Real estate syndications offer intriguing benefits for individuals to invest in commercial properties without needing hands-on management, while still creating a sense of shared ownership and community. Susan and Annie explore the ins and outs of real estate syndications and share effective strategies to make the most of this investment opportunity.
Leveraging the Power of Syndications
[00:02:20] "I remember when I realized that I was the kind of person that could invest in syndications. It was as if a huge weight was taken off my shoulders because I had found real estate investing as sort of an idea of how can I put some hustle energy in some sweat equity…to be able to fast track and build up my retirement that I've essentially neglected for a decade as a 20-something-year-old who wasn't saving for retirement."
[00:29:28] “But with this the sponsor group is doing a lot of that research for you…of course, you should do your own due diligence…they're finding those good markets and those good submarkets. And so, I find it really easy to then diversify across not only different markets but also different asset classes. And so, my portfolio as a whole is a lot more balanced than when I'm doing it on my own.”
[00:41:13] “Think of two big misconceptions here. And the first is that you have to be an expert to do this…and that's just not true anymore at all. You can actually educate yourself on this really quickly. And the second is that it's only for wealthy people. There are what's called accredited and non-accredited statuses that we all fall into, and they're essentially wealth thresholds. And there's many loopholes to define these two.”
00:00:03 - Annie Dickerson
Hey, there. I'm Annie Dickerson.
00:00:05 - Susan Elliott
And I'm Susan Elliott
00:00:07 - Annie Dickerson
We're so glad you joined us because on today's show, we're zooming in on why we both chose to invest passively in real estate syndications, which are group investments. We're going to talk about what they are, in case you've never heard of them before, and how they work. And most importantly, we're going to talk about how they fit into our personal strategies, the lessons that we've learned, and how you can perhaps use real estate syndications to build wealth for your family as well.
00:00:36 - Susan Elliott
And in particular, listen out for just the kind of the simple steps of how this works. Syndications are, they seem like they're behind this wall where most people can't access them, but that is not the case. And so we're going to break it down into really simple strategies as to how you can get this working for you, because these are the same steps we took in order to break into this world of real estate investing.
00:00:59 - Annie Dickerson
And, you know, when I think back to when I first started investing in real estate syndications, I think one of the best learning tools that I found was just looking at other deals. Even if I didn't end up investing in them, looking at those opportunities and understanding what the returns would be, what the deals looked like, what the markets were, taught me so much to get to the specific of what those deals look like. And so if you're in that place and you want to learn more and really see if these opportunities are right for you, I highly recommend that you go to our open deals page on our website. There you can find the current offerings that we have available. And even if you're not in a place to invest right now, you can start to dig in and better understand what these opportunities are about. So to do that, you can go to godaginvestments.com slash deals. All right. With that, I wanted to kick it off today, Susan, with just a little bit of a peek behind the scenes into, you know, when you got into real estate syndications. I mean, what was going on in your life at that point, and why did it seem like this could be a good path for you?
00:02:20 - Susan Elliott
I remember when I realized that I was the kind of person that could invest in syndications. It was as if, like a huge weight was taken off my shoulders because I had found real estate investing as sort of an idea of like, how can I put some hustle energy in some sweat equity, as we call in real estate, to be able to fast track and build up my retirement that I've essentially neglected for a decade as like a 20 something year old who wasn't saving for retirement. And so in my thirties, I was like, okay, real estate investing, this is how to play catch up, right? Um, and I was like, I have energy. I'm going to put in some, some sweat equity here. And I did that a little bit. I have a couple of, um, single family homes. I converted one into a duplex with my husband. We also had a child at this time, which is, was a key component of this, because I thought I was sort of like, tapping into my energy of hustle, work, pre kids and then post kids. You, you don't have a lot of that energy. And you can you get it back as I'm finding now with my second kid at two years old, I'm like, okay, I'm coming up for air. It feels like I'm coming up for air, folks. But, but I was like, how can real estate, how can I, how can I leverage real estate without feeling like I am constantly re, how should I phrase this? So let me go back without feeling like I am constantly developing the processes and systems in every single market that I want to be in. And even if I picked a market that was not my home market, because it's not a good one to invest in for rental properties, but I picked another one, constantly finding lenders and contractors and managers and this person and deals and deal flow, and maybe this market's actually shifting and I need to switch. It was just, like, overwhelming, right? You have to consider that as, like, a side hobby. And for me, in this phase of my life, I realized that I wanted to use real estate investing. I knew that. And two, I could, I could not make this, like, a side hustle job for myself. Um, and luckily, I had spent enough time learning about what syndications were and learning ways that I could invest in them so that it felt less intimidating. But what I hope to help people with is that, like, when they learn about real estate investing, they can skip that, like, five years that I spent trying all kinds of different strategies within real estate investing and know you can go straight to syndications. And so that's what this episode, I think, is about. It's to, like, skip over that overwhelm moment that I had for, honestly, like, several years of, like, how am I going to sustain this, um, and know that real estate investing and the returns that are possible are accessible without doing all that work?
