For the longest, you dreamed of becoming a thriving real estate investor. The only problem was, you needed money to make money and you did not necessarily have all of the funds required to kick start your real estate investment empire. Fortunately, you decided to become a real estate syndicator and now it’s all about continued growth and sustainability for your business.
Here’s a look at a few New Year’s resolutions and real estate investment strategies that every syndicator like you should have:
Your job is to manage every aspect of a property purchase that you and other investors take part in after pooling your resources together. You’ll also likely help with managing the property you found for the deal. A major benefit of being a real estate syndicator versus just an investor is that you can reap acquisition fees along with a portion of the rental profits that your property generates over time for all investors involved.
However, a lack of diversification is a major mistake that many syndicators make when choosing their properties. Let’s take a look at a couple of different types of diversification you should strive to achieve in the new year.
Niche-Related Diversification:
Your portfolio ideally should feature various types of real estate. For example, you should take time to learn about areas such as apartments, mobile home parks, and even undeveloped land, to name some. After all, these assets are more stable and thus might fare better than office properties would in a struggling economy. Understanding asset trends and cycles is key to having a robust portfolio.
Geography-Based Diversification:
In addition to purchasing various types of real estate properties through the syndication process, you should make it your mission in the new year to diversify your holdings geographically. This is wise because, if you have all of your real estate properties in one state, for example, this exposes you to regional economic risks that are hard to overcome if you don’t also have properties in healthier markets at the same time. Complete serious market analysis before diving into investments, but consider branching out.
Another smart New Year’s resolution to have as a real estate syndicator is to master how to keep control of your target property long enough to finish investigating it as an investment. In this situation, your aim is to maintain control of the property without risking your money.
If you’re interested in purchasing a property with other investors, note that the seller’s aim is to obtain from you the most money possible and to do this in the quickest manner possible. However, you can structure the purchase contract in a way that will minimize your exposure while maximizing your time simply by including contingencies that are well structured.
A Closer Look at the Purchase Contract Structure:
As a real estate syndicator, you can make your deposit and the purchase of the property subject to your acceptance of several conditions, which will give you enough time to fully investigate the property. The conditions you should look for include, for example, an acceptable property condition and status of all leases. You should also be happy with the property’s history of expenses and income, the title’s state, and any other items that can impact the property’s value, such as the presence of a man-made or natural hazard.
Special Contingency:
You can also include a special contingency in the purchase offer that states that you have the right to cancel the property purchase transaction if you’re unable to subscribe your group of investors during a specific time period. In other words, if you can’t raise enough cash in time, your transaction will be canceled and your deposit will be returned to you.
Another smart New Year’s resolution to adopt as a real estate syndicator? Start using purchase options. Let’s take a look at why this is.
Sellers may quickly become uncomfortable with you if you include several contingencies in the purchase contract that feature lengthy removal periods. Rather than working with you and your group of investors, they may simply wait for faster buyers. However, by using an alternative tool known as a purchase option, you gain the undeniable right to buy a given property in the period of time you specify in your purchase option.
More Details about How Purchase Options Work:
An option may range from a single week to an entire year, depending on the situation. However, most are around three to six months. In addition, you may be able to make a smaller option payment for a briefer period — an arrangement that is known as a “free look.” This smaller option payment may be a few hundred dollars, for example.
Pros and Cons of Purchase Options:
A major benefit of using purchase options is that they are typically less costly than escrow deposits because nobody becomes tied up in the purchase contract. However, options do come with a downside as well: They are not refundable. That means if you fail to purchase the given property, you lose your option payment.
Still, the ideal situation is for you to structure the option so that you receive an extension period in the event that you decide you’d like the property. Note that you’ll need to submit more money each time you take an extension, though. Also, you’d be wise to still outline contingencies in your purchase contract. The difference in this situation is that you won’t have as much time to approve the several conditions you call attention to.
Being a real estate syndicator can no doubt be exciting, but it can also be intimidating if you don’t know what steps to take to protect your money. Work with me to learn more about how you can minimize your risk and maximize your profits for the coming year and beyond!
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.