The biggest commercial real estate syndication downsides aren’t necessarily the most obvious. In fact, it’s quite the opposite. Syndicating commercial real estate sure sounds like it’s a win-win deal. And, it can actually be a great way to invest. But, make no mistake about it, this methodology is fraught with peril at practically every turn. It’s not something an amateur just jumps into doing. So, let’s take a look at the largest disadvantages of commercial real estate syndication.
What Exactly is Commercial Real Estate Syndication?
If you’re not totally familiar with commercial real estate syndication or have just happened onto the concept, you’re probably wondering what it actually is and how it works. Put simply, commercial real estate syndication is a group of individual who all put money into the purchase or construction of a property. They form a legal entity and act as a company. And, that company’s sole existence relies on making money.
A real estate syndicate is a group of investors who pool their capital to buy or build property. Combined, individuals and companies have more buying power than what they could manage on their own. Syndicates are commonly structured as special-purpose entities, such as limited Partnerships (“LPs”) or limited liability companies (“LLCs”). —Crowd Street.com
The idea is several investors can contribute more than just a single person or a couple of people. Of course, this means finding willing investors. And, it also means having to lay out the plan in a way that’s easy to understand and enticing at the same time. Additionally, you’ll need to identify the right property or plot of land on which to build. Needless to say, these tasks alone make commercial real estate syndication a huge challenge.
3 Biggest Commercial Real Estate Syndication Cons
Now, what’s the real deal with commercial real estate syndication? You’re probably thinking, if it’s a strategy some people use, then why is it more common. We’ll, there are a few reasons it’s not a prefered method. Here are the three biggest reasons commercial real estate syndication is so difficult:
- There many other options available. A helpful way to think about commercial real estate syndication is to approach it from the perspective of a seasoned investor. The very people you’ll pitch the idea are the same people who look at a slew of investment opportunities. In other words, there are likely better offers ready-to-go.
- Different investors have different opinions. Let’s suppose that you’re able to get several investors to pony up the dough. Now, all of those investors have a say. And, not necessarily an equal say. Some will have more sway than others, depending on how large their respective investments.
- It’s really difficult to find the right underwriter. Take the scenario a step further and suppose all the investors are on-board (which is a huge departure from reality). Now, how do you find the right underwriter? Or, even the right attorney? The point is, there’s a lot of moving parts and commercial real estate syndication requires these all must work in unison.
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