing the importance of having **sufficient financial reserves**.

Are dumb doctor deals always dumb? The majority of my net worth is in the stock market. I'd like to get some debt-free exposure to real estate. If I'm not sacrificing the financial order of operations, is it foolish to try syndication? You know, this is actually a

great question, and we get—we get a decent amount of hate on this because we do talk about dumb doctor deals. We do talk about really expensive, poorly thought-out, poorly executed private equity deals. But that's not to suggest that they're all bad. There are some

private equity type investments that have really big payoffs, or real estate syndicate deals, or real estate syndications, or, you know, things like that that have wonderful ROIs and create great experiences. But in my experience, those are the exceptions more than the

rule. More often than not, I see people that are not at the place in their financial journey they should be get involved in deals they don't really understand. Because once you do start getting into either private equity or real estate syndications or investments like that,

there is a level of sophistication required. You need to understand what you're doing. It's not as simple as like opening up a brokerage account, just going and buying a publicly traded stock. They operate very, very differently than that. Look, this is—um—you have to have the

make-wealth behaviors first. And I think too many Americans are—they do what they *think* wealthy people do versus actually taking the steps. And that's why I think when you get into real estate investment in general, this is a step eight of the financial order of

operations step, because you have to have your financial foundation underneath you. And then, but by all means, once you get to step eight, if you want to get into real estate and let's talk about syndication specifically, the thing I've seen is there are very—there are people who have

gotten, become very successful off of doing real estate syndications, but I want to give you some ground rules of things you ought to ask. First of all, find out how much of the general partner's net worth, or of their own investments, are in the deals themselves.

participating; how many of their family members are also involved in this same syndicate? Because I think that you want to make sure they have skin in the game, and this isn't just, you know, something that they do to generate revenue for themselves. Find out what

their, you know, percentage of the operating expenses are annually, because—and then also, you know, just make sure you've seen the track record. Because there's a lot of people out there that have brochures, or maybe don't even have much experience doing this, and they're

out there, you know, saying, 'Hey, all you have to do is go build an apartment complex, and we'll we'll do this and this and this and this, and you'll be rich!' And they don't get into the location, the research, all the things that they're

doing; occupancy, you know, it does matter who you're going into business with. So that's why I tell you this is definitely—put on your 3D glasses, do your due diligence and research. It's not like you can just go do a Google search and say

Hey, give me the best real estate syndicates, and you're going to land on your feet because, um, there's a lot of work that goes on behind the scenes to make sure you land well. That's why, back to the point, this is a step

eight. If you're not even anywhere near step eight, because we've seen that in some people who've reached out to us recently, if you're not funding your WTH because you want to get into a real estate syndicate, you might have done this out of order; you're doing it wrong.

And the other thing you want to make sure is we can always, especially when it comes to real estate, we always understand what the brochure tells us: 'Oh, I'm going to do this, and then I'm going to do this, I'm going to do this, and it's

going to be great.' Well, often times it doesn't work that way. I mean, even in this past year, we saw interest rates at a much higher level than they were traditionally; a lot of real estate type investments have been hammered. And so you, if you were an investor in those,

either needed to be able to sustain not getting capital distributions or even potentially be subject to capital calls. So this is step eight: you want to make sure that you have deep enough pockets that you can weather when the investment environment is not perfect for the particular deal or structure that you go into, because it's not always the same in all market environments.

Watch THIS Before Investing In Real Estate!

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Evaluating the Risks and Rewards of Real Estate Syndication

While some real estate syndication deals offer significant returns, many are poorly structured and executed.

Successful syndications are exceptions rather than the rule.

Syndication requires financial sophistication and understanding; it's not as simple as stock market investing.

Prioritizing foundational financial health is crucial before considering syndication.

Ground Rules for Evaluating Real Estate Syndication Deals

Assess the general partner's personal investment in the deal and family involvement.

Examine the general partner's annual operating expenses percentage.

Thoroughly review the track record of the general partner.

Scrutinize details like location, research, occupancy rates, and due diligence.

Syndication as a Step in the Financial Order of Operations

Syndication should only be considered after establishing a strong financial foundation.

Brochure promises often don't reflect reality; market fluctuations impact investment performance.

Investors need to be prepared for potential capital calls or lack of distributions.

Financial resilience is key to weathering unfavorable market conditions.