00:05:01 - Annie Dickerson
Oh, my gosh. I had, like, the same exact experience I had all these spreadsheets. I'd read all these books and listen to all these podcasts, just digging, digging, digging to understand how to do it. And, you know, when you're doing it on your own and you're buying a duplex or a single family home and renting it out, you have to do, you have to know a little bit of everything, enough to navigate the whole process. And you have to be the one to sign, bravely sign on the line. You have to be the one to approve the tenants that come in, to find the right property manager, to do the taxes, to keep all the bookkeeping. It was so much. And for each individual property, and I wanted to scale, and as I was scaling, I was like, oh my gosh, this is so. It's getting exponentially harder. And because I wasn't building the right systems, there are some people out there who have built the systems and made single family home rentals a business. And that's fantastic. I wasn't one of those people. And so I couldn't ever get to that level where it was, like you mentioned, not just a hobby, but a reasonable business, a sustainable business that could generate all of the long term returns and the cash flow without me having to start from scratch each time, as you mentioned. So I think that's a huge, I.
00:06:22 - Susan Elliott
Mean, not to mention the, like, amount of capital that you need to even invest in a home right now as an investor, especially if you're not a. If you're, it's not your primary residence and you can't get some sort of magical loan where you're getting 10% down or, you know, 3% down. Those are the, like, carrots that, that some people use to be able to get into their first rental, and that's house hacking. And that's a fantastic strategy that most people should try. But these, you know, 20% down on a single family rental is a huge chunk of capital that might take you years to save up for. And frankly, like, I want my money working during those years more than a high yield savings account is going to give me. So I want to be able to invest $25,000. I don't want to wait to have $100,000 to be able to put into that. And, and syndications were a great way for me to say, like, wow, I've saved up a 20k amount to 25k amount and be able to put that right to work. Felt really good, too, especially in these early stages of wealth building. Early as in, like, catching up for lost time. But I'm still a beginner, and I'm into my middle age, but we're still early.
00:07:30 - Annie Dickerson
Yep. Yep. Well, so for somebody, if somebody is listening and they've never heard of the term syndication, or even if they've heard it loosely here and there and are not quite sure what it's about, kick us off with your kind of, your understanding, Susan, of what? What is a real estate syndication?
00:07:51 - Susan Elliott
Oh, great question. This is the first step to understanding and getting into real estate syndications. It's just understanding. What is it? This is a great, you'll, you'll, you'll check this stuff off, step off before the end of this episode. And it's a group investment. I like to think of this as like, I live in this small, kind of rural ish town right outside of Portland, Oregon. So really easy access. But I'm like, what if me and my ten friends that I can think of in my head now, the busy moms that are running, I see them in the Carpool lanes, I see them out on jogs around the neighborhood, what if we could come together and like, buy that apartment right in the center of town? What if we could do that? Because all of us could put in the amount of capital needed to be able to afford it? And this is what syndication is doing. What's even better than that scenario that I just played out is that I don't want to be the one to like, find that apartment, to run the numbers, to bring everyone together, to teach all of my friends, you know, the nitty gritty of this. I default, teach everybody about investing because I love it so much, so they know to come to me. But that's a unique personality trait. But mostly, like, I want to be able to do this. Like, that scaling concept really makes sense to me. But luckily, there's this thing called syndications, and an entity like good egg investments, right. Can, can identify, they can use all their expert skill sets of like, identifying and vetting properties, of putting together the teams to manage them, to vet the whole market, I mean, the entire background of it, and then also bring together and educate everybody along the way to bring together this group of people. So in this virtual digital world, I don't actually have to know my ten to 20 friends that I'm going to purchase this property with. I just need to know the person that's running the deal and know that they need me, too. I'm a really integral part of this. To be able to purchase this, you need capital. And so these investors are, they're part of the team, and so that's basically what a syndication is. And what's really nice, it's a little bit agnostic as to that property. It's a commercial property that you're purchasing, and it could be an apartment building. It could also be a hotel. It could be other types of commercial real estate that I want to be invested in. I want to take advantage of the returns, of the upside that real estate offers, but I don't want to do the work to be able to put that big deal together where the economies of scale work out such that we all still get really good returns.
