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Taking a Critical Look at Real Estate Syndications

Private equity real estate funds and syndications can be a great way to make money, but they can also be a great way to lose all of your money. It pains me to see so many sponsors and capital raisers promising to "2x your money in 5 years!!" with no mention of the finer details, such as the fees incurred or high risk involved.


Because Caitlin and I gain no financial benefits from any of these private equity deals, we have a lot of clients who meet with us to evaluate deals and look at them from a completely objective point of view. We believe strongly that EDUCATION is the key to making good financial investments - knowing both the good AND the bad is essential. Since sponsors typically do their part in presenting the GOOD side, we thought it would be helpful to link to two articles that take a more critical view of these syndication deals for a more well-rounded approach. Knowledge is power!

 

 

I went back and forth on whether to post this, but this Twitter thread gives a REALLY GREAT critical analysis of a recent Rise48 apartment syndication deal. This is a very popular sponsor, but they are constantly buying – their acquisition fees are almost 4%, so they make most of their money when they buy, with less emphasis on the success of the deal for investors. They also over-raise on their deals to be able to begin paying immediate cashflow – so you are contributing post-tax money and getting taxed on it again as an investment return. This doesn’t necessarily mean they are a bad sponsor, but these are things investors should know before investing.

 

 

This article discusses the psychology behind how wealthy individuals and communities are being targeted by capital raisers, who use their commonalities (profession, ethnicity, religion, etc.) to gain their trust. To me, this harkens back to the "Mary Kay" and "Pampered Chef" MLM models of the past, brought into the world of private equity fundraising.


The fundamental message of all of this is to do the research to know what you are getting into and who you are getting into it with when you invest in these deals. Ask the hard questions and don't be intimidated. You are THEIR CLIENT, so you should feel comfortable with where your money is going.


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