If you've ever thought about passive real estate investing but felt held back by preconceived notions, this podcast episode is a must-listen. Jim Pfeifer addresses some of the most common myths and objections that prevent people from investing in real estate syndications. Did you think you needed a lot of money or experience to get started? Jim provides strategies for how average investors can meet minimum investment requirements through creative means like investment groups.

Here are some power takeaways from today’s conversation:

• Why people have never heard of real estate syndications
• Do you need a lot of money or experience to get started?
• Minimum investment requirements
• Where to find syndication deals or sponsors
• Real estate syndications and taxes
• Investing in alternative assets

Episode Highlights:

[02:54] Reason #1: They've never heard of investing in real estate syndications.

• Most financial advisors are not licensed to offer or receive payment for syndicated real estate deals, which is why they tend to discourage their clients from pursuing such investments. Instead, they prefer traditional investment options that allow them to earn commissions. The mainstream media and advertising industry heavily promote stock market and Wall Street investments, leaving real estate syndications with limited exposure.
• [05:31] Reason #2: They think you need a lot of money or experience to get started. 

Many people think you need a lot of money or experience to invest in real estate syndications because deals typically have high minimum investment requirements, often in the tens of thousands of dollars range. However, Jim explains there are now more accessible options available like investment groups through platforms like Tribevest that allow investors to pool their money together and get involved in deals for as little as $5,000 or $10,000 to lower the barrier to entry.

[07:23] Reason #3: They don't think they have enough money to meet minimum investment requirements. 

Deals commonly have minimums of $25,000, $50,000, or even $100,000. However, Jim notes that by saving up smaller amounts over time, such as $100 per month, or allocating a portion of annual 401k contributions, investors can eventually meet minimums after a year or so. 

[10:51] Reason #4: They don't know where to find syndication deals or sponsors. 

Many people don't know where to find syndication deals and sponsors because this type of investing isn't widely promoted or advertised. However, Jim explains that communities like Left Field Investors have curated lists of sponsor partners on their websites to help connect investors with opportunities. Podcasts, meetups, and educational resources within these groups can also help people learn about and be introduced to reputable sponsors in their areas.

[13:30] Reason #5: They're worried it will complicate their taxes. 

While Jim acknowledges that syndicated deals do require filing a K-1 tax form, he notes that a small amount of additional complexity is worthwhile due to the significant tax savings these investments can provide. With help from a tax professional, the higher costs are usually more than offset by lower tax burdens according to Jim.

[16:55] Reason #6: They don't feel comfortable putting a large sum of money into an alternative investment.

Jim advises that becoming part of an active community is very helpful for gaining confidence. Connecting with others who have successful experience investing in syndicated deals alleviates fears and provides social proof that these opportunities can be good additions to an overall portfolio.

Resources Mentioned:

Avoiding Rookie Errors as a Left Field Investor: 20 Lessons Learned From 14 Years of Passive Investing in Private Syndications by Steve Suh

https://www.leftfieldinvestors.com/6-reasons-why-everyone-is-not-investing-in-real-estate-syndications/

Advertising Partners:

Tribevest

Rise48

Vyzer

Looking for an investment strategy that offers steady cash flow and potential long-term growth? Real estate syndications might just be the answer! In this episode, Jim Pfiefer talks about his blog, “Cash Flow is King: The Benefits of Real Estate Syndications.” The episode dives deeper into some of the key benefits, particularly the powerful tax savings from depreciation and the impact of leverage on returns. He also discusses why cash flow is such a crucial consideration for investments, unlike just speculating in the stock market.