00:10:22 - Annie Dickerson
Yeah, exactly. As I tell people, it's like, you know, the real difference between a syndication and investing on your own in a single family home is with your single family home. Let's say you have, let's say you have saved up, let's say, $50,000 to invest in a single family home. You do, as we mentioned before, all the things on your own, which is, first, it can be really fun, right? You pick the market, you pick the property, you do all the underwriting, and you find the property manager or you manage it yourself. All of those choices are up to you, which can give you a lot of freedom and a lot of choice. It's like playing real life monopolies. So you get to do a lot of those things. You put a tenant in there and you start getting those checks every month. But if something goes wrong, then you're on the hook for fixing it. So it's a lot of freedom and a lot of choice, but also some risk, especially if you're not, if you don't have the time to really put into that, to managing that property. Whereas with a syndication, you have that 50,000. But you're like, you know what? I don't want to do any of the work. I just want to put this money in. And this is what my friends and family were telling me back in the day. They were like, you're doing all these real estate investments. I want to do that, too, but I don't want to do the work. I just have this money. I want to put the money with you. So that's what a syndicate, right? Yeah. It's the power of community, right? And so I have 50,000, you have 50,000. Somebody else has 25,000, somebody has a hundred thousand, and we pool all that together. And as you said, we now we have too much to buy just a single family home. So now we're buying a commercial property together, and we have a company like godag investments. Who is managing the property on our behalf. So doing all the day to day work and making those decisions. And then we as investors, get a piece of the returns, both ongoing as well as on the back end when we sell. So it's like a tidy, neat little way to invest in real estate without having to be, you know, in the day to day of it.
00:12:25 - Susan Elliott
I'm, I like what you said. I'm going to pull out something there for the listener in that it's a good distinction. Like, we had too much money for this single family home or a duplex or just a smaller property. And so to go into a larger property, a commercial property, is essentially jumping into the realm of now, this is a business that I'm investing in. And when you invest in a business, you're investing in the systems and the processes to be able to run that business effectively. What's nice is that we also have real estate behind that business, and it's a business model that most people can really understand. So as opposed to, like, figuring out, I don't know, venture capital firms that you can invest in, what's the next hot business idea that you can back, can potentially, you know, find a unicorn or, I don't know, what people do when they invest in businesses like that. Because to understand business models can be really a struggle for most people who are, are used to, you know, being an expert in their own field. But real estate, again, it's like a business model that we can all kind of understand a little bit more because we all, we have all like, lived in different properties. We all have entered different retail facilities, a hotel. You kind of understand how that that works behind the scenes just by having frequented it. So I don't want to start a business on my own. Right. I want to tap into someone else's business processes who's done this for a long time, who has a track record, to be able to show me that, like, yeah, these are the properties that we've bought. This is the returns that I've realized for my investors compared to the returns I projected five years ago when we purchased this and be able to tell me that story. That's a huge part of this.
00:14:06 - Annie Dickerson
Yeah. Okay.
00:14:07 - Susan Elliott
To get into the next part of how it works, too, I think that. Okay. Yeah, yeah. Pause.
00:14:12 - Annie Dickerson
One other thing I wanted to pull out there related to the single family home versus commercial properties that I think is really valuable to know as an investor is with a single family home because it's a residential property, it's going to get valued based on all of the comparable properties in that neighborhood. So no matter how nice you make that single property, the value of it is going to be compared to other, let's say, other three bedroom, two bathroom homes in the same area. It's not going to get significantly higher versus a commercial property. The real opportunity there is that it gets valued on a completely different scale. So it gets a commercial value. Commercial property gets valued based on how much income it can generate. So along the lines that you're talking about, because it's a business. And so with a commercial property, you really unhook it from all of the comparable properties in the area. So you really have this opportunity to drive up that value. So, for example, if you renovated the units in, let's say, 100 unit property, and you were able to then bring the rents even up by, you know, $10, $20 per unit across a hundred units, that's a significant amount of monthly income that you're boosting that property by. And then that boosts the overall property property value. So that's another little consideration as you're thinking about investing in a single family home versus a commercial property.
