Real estate is going to the next level. Are you?
In case you hadn’t noticed, real estate prices have been rising in many markets. This is because money has been flowing steadily into real estate and driving prices up. And this is in spite of a generally weak economy.
We could go into all the reasons why there’s still plenty of opportunity in real estate, but that’s not the focus of this episode. Instead, we’re talking about how YOU can put yourself into the flow of money into real estate by aggregating capital to do more and bigger deals. Sure, we’ve talked about this before…but do you ever get tired of doing more and bigger deals? We don’t.
Stepping up to the microphones for this episode of The Real Estate Guys™ Radio Show:
- Your syndicated talk show host, Robert Helms
- His low level co-host, Russell Gray
- The Godfather of Real Estate, Bob Helms
No money down real estate has been the fodder of late night TV infomercials for decades. And we love it. No money down, creative real estate is a great way for someone who is literally starting with nothing to get into real estate.
However, the vast majority of people who engage in real estate investing start out with their own cash, income and credit. It’s just easier. But when you have the real estate investing bug and market conditions are right, it doesn’t take long to run out of your own money.
When this happens, you can sit out until your personal financial batteries recharge. Not a good choice…because when the market is great, it’s smart to get all you can.
You could order a late night TV course and go out looking for no money down scenarios. A better choice, but very limiting. While no money down deals certainly exist, they are undoubtedly more rare than the many other profitable deals where you will need to have funds available for earnest money, down payments and due diligence expenses.
Another option (our preference), is to leverage your experience and relationships to help other people put their money to work in real estate. This is called “syndication”.
Another great reason to syndicate is the real estate version of the law of attraction. That is, if you have purchasing power (money), deals will come to you. You just have to let the world know you’re open for business.
So “no money down” is exciting when you’re thinking small and don’t have anything to work with but want to get started. But don’t expect to attract deals when you have no money. You’ll need to turn over a lot of rocks to find a deal you can really do with no money.
All that to say, syndication is one of our FAVORITE topics. Especially right now.
There’s a lot going on at the macro-economic level that is pushing money (currency…i.e., dollars) into the economy. We won’t get into the mechanics here, but the evidence is in rising asset prices (stocks, real estate, commodities) when there isn’t robust underlying economic growth.
As a result, interest rates remain low…which is great if you’re a borrower. But not so great if you’re a saver. And with interest rates so low, bonds (IOUs which pay interest) aren’t attractive investments. Worse, the downside risk on bonds is high because if interest rates rise, bond values drop. Again, we won’t spend time on that here, but if you want to raise money, you need to understand other asset classes so you can explain why your offering is better.
So Main Street investors looking for decent returns often think they are stuck with “investing” in a stock market whose gains are largely speculative. You have the opportunity to help investors get into an attractive alternative to stock speculation: income producing real estate.
Once you’re convinced of that (and we’re guessing if you’re reading this blog, you’re already a believer in real estate as an investment), then the bigger question is how do you do more, bigger and faster?
Syndication is the answer. It’s where investing and entrepreneurship meet because what you’re really doing is setting up a business to invest. In other words, you become a manager of other people’s money. If that freaks you out a little (or a lot) because of the responsibility of managing other people’s hard earned money, then you’re exactly the kind of person the business needs. Sadly, lots of people get into the business who don’t really care about other people…they just want the money.
Now, once you decide to get into the business, there are essential steps you must take to get set up properly. This is important both for your own safety and that of your investors.
You’ll need to set up an entity structure. This will usually mean forming a management company which you will operate, and a holding company which will own your equity. Later, when you find a specific deal, you’ll probably form a single-purpose LLC to hold the property. We’re not lawyers, CPAs or investment advisers, so check with your own team. But in our experience, this is usually the way it gets set up.
A word of caution…when you’re selling shares in an LLC, you’re dealing with securities, so you need to have professional advice.
Speaking of advisers, one of the most important things you need to do is build a team. You’ll need lawyers, accountants and business advisers. And all of these need to be in your budget. So you may need to front some of the money, but once you start operating and raising money, you can usually be reimbursed for some or all of these expenses. Just be sure it’s all in the budget and disclosed to your investors.
Does all this sound daunting…like a lot of work? It is. But that’s good. Because once you get through it, it creates a barrier to entry which reduces the competition. Getting a college degree is a lot of work too (more than setting up a syndication company), but a college degree gives you a competitive edge when seeking employment. Same concept. Seriously, if it was easy, then all the pretty people would’ve already done it.
So don’t be dismayed by the effort it takes to set up a syndication business. You’ve probably successfully done other things in your life which are much harder. Just make sure you take the process seriously and put in the time and effort to do it right.
This episode of The Real Estate Guys™ will help you understand the opportunity and some of the steps you’ll need to take step up to the next level through syndication. This could be your chance to reach for the stars!
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