What Do Real Estate Syndications Look For?
Real estate syndication companies are often not the very first investment vehicle that individuals use. The average person usually invests in their work 401k, they have a savings account, they may own some equities, maybe even some Bitcoin. Real estate syndication investments are often the diversifying asset class to a well balanced portfolio. We are seeing the largest monetary expansion in human history, and stocks weekly hitting all time highs due to stock buybacks and money printing. What should investors do? Buy more stocks? Stocks do only seem to go up! The key thing is, we have seen this before, stocks do not go up forever. This is where real estate syndication plays a role in creating a diversified, and incredible portfolio mix.
If syndications are the missing piece in many portfolios, what makes this asset class worth considering? What do real estate syndication groups look for?
1. Strong Job Markets – when it comes to investing capital into a deal, syndicators want to make sure the market they are investing in has a great job market. This is important because if an economic crisis or recession comes, we want to make sure that there is a strong job market within the community.
2. Safe Communities – when diversifying a portfolio for consistent returns and cash flow, investors are often not looking to take on extreme risk with extremely high cap rates. Investors want to invest in safe communities with longevity and long term demand of rent growth with great schools that bring in thriving families and community.
3. Mismanaged assets – Great syndicators are good at assembling teams, and even better at finding mismanaged assets. Syndicators aim to find a deal that has failed property management, which often leads to vacancy, and often under market rents. This is the sweet spot. If you can bring in a better property management team, improve the living experience, reduce vacancy, and then bring rents up to the standard market average rent, you create value for tenants and investors.
4. Value Add Opportunities – I mentioned monetary expansion earlier. Right now, many institutions are overpaying for assets. Their cost of capital is lower than it is for the average investor. This is why most syndicators do not want to overpay and compete for these insanely over priced assets! We focus on value add opportunities in the B and C class property type. These assets often are 30~ years old, have not been kept up and maintained. Syndicators will improve the living experience and in turn makes the case to increase rents and in turn increasing NOI.
5. High growth sub markets – Places like Denver and Austin are very expensive. They are beautiful and popular areas to live. This is why syndicators will seek out “submarkets” or areas outside of core markets. This gives tenants the optionality to make a short travel to great job markets, great food, fun experiences and more. Affordable housing outside of cities are in demand and submarkets are where some of the greatest returns for investors are.
These 5 key things that syndicators look for are what help create growth and consistent cash flow for investors. Real estate syndications are one of the greatest tax tools and asset types used to diversify a portfolio. Follow our youtube channel to continue learning about real estate from industry experts.