Secrets of Successful Syndication

Tired of waiting for someone else to create a job for you or give you a raise?  Take control of your own future by discovering how to make big money doing big deals through real estate syndication.

Syndication is simply putting together a group of investors and use the combined resources to take advantage of more and bigger opportunities for everyone’s benefit.  And when you’ve fully deployed your own cash and credit, syndication is a great way to keep going.

Now is one of the greatest times we’ve seen to become a real estate syndicator. Distressed properties and notes are abundant.  Assets can be purchased for pennies on the dollar.  Best of all, you’re not preying upon the unfortunate.  You’re helping clean up a big mess and playing a vital role in revitalizing the economy.

With all the liquidity being pumped into the economy, there’s still time to take advantage of low interest rates.  Longer term, many economists expect inflation – which means rising asset values (equity!), rising rents and rising interest rates.  But inflation hasn’t hit real estate yet, so there’s a window of opportunity to snap up deals.

We could go on and on about why the next 2-3 years look to be among the best ever to be a buyer.  But that’s not the point of this article and we’ve discussed it many times on the broadcast.

The real point is that syndication is a great opportunity for sharp, hardworking people to become real estate entrepreneurs. In his new book, The Sleeping Giant, best selling author and Robert Kiyosaki Rich Dad Advisor Ken McElroy says a new American Dream is upon us: the age of the entrepreneur.  Gone are the days of working four decades for the same company and retiring on a comfortable pension.  And the last time we looked, Social Security isn’t looking very secure.  So you need a good paying job now AND a way to build up wealth over the the long term.

If you’re unemployed, under-employed or concerned about the future of your job or company, then you might want to give serious consideration to starting your own business. And while there are many different businesses to choose from, in most all cases you’ll need to organize capital to get started.  For the average Joe, that means using up his life’s savings, home equity and all his available credit card lines – literally betting the farm on the success of the business.  That’s one way to go.

On the other hand, wouldn’t it be better if you were or raise some private investor money where neither you nor any of your investors are ruined if things don’t go as planned?  Shared risk and shared reward.  That’s all a syndication is.

Of course, that begs the question: what kind of a business?

Obviously, we like real estate – and for many reasons.  First, it’s everywhere and not overly complicated – at least compared to starting a bio-tech firm or a software company.  That makes it possible for you to get up to speed and run the business effectively pretty quickly.  But it’s also a business that your investors should be able to understand and get excited about without needing Ph.D.’s.

Most people can see there are bargains galore in real estate right now, but because the dollars are big they can’t take advantage of them…by themselves.  They don’t have enough money, time, knowledge or connections.  That’s why so many people buy mutual funds instead of picking their own stocks.  They are effectively hiring a fund manager to do the hard work of investing.

When you organize a real estate syndication, your investors are essentially hiring you to buy, manage and sell the investments  – just like a mutual fund manager.  Except instead of investing in stocks, you’re investing in real estate or notes.  Now before you freak out, remember that you’ve probably already bought or sold a property, rented a property, gotten a loan or otherwise been involved in some real estate transactions.  So you already have some experience.  And if you’re a real estate agent, loan officer, appraiser, contractor or someone who deals with the business of real estate on a daily basis, you’re way ahead of the curve.  Remember, most mutual fund managers don’t have to know how to run the companies they invest in, they just have to know how to recognize good business models and managers.

Of course, in the spirit of full disclosure, if syndication were THAT easy, then everyone would be doing it, right?  True.  However, we bet there are many very capable people out there who would be very successful syndicators, but it never occurred to them they could do it.  And like any manager, it’s a huge responsibility to be in charge of other people’s assets.  Yet, many people do a fine job for their employers every day, but  just don’t think of it as asset management.  Yet if you’re a manager of any kind, you’re responsible for someone else’s assets –  their money, their customers, their reputation, their property, their information – on a daily basis.  If you do a good job there, the odds are good you will be successful in real estate – which is quite possibly a lot less complicated than your current day job.

Still, it’s important to be properly trained. And the task of organizing an investment syndication is not one to be taken up lightly.  There are laws to follow and lots of details to be aware of.  Again, if it was brain dead easy, than everyone would be doing it.

So where can you go to learn the secrets of successful syndication? You can and should read books, take classes, and get around people who are doing it.  Much of which you can figure out on your own if you have the time and motivation.  But if the gap between where you are and where you want to be looks to big to jump on your own, we have something for you!