Here are some power takeaways from today’s conversation:

• Three ways to generate cash flow
• The six main benefits of real estate syndication
• How real estate syndications can be a powerful retirement strategy

Episode Highlights:

[02:27] 3 Ways to Generate Cash Flow

1. Stock market - For dividend-paying stocks, it provides liquidity and a way to get some yield on cash investments. However, dividends are typically small and it is still considered more of a speculation since the main return comes from selling at a higher price later.
2. REITs - As a company that owns income-generating real estate, REITs pay higher dividends than typical stocks. However, returns are still exposed to market volatility and you don't get the same tax benefits of direct real estate investing.
3. Real estate syndications - These provide significant cash flow from rental income operations. When combined with leverage, depreciation benefits, and appreciation potential, syndications can produce higher long-term returns than the other options. 

[05:40] The Benefits of Real Estate Syndications

1. Depreciation - Syndications allow large depreciation deductions to be claimed on tax returns in the first year, providing significant tax benefits.
2. Market appreciation - Over time, real estate assets in the syndication generally increase in value as markets appreciate. This provides additional returns beyond cash flow.
3. Tax benefits through depreciation - As mentioned, depreciation allows offsetting other income and reducing taxes. This was highlighted as one of the most powerful benefits.
4. Leverage - Investors can gain exposure to large assets while only putting up a fraction of the capital due to leverage. However, leverage comes with risk so careful analysis is needed.
5. Principal pay down - Over the holding period, the loan principal will be paid down gradually with cash flows, increasing equity stake in the property.
6. Cash flow from operations - Well-run syndications produce steady cash distributions to investors from rental income and appreciation over time.

[12:24] Building Wealth with Real Estate Syndications: A Powerful Retirement Strategy

When it comes to retirement planning, many financial advisors suggest a 4% withdrawal rate to ensure that your savings last throughout your lifetime. However, this approach often leaves retirees with a fixed income and little room for growth. But what if there was a way to generate more income while also preserving and growing your wealth? Real estate syndications offer a compelling alternative. With a million dollars invested in real estate syndications, you can expect annual cash distributions of around 7%. And the best part is, thanks to tax benefits like depreciation and cost segregation, you may not have to pay taxes on these distributions. This means you could potentially take home $60,000 a year, double the amount from the traditional 4% withdrawal strategy. Plus, as real estate typically appreciates over time, your million-dollar asset will likely increase in value, providing even more cash flow. This approach not only combats inflation but also offers the potential for a more comfortable and fulfilling retirement. So why settle for 30-30-30 when you could enjoy 60-70-80 grand in retirement?

Resources Mentioned:

Tribevest

Vyzer

https://www.leftfieldinvestors.com/cash-flow-is-king-benefits-of-real-estate-syndications/

When it comes to passive real estate investing, learning from the mistakes of others can save you time, money, and frustration. By avoiding common rookie errors, you can increase your chances of success in passive investing and syndication.

In this episode, Steve Suh shares valuable lessons he has learned from over 14 years of passive real estate syndication investing. In this podcast, he discusses some of the mistakes he made early on and key things all passive investors should focus on, such as networking, vetting sponsors and operators, and paying attention to capital stacks and debt structures. Steve also introduces his upcoming ebook, Avoiding Rookie Errors as a Left Field Investor: 20 Lessons Learned from 14 Years of Passive Investing in Private Syndications, which goes into further detail on each lesson. 

This is a must-listen for both new and experienced passive real estate investors!

Here are some power takeaways from today’s conversation:

• Learning from people’s mistakes
• The importance of networking
• The operator is the keystone of every syndication

Episode Highlights:

[06:53] Network, Network, Network

Steve's insights emphasize the importance of networking in money management and investing. Through virtual networking sessions and forums, he has gained valuable knowledge from others, allowing him to connect with like-minded individuals and explore diverse investment opportunities. Steve highlights the value of private forums, where he can interact with fellow investors and access a wealth of information, enabling informed decision-making and reducing the need for trial and error. Networking is especially crucial in passive investing, helping investors distinguish between good and bad syndicators. Steve's positive experience at the 2022 Meetup in the Left Field further highlights the energy and collaborative environment that networking creates. In summary, Steve's insights underscore how networking empowers individuals to learn, access valuable information, and connect with professionals in the field, ultimately enhancing their chances of success in passive investing.