00:15:45 - Susan Elliott
Awesome. So the summary there of what is it? Step one is that it's a group investment into a commercial property, a real estate investment. This is like an investment into a commercial property business where you don't have to do all of the legwork of sourcing, managing and exiting these deals, but you get to take advantage of other great returns. So step number two, Annie, is how does it work for me as the investor? Like, how do I find a deal? How do I vet the deal and how do I actually invest my money in it? Where should we start with that?
00:16:21 - Annie Dickerson
Well, so when you're investing in a single family home, you're going to sites like Zillow and Redfin, and you're looking at the individual properties and you're looking at the markets, right? When you're investing in a indication, the most important factor is not the deal and it's not the market. It's actually the people that you're investing with, that group that's going to be making those day to day decisions on your behalf. And so that's where I always recommend that people start, is start by finding these groups that are doing these syndications that already have a track record and start to engage in a dialogue with them, reach out to them, schedule a call with them, look at the deals that they have and see how they're presenting these deals, how they've run deals that are currently in their portfolio. If they've successfully sold and exited deals in the past, what their returns have been to their investors in the past, how long they've been doing this. And through that, then you really get a sense of the people behind it. And then when they release a deal, it almost doesn't matter what the deal is or what the market is because you know that, that they are in it for the same reasons their values are aligned with yours, because you've done that background, you've done that homework to understand who they are. So when they release a deal, you're like, oh, yep, this checks the boxes. This aligns with what I'm looking for, too. And so it almost takes the pressure off of the market research and the individual deal.
00:17:58 - Susan Elliott
And I would say the next phase of that is to, as you're doing that, start to reflect on what your goals are with your investments, because chances are once you find a team, they're going to have different types of offerings, right? There are some teams that have like a bread and butter, and they do the same thing over and over again. And maybe that's the thing that you need. Maybe it's that like it's going to grow your long term portfolio, for instance, that might be one of your goals. I want to retire in 20 or 30 years on x amount of money. If I invest now, what is the long term growth of this? Maybe you're actually closer to retirement age and you need a little bit more assurance that you're going to have cash flow distributions throughout the life of your investment. So more short term investment or short term cash flow. So just as an example of two goals that you might have as you enter into your investing. And so then once you have a great team, you can see are they offering this type of deal? And Annie, that's where you're mentioning, like, it doesn't matter if the deal is like, really in Dallas and it's a 100 units or if it's a hotel in Indianapolis, it's like, what is it offering to do with my money? Because you've already vetted the team. You already know how they do their market analysis. You already understand that they've identified markets in the past that have been great markets because you can see the assets that they've bought and sold in their track record. And that's all the stage. One of the how it works. Find the team that you like, that you trust, that you can one see their track record to talk to the real people. That is so important. If people don't offer a real call with a real person for you to get to know quite. I mean, that's the threshold for me.
00:19:39 - Annie Dickerson
Right.
0:19:39 - Susan Elliott
Like, I want to know that there's people behind this and that they care about my money. Um, so step two is know what your investing goals are. What would you say to do next, Danny?
00:19:49 - Annie Dickerson
Well, once you do that, you know, I think you really need to dig in to understand, you know, first how much money. Now that you know, your goals and you've found maybe a few groups that you're interested in investing with, really, you know, taking the time to educate yourself, get your money ready, figure out how. How much you want to invest, what the timeline you want to invest in is, and what you expect, or you hope your returns to be the tax piece of things. And so getting really clear on what you want out of the investment and then really going out there to find a good match for the goals that you have for your money. And this involves really looking at potential deals that you could invest in, and you might look at ten deals and only pick one to invest in, and that's totally fine, because the more deals that you look at, the more you'll understand. Oh, right, this level of cash flow in year one, this is what I'm looking for. Or, oh, this is different from all the other deals I've looked at. I wonder what makes these returns or why this timeline is different from the others. And it'll give you that level of just distinction between the different offerings, the more that you look into them. So that's what I would say is really start to dig in, look at the deals, and that'll give you a sense of confidence as you're looking at different opportunities.
00:21:26 - Susan Elliott
Awesome. Do you think that's all how it works? Note to just check in quick.
00:21:32 - Annie Dickerson
Yeah, let me think. So we've talked about talking to people, creating that connection, figuring out the looking at the deal. I guess the final is if you find the deal, then what do you do?
