5 Phase Guide to Investing in a Real Estate Syndication with Flite
PHASE I: CONCEPT
What is a real estate syndication?
A real estate syndication is an effective way for a group of people to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.
Why invest in a real estate syndication?
It's great because since we invest as a group, we're able to present opportunities that make it affordable for people to invest in properties passively while they collect double digit returns and appreciation with a protected and secured asset. The barrier to enter a syndication can be less than if you were to invest on a real estate property on your own.
You mitigate risks because you are investing in a group, you can earn passive income and wealth quicker than if you were to do it on your own, and you get to reap all the tax benefits involved in investing in real estate.
How is a real estate syndication structured?
A real estate syndication is made up of two groups of people, the general partners and the limited partners.
The general partners (GP’s) or sometimes called sponsors or operators, is the Flite team. We do all the work to acquire the commercial real estate property, secure financing, manage the property, and execute the business strategy and plan.
The limited partners (LP’s) are the passive investors who bring capital to the deal and in return for their investment, they collect equity or debt returns and appreciation with a protected and secured asset.
Each property is held under its own entity in a limited liability company or LLC. We’ll open separate checking accounts for each property under their LLC and treat each property as a separate business. Each of these separate entities will then be under a holding company, which is Flite LLC. Think of Flite as the parent company and under Flite are its children which are the individual entities holding each property.
What kind of real estate syndications do you offer?
At Flite, we mainly offer Multifamily and Self-Storage investment opportunities. We like multifamily because of the lower risk compared to other assets, less volatile, rising demand, easier to finance, resiliency, ability to scale, and the tax benefits. We like self storage because the asset class returns can be higher when compared to other sectors, the asset is recession resistant, we like the rent growth and positive NOI, and the cash flow and tax benefits.
What is the minimum to invest?
Typically 50k-100k depending on the amount we need to raise. We do accept less than the minimum on a case by case basis. We usually suggests people to partner up with someone they know to make the minimum investment in a deal.
What are the risks of investing in syndications?
Though there are many benefits to investing in a multifamily syndication, like any other investment, you must keep in mind, investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Some of the risks involves dependability on the market, choosing the wrong sponsor, having your money locked up during the duration of the syndication, and lack of control over the property operations because your sponsor is doing all the work on your behalf.
What are the differences between a REIT and Syndication?
The difference from a REIT, or real estate investment trust, is that in a REIT, you are typically investing in a company that holds a portfolio of properties across multiple markets. You are buying shares in a company, just like when you buy shares in a stock, that owns these assets. You don’t own the underlying real estate, but rather you own shares in the company that owns those assets.
Whereas in a syndication, you are investing directly in a specific property. That means together with other limited partner investors and general partners, you will own the entity that holds the asset. Thus, you have direct ownership.
Who can invest?
Most of Flite’s investment opportunities are 506(b) offerings, which we can accept both accredited and non-accredited sophisticated investors. A 506(c) offering is where we can only accept accredited investors.
Per the Securities and Exchange Commission (SEC), accredited investors includes anyone who meets one of the following criteria:
Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
Per the SEC, a sophisticated investor is defined by either of the following criteria below:
Has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of an investment in the Company, or
Has a professional advisor that has such knowledge and experience.
The investor also needs to have a pre-existing “substantive” relationship with either one of the general partners in the deal. The SEC doesn’t have a clear definition of what a substantive relationship means, but our syndication lawyer recommends we have a prior relationship to get to know our investors sufficiently well to know their financial/employment background and their financial ability and sophistication level well enough to know if they should invest in the deal.
Visit the SEC website for updated and additional information:
https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3
Disclaimer: The views and opinions expressed in this 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. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.