[12:16] The Operator is a Keystone of Every Syndication

Steve compares the operator to a central principle or part on which all else depends, similar to a keystone in an archway. The operator is the one who runs the show in terms of the asset, such as the placement and management of ATMs. While there may be capital raisers and syndicators involved, it is the operator who handles the day-to-day operations. Steve emphasizes the importance of thoroughly vetting not only the sponsor but also the property management team. Understanding who is actually running the show and speaking directly with the operator or property manager ensures that investors are not deceived by just the sponsor or syndicator's claims. By delving into the granular details and gathering feedback from other sponsors, investors can make informed decisions about the operator's capabilities and performance.

[15:32] Pay Attention to the Capital Stack and the Debt Structure

Steve acknowledges the challenges faced by syndicators due to rising interest rates, particularly with bridge debt. Many syndicators got caught up in value-add deals with variable rate loans, leading to capital calls and foreclosed apartment complexes. This is usually due to complacency and not fully considering the potential impact of rising interest rates. Therefore, Steve emphasizes the need to carefully assess the debt structure and its potential vulnerability to interest rate fluctuations to mitigate risks in future investments.

Resources Mentioned:

Tribevest

Link to Steve’s blog: https://www.leftfieldinvestors.com/13-lessons-learned-from-13-years-of-private-syndication-investing/

Link to Steve’s book on Amazon:

https://www.amazon.com/dp/B0CHXDX1H8/ref=sr_1_1?crid=1J0JHS9ASO5P1&keywords=Avoiding+Rookie+Errors+as+a+Left+Field+Investor&qid=1694553827&sprefix=avoiding+rookie+errors+as+a+left+field+investor%2Caps%2C132&sr=8-1

In this episode, we delve into the inspiring story of Aaron Van Aken, a civil engineer who made a remarkable transition into the world of real estate investing. Join us as we explore Aaron's journey, uncovering the challenges he faced, the resources that helped him get started, and the strategies he employed to achieve success in this thriving industry.

Here are some power takeaways from today’s conversation:

• His transition from engineering to real estate investing
• The importance of vetting operators
• How resources like LFI, mentorship, and contacting new operators weekly helped his education
• Goals of continuing to invest quarterly and becoming self-funded through deal proceeds 
• Focusing on asset classes you understand and know rather than shiny new opportunities

Episode Highlights:

[01:47] Aaron’s Journey

As a civil engineer who owns an engineering firm, Aaron was already exposed to real estate through his work. However, as a business owner, he wanted to create additional passive income streams to supplement his variable business income. When evaluating where to focus his time, Aaron realized he could generate a good return on investment by spending less time actively managing real estate investments, compared to focusing solely on growing his engineering business. This led him to explore syndicated real estate deals. As an engineer, Aaron also enjoyed analyzing numbers and underwriting deals, which aligned well with syndication investments. Being able to tangibly see the underlying properties gave him comfort. His background helped him assess deals based on rental comparables and price-per-unit metrics.

[08:40] The Importance of Vetting Operators

Aaron noted that if he could do his first investment over again, he would have focused more on vetting the operator. At the time of his first deal, Aaron said he didn't know the types of questions to ask an operator or how deeply to dig into their background and track record. Through tools on LSI and conversations with other investors since then, he has gained more knowledge on how to properly evaluate a deal's management team.

Operator due diligence is crucial, as the management team will be responsible for the day-to-day operations and performance of the underlying property. Thoroughly understanding an operator's experience, past successes and failures, financial strength, and approach is vital for assessing investment risk and potential returns.

[09:42] Mastering Focus Amidst Shiny Objects

In order to avoid distractions and stay focused, it is important to define your goals clearly and narrow your focus. By staying disciplined and sticking to your plan, you can resist the temptation of shiny objects outside of your parameters. While there may be many interesting things to explore, maintaining focus allows you to make better decisions and move forward effectively in your industry.