00:21:47 - Susan Elliott
Okay, so maybe you've found a deal. Annie, what is the first step, typically, in actually getting your money working and invested in that deal?
00:21:56 - Annie Dickerson
Yeah. So let's say that you've looked at a lot of deals and you're like, oh, this is the one. This is the one. This matches so many of my goals. I trust this team. I like this market, and I like this deal. I want to invest in this one. And so each group is going to have a slightly different process, but overall, the process looks something like this. So you have to first raise your hand and express your interest. That might mean signing up for an account with that particular group. That might mean putting in a soft reserve or going ahead and reserving a certain amount to invest in that deal. So something like that, where you're expressing your interest first, then once you've done that piece, then usually they'll walk you through the process of signing all of the documents. So unlike when you invest in a single family home, there you're signing a contract to buy the home, right? But here, with a syndication you're signing, you are still signing legal documents, but they look a little bit different. So this is a private placement opportunity. So then you sign something called a private placement memorandum, or a PPM, as we call it. And this spells out a lot of the details of what this opportunity is about. It has a lot of capital letters spelling out the risks, because we want to make sure that you know exactly what you're getting into. And then there's also the operating agreement for this entity that you are going to be participating in, and the subscription agreement, which then designates how you know how much you're investing and how many shares that you're buying. And so there, I just want to make a distinction real quick about the entity that you're investing in, because this is a question we get a fair amount around. Okay, well, but am I the owner of the property or am I investing in the company? And this is the big difference between a real estate syndication and a REIT, a real estate investment trust, which a lot of people is more common to a lot of people, because you can see that you can invest in reits alongside the stock market. And so a REIT is where you are investing in a company and the company buys the underlying real estate. So you, as an investor, you actually don't own those real estate assets, but with a syndication, which is a private placement, you are actually buying shares in an entity, usually an LLC, and that LLC then buys the property. But because the LLC is a pass through entity, that means that you actually own a share of that underlying asset and you also get a share of the tax advantages, which we'll get into in a bit. But so that PPM, the subscription agreement that ties you to the investment, it shows how many shares you're buying, how much you're investing, and it makes sure that you know all the risks that you're getting into. And then from there, once you've signed that document, then you would wire in your funds. Sometimes groups will take ACH transfers, which makes it even easier for you to transfer your money in. So you would find, find whichever way that works for you to get your money into the investment. And then from there, that's really the end of your active participation in investing in the deal. So from there, then you would hear from the sponsor group once the deal has closed, and you would get ongoing updates about how the deal is doing, any progress, anything that might not be going according to plan, anything like that, throughout the life of the hold. So that's, in a nutshell, kind of the process.
00:25:59 - Susan Elliott
Awesome. Awesome. Yeah. And I remember the first time looking at that big PPM document for myself and was like, whoa, this is intense. But what's really nice is that, you know, go through it in detail and then start to understand the types of things that are presented there, the types of things. You might have questions, jump on a call, ask your questions, and then just know that most pope ppms are very similar. So this is one of those, like, beginner things where you're going to review the PPM every time, but you're going to understand more of it. You're going to be able to say, yes, yes, yes, I know that section. I know that section. So, so that's, that's great that we, you understand what this is. You understand the steps to get this started again. Those are like, find a great team, know your goals, pick a property and invest your money. Um, and it can, that can take as little as, like a few, a week or two, depending on how quickly you kind of start to, you know, schedule calls with the team, whether you're, as you bring up your questions, you know, kind of do the research, but it could even take a couple months. It doesn't have to take very long. So now the third step to understanding syndications that I found helpful as I began to, which I think most people do, is to just evaluate the risks and rewards. This is the sort of like, but is this for me question that you need to answer? So I think that we're all balancing the upsides and downsides of investments, right? The control versus letting other people do it, the returns versus security, these kinds of things. So, for syndication specifically, I found that, that the upsides that I'm specifically drawn to are the really good increase of my wealth. So overall wealth building potential. Some people think of this as passive income, but I think of path that the income that I want to be pulling from my investments are a little bit down the road, even if that's only five years away. I'm going to think about, like, what kind of income, what kind of wealth can I have in five years from these investments and real estate kind of historically knocks that out of the park compared to other types of investments. What other types of rewards would you point to, Annie?