We’ve imposed upon our outstanding Investor Summit at Sea™ Faculty, which includes Robert Kiyosaki’s Rich Dad Advisor Ken McElroy, plus international real estate developer Beth Clifford and attorney Mauricio Rauld, to conduct an all day training called The Secrets of Successful Syndication Seminar on April 3rd in Fort Lauderdale, Florida (you’ve been looking for a great reason to visit beautiful South Florida, right?).

Discover what it takes to organize and operate a real estate syndication business, where you can go from zero to a full time income (even part time!) in six months or less.

For more information and to enroll on-line, click here now.

The Real Estate Guys™ Radio Show podcast provides education, information, training and resources to help investors make money with their real estate investing.

WSJ says House Flipping Make a Comeback

We noticed an interesting headline it today’s Wall Street Journal.  “House Flipping Makes a Comeback”.  That brought back fond memories of easy equity during the days of “irrational exuberance” in real estate.  Of course, there’s a dark side to irrational exuberance which we’re sure you don’t need to be reminded of.

So why did this article catch our interest?

The star of the article is a real estate “investor” in Phoenix…really? Phoenix?  We thought Phoenix was a train wreck.  Or, is their opportunity in chaos?

Anyway, this guy in Phoenix went to an auction and bought a house that was formerly worth $1.3 million.  He paid just under $489,000.  He then sold it to a woman for $699,000.  That’s about $210,000 in quick profit.  In The Real Estate Guys’ world, we call this “found” equity.  It’s “found” because he didn’t do anything to the property to make it worth more.  It was worth more than what he paid for it at the time he bought it.  The bank left money on the table.  He found it.

Sounds easy, right?  How many of those would you like to to do in a year?

The article goes on to talk about different markets and statistics.  It provides some insight into bank motives. Blah, blah, blah.  This isn’t to be critical of the Wall Street Journal.  But they write for a different reason than we do.  We’re thankful they brought the topic up.  Now we have something to build on.

What we’re interested in is HOW to do it.  Though we’re not experts in purchasing foreclosures, we have certainly done our share of “found equity” deals.  Based on our experience, here are some tips if you decide to play this game (which can be very fun and profitable!):

ALWAYS know your exit before you get into the deal. And ideally, you want more than one.  The article doesn’t say if the Phoenix guy had his buyer identified BEFORE he bought the property, but that’s the way we would have played it.  With a buyer in hand, you show up at the auction (or go into the open market) and look for a property that your buyer wants.  If you know what they’re willing to pay and you can buy it for less, then you have margin and a quick and known exit.

Make sure your buyer is real. That is, he’s ready, willing and able (as in financially capable of buying).  If you’re a real estate agent, this is basic.  If you’re a newbie flipper, it’s gold.  You don’t want to be stuck holding the property.

Make sure your margin is more than 6%. Even though 6% on a $300,000 deal is $18,000 and it sounds like doing that 10 times a year might be a decent living, it’s the same as if you were a real estate agent.  The difference is a real estate agent isn’t putting his own capital at risk.  If you’re going to take more risk, you need to receive more reward.

Don’t put all your money into one deal. It will be SO tempting when the “no miss” deal comes along.  But remember, this is real estate. Something ALWAYS goes wrong.  It doesn’t necessarily mean you lose money, but it might be tied up for awhile, so you lose opportunity.  Side note:  If you don’t happen to have $500K sitting around like our friend from Phoenix apparently did, go find 10 friends who have $50K and do a small syndication.  Now no one has all their money in one deal.  And if this whole process takes 90 days, $200K on $500K is a 40% return in 3 months.  That’s 160% annualized.  We’re betting there are some investors out there who would want to get in on that.  If you decide to go this route, make sure you visit with your attorney first.  Syndicating isn’t something for the newbie do-it-yourselfer.

Did we mention to have a plan B? And C and D?  If your buyer falls through, have 2 or 3 more lined up.  If possible, be prepared to “Flip and Hold”.  This is what we call buying a property for cash, then refinancing it to get most of the money (or if you bought it low enough and wait a bit, you can sometimes get ALL your money back out).  Then rent the property for enough to float the mortgage and expenses.  Obviously, this is more complex and there’s some math to do to make sure it all makes sense.  And we know that getting loans on certain types of properties (and cash out loans in general) is harder to do today than in the past.  We recommend knowing your financing options BEFORE you buy, even if you don’t plan to hold.  You never know how it’s going to work out.  The more options you have the safer you are.

We obviously could go on and on (we’re experts at that).  This topic is too deep for a simple blog post.  But it should get your brain whirring (which is always a good thing).  Our recurring theme is that there is a lot of money to be made in real estate right now simply because most people still aren’t ready to play.  This guy in Phoenix made 200 grand because other people weren’t there bidding.  And what a great service he provided for his buyer!

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