Resources Mentioned:

Tribevest

www.impactequity.net 

The operator is the keystone to success in passive investing, according to syndication veteran Steve Suh. If you’re new to passive investing or you just want to learn more about investing in private real estate syndications, listen in as Steve talks about the blog he wrote called “13 Lessons Learned From 13 years of Private Syndication Investing”. He gives out valuable tips and best practices for conducting due diligence, vetting sponsors and operators, and avoiding common pitfalls. He also emphasizes the importance of vetting not just sponsors but also the operators who actually manage the properties and assets.

Here are some power takeaways from today’s conversation:

• Learning from people’s mistakes
• The importance of networking
• The operator is the keystone of every syndication.

Episode Highlights:

[05:50] Network, Network, Network

Steve's insights emphasize the importance of networking in money management and investing. Through virtual networking sessions and forums, he has gained valuable knowledge from others, allowing him to connect with like-minded individuals and explore diverse investment opportunities. Steve highlights the value of private forums, where he can interact with fellow investors and access a wealth of information, enabling informed decision-making and reducing the need for trial and error. Networking is especially crucial in passive investing, helping investors distinguish between good and bad syndicators. Steve's positive experience at the 2022 Meetup in the Left Field further highlights the energy and collaborative environment that networking creates. In summary, Steve's insights underscore how networking empowers individuals to learn, access valuable information, and connect with professionals in the field, ultimately enhancing their chances of success in passive investing.

[11:12] The Operator is a Keystone of Every Syndication

Steve compares the operator to a central principle or part on which all else depends, similar to a keystone in an archway. The operator is the one who runs the show in terms of the asset, such as the placement and management of ATMs. While there may be capital raisers and syndicators involved, it is the operator who handles the day-to-day operations. Steve emphasizes the importance of thoroughly vetting not only the sponsor but also the property management team. Understanding who is actually running the show and speaking directly with the operator or property manager ensures that investors are not deceived by just the sponsor or syndicator's claims. By delving into the granular details and gathering feedback from other sponsors, investors can make informed decisions about the operator's capabilities and performance.

[14:30] Pay Attention to the Capital Stack and the Debt Structure

Steve acknowledges the challenges faced by syndicators due to rising interest rates, particularly with bridge debt. Many syndicators got caught up in value-add deals with variable rate loans, leading to capital calls and foreclosed apartment complexes. This is usually due to complacency and not fully considering the potential impact of rising interest rates. Therefore, Steve emphasizes the need to carefully assess the debt structure and its potential vulnerability to interest rate fluctuations to mitigate risks in future investments.

Resources Mentioned:

Tribevest

https://www.leftfieldinvestors.com/13-lessons-learned-from-13-years-of-private-syndication-investing/

In this episode, Paul Shannon of Redhawk Real Estate breaks down 3 reasons why real estate investing may be a better option than the stock market – leverage, higher income potential, and tax advantages like bonus depreciation. Learn how syndications can offer preferred returns of 6-8% compared to stock dividends of 2%, and how techniques like cost segregation can accelerate depreciation deductions. 

Here are some power takeaways from today’s conversation:

• The power of leverage in real estate investing
• The advantage of income generation 
• The tax advantages of real estate investing
• Other benefits of real estate investing

Episode Highlights:

[02:38] The Power of Leverage in Real Estate Investing

Leverage, a common practice in real estate, involves using debt to finance assets. However, it's important to note that higher debt levels come with increased risk. Lower leverage minimizes risk, as owning a property outright provides security even if it doesn't generate income. By leveraging investments, such as investing $20,000 in a $100,000 house that appreciates by 10%, you can amplify returns. Leverage can be applied on a larger scale in commercial real estate, but it's crucial to manage debt and understand the risks involved. Real estate offers stability compared to stock investments, making leverage a powerful tool for optimizing returns.

[04:54] The Advantage of Income Generation

When it comes to income generation, the S&P 500 relies on dividends paid out by companies. The better the company performs and the more consistent its dividends, the more reliable it becomes as a source of income. While some dividends can be higher than 2%, reaching up to 12% for certain master limited partnerships, it's important to note that higher dividends come with increased risk. The reason behind such high dividends is often to attract investors due to underlying business instability. In general, returns and risk are inversely related, meaning higher returns indicate higher risk. 

On the other hand, real estate investments offer the advantage of higher income through cash-on-cash returns. Syndications, for instance, often include a preferred return of around 6-8% before the sponsor receives any profits. Compared to the lower returns of the stock market, real estate provides the opportunity to achieve alternative income goals with less principal investment.

[08:38] The Tax Advantages of Real Estate Investing

One of the main tax advantages of real estate investing is depreciation. Commercial properties can be depreciated over 39 years, while residential properties follow a 27.5-year schedule. This allows investors to deduct a portion of the property value each year, reducing their taxable income. Syndications can utilize techniques like cost segregation and bonus depreciation to accelerate depreciation, generating "paper losses" that offset income in the early years. However, it's important to remember that tax benefits should not be the sole reason for investing in real estate. Evaluating deals based on fundamentals and consulting with accountants is crucial to understand the specific tax implications.

[13:18] Other Benefits of Real Estate Investing

• Equity Building: By utilizing leverage and having tenants contribute to the mortgage payment, real estate investors can steadily build equity over time. 
• Appreciation Potential: Real estate has historically shown the potential for appreciation, especially during booming market periods. 
• Inflation Hedge: Real estate investments have proven to be a reliable hedge against inflation. 
• Diversification: Investing in real estate offers diversification away from traditional markets like stocks and bonds. This helps reduce overall portfolio volatility and provides a stable alternative investment option.
• Tangible Asset: Unlike stocks or other financial instruments, real estate is a tangible asset. 

Resources Mentioned:

Tribevest

Redhawk Real Estate

https://www.leftfieldinvestors.com/3-reasons-to-invest-in-real-estate-and-ditch-the-market/

Want to learn how to assess the risk of multifamily syndications beyond just the "big three" metrics? Tune in to this episode of the LSI Spotlight podcast as Steve Suh discusses six key risk metrics to evaluate, including exit cap rates, yield on cost, IRR partitioning, and more. Walk away with practical tools to perform more comprehensive due diligence on your next multifamily deal.

Here are some power takeaways from today’s conversation:

• Exploring risk metrics beyond the big three
• The exit cap rate structure
• The yield on cost
• Other metrics to assess the risk of multifamily syndication

Episode Highlights:

[01:55] Exploring Essential Risk Metrics: Beyond the Big Three

While the Internal Rate of Return (IRR), Average Annualized Return (AAR), and Equity Multiple are commonly used metrics to evaluate investment profitability, they may not provide a comprehensive picture of the risk involved. In this blog, we delve into lesser-known risk metrics that can offer valuable insights into investment decisions. By considering the pros and cons of different risk factors, we can make more informed choices to safeguard our investments. 

Let's dive into these intriguing risk metrics and uncover their significance in evaluating investment opportunities.

[03:59] The Exit Cap Rate Structure

The exit cap rate, also known as the terminal or reversion cap rate, is susceptible to manipulation by sponsors due to the uncertainty of future cap rates. It is preferable to have a higher exit cap rate compared to the entry cap rate, indicating a more conservative approach. When the exit cap rate equals the entry cap rate, it signifies a potential oversight of future conditions, which can artificially inflate returns. Understanding the relationship between the cap rate, net operating income, and purchase price helps evaluate investment performance.

[09:05] The Yield on Cost

The yield on cost is a measure of return that takes into account the stabilized net operating income (NOI) and total project costs, which may not be realized for a few years. It is calculated by dividing the stabilized NOI by the sum of purchase price, capital expenditures, closing costs, and fees. Comparing the yield on cost to the market cap rate reveals the development spread, a key indicator of deal riskiness, with Brian Burke suggesting a minimum spread of 1.5% to 2.5%.

[10:52] IRR Partitioning

IRR partitioning involves separating the total IRR of an investment into the portion from cash flows during the holding period and the portion from the sale proceeds at the end. For a typical 5 year multifamily deal, the IRR partitioning may be around 25% from cash flows during the holding period and 75% from the sale proceeds, indicating moderate risk. Ultimately, a higher percentage of the IRR coming from cash flows during the holding period indicates lower risk since those cash flows are more stable and predictable, while a higher percentage coming from the sale proceeds at the end carries more uncertainty and indicates higher risk.

The other metrics mentioned by Steve include the breakeven occupancy, default ratio, and debt service coverage ratio.

Resources Mentioned:

6 Metrics to Help Assess the Riskiness of a Multifamily Syndication

Tribevest

In this episode, Joe Phillips shares his journey of venturing into the passive investing space and the valuable lessons he's learned along the way. Discover the untapped potential of syndication, how to overcome the initial hurdle of writing your first check, and the benefits of diversification and group vetting. 

Here are some power takeaways from today’s conversation:

• Navigating the passive investing space
• Getting out of your comfort zone
• Setting up guardrails for yourself 
• The amount of patience and time required to invest in syndicated deals
• How to get over the hurdle of writing your first check
• Joe’s vision for Tribevest: diversification, learning, and group vetting

Episode Highlights:

[09:12] The Untapped Potential of Syndication: A Viable Alternative Worth Exploring

Often overshadowed by other enticing investment opportunities, syndication is frequently overlooked due to misconceptions about its accessibility and complexity. However, educating individuals about this alternative is crucial in highlighting that syndication is equally feasible and potentially rewarding compared to other avenues. Despite the lack of understanding surrounding syndication, it presents a viable option that warrants exploration for those seeking an alternative path to financial growth.

[13:28] Lessons Along the Way

Get out of your comfort zone. For Joe, this meant taking steps like joining the Left Field Investors community, scheduling a call with the founders, and networking with other members. The community seeks to find those like-minded individuals. These are people that have been doing it for a while and can teach those that are newer at it.

Set guardrails. Joe set a minimum of 3 months and a maximum of 6 months to make his first investment to avoid analysis paralysis but also ensure he does proper due diligence.

Be patient. The large minimums for syndicated deals require patience and time to save up enough money for a first investment. 

[17:10] The Tribevest Approach: Getting Over the Hurdle of Writing Your First Check

Chad appreciates the Tribevest model for entering one's first investment with a lower minimum requirement. Being part of a tribe of like-minded individuals allows for shared risk and makes taking that initial step easier. This avenue provides a great opportunity for beginners who may struggle with the hurdle of writing their first check.

[18:30] Joe's Vision for Tribevest: Diversification, Learning, and Group Vetting

Joe's primary goal with Tribevest is to achieve diversification across multiple investment deals. By pooling capital with others, he gains the opportunity to spread his investments and mitigate risk. Additionally, being part of a group allows for collective vetting, ensuring thorough analysis before committing to any investment. As a beginner, Joe values the group learning experience that Tribevest offers. He believes that learning alongside experienced veterans and newer investors is invaluable in expanding his knowledge and network. 

Joe's objective is to connect with various operators and explore interesting opportunities. Through Tribevest, he can diversify his capital and establish connections with more operators, enhancing his investment journey. Joe expresses his satisfaction with the positive experience he had with Tribevest, spreading his investments and meeting operators along the way. 

Looking ahead, Joe is excited about the potential of joining clubs through the new Tribevest website. He anticipates engaging with these clubs and leveraging them as a means to invest money and diversify further. 

Resources Mentioned:

Tribevest

Rich Dad Poor Dad

The Hands Off Investor