00:28:14 - Annie Dickerson
For me, I think one is the biggest one for me is the time factor. I get my time back with my personal, with those rental properties. I would have to spend a good amount of time checking in with my property manager, checking in on their work, the returns, the taxes, the bookkeeping. It took a lot of effort and time. And so with syndications, there's no time needed from me. And so I get those, you know, those ongoing updates from the sponsor groups that I'm invested with. And I see, oh, yep, deal's doing well, it's on track. And then I move on with my day. So that's a big benefit for me. And then alongside that is the diversification, because as we mentioned earlier in the conversation, when you're investing in these single family homes, you have to do the work to understand the market and to find the property manager and to find the specific deal. And that can take a lot of time. It was really challenging for me in those early days just to find one market. And then I was like, ah, to diversify. I got to do this all over again in another market. And it was exhausting just to think about that. But with this, you know, the sponsor group is doing a lot of that research for you and they present that to you. Of course, you should do your own due diligence. Diligence. But, you know, they're already, they're looking at all the research and the data and they're finding those good markets and those good submarkets. And so I find it really easy to then diversify across not only different markets, but also different asset classes. And so my portfolio as a whole is a lot more balanced than when I'm doing it on my own.
00:30:01 - Susan Elliott
I love that aspect, too. And just different, different markets across the country. You said different asset classes. There's a lot of ways to diversify within real estate, and there's a saying that has been true for eons, and that real estate is actually like the real estate market is actually a collection of submarkets. So what's happening in one region may be the opposite of what's happening in the other regions, despite overall market trends in the economy.
00:30:29 - Annie Dickerson
Me? Yeah.
00:30:31 - Susan Elliott
So time freedom, diversification, wealth building, and the sort of passive income that we're going to be able to pull from our wealth at some point down the line. And I think the last, biggest reward that maybe not the last but one of the four biggest is taxes. And I want you to speak to this a little bit more, because I'm not. I'm still early in the. In the season of investing. I do really love getting my k one s back and showing, like, the losses. So any, any gains that I'm earning right now, technically, my investments are just totally offset by the losses, but I'm still early in the cycle, so speak, to the benefits of taxes.
00:31:09 - Annie Dickerson
Yeah, I remember early on when we had gotten into this business, there was an investment that I had made, a $50,000 investment at the tail end of the year. So it was like November, December when I invested, and the following spring, I got my k one, and I had invested $50,000. And the k one said, for that first year, remember, it was just a month of ownership. But for that tax year, I had a $50,000 loss. And so first I was. Because I had educated myself. I wasn't scared, but I wanted to make extra sure, because I was like, this is a big negative number. Is this a good thing? Is this a bad thing? I sent it to my CPA, and they were like, wow, you did great with this investment. Because what that means is that, you know that this is the paper losses that people love. The wealthy love paper losses, right? Because that means that on paper, it shows that you're losing money. But in actuality, during that time, I was cash flowing. So for that $50,000 investment, I was getting returns on that money. But what that paper loss means is that I could offset my. The tax liability that I had on those returns so I didn't have to pay taxes on those returns until later, when we sold the property. Then there's some depreciation recapture. But the way the reason that that works so well is with these commercial properties, we often get something called a cost segregation analysis. And so I like to think of it as a little guy who comes in with his little clipboard, and he takes stock of everything in the property, and he looks at the carpets, and he looks at the lighting, and he looks at the pool furniture and the roofs and everything. And because if you do a straight line depreciation, which is typically what we do on single family homes every year, we deduct an equal amount, the whole 27 and a half years. Right. But with commercial real estate, it's. If you do a straight line, it's on a longer timeline. It's 39 and a half years, I believe. But we're only holding these properties for five to seven years. So if we write it off on that long of a time frame, it doesn't really work for us. But luckily, we can do it on an accelerated timeline through this cost segregation. So then after he's done taking stock of all the things, he says, well, you know, those carpets you can write that off on, instead of 39 and a half years, that's seven years. And that lighting, that's on a five year schedule, that pool furniture, that's on a ten year schedule, and on and on. So through that analysis, we can then truncate and accelerate the depreciation. So we get a ton of depreciation in the first year, especially, and especially for these value add deals where we're making improvements. And so that's a huge tax benefit that's passed on through to the investor, because, again, the LLC is a pass through entity, and so you, as an investor in a syndication, you would get a share of those depreciation benefits.
00:34:33 - Susan Elliott
Let's see, I've come back. Well, that was a good review of what we can get out of real estate investments. There are some risks, as with any investment as we go, and so we're going to kind of dive into a little bit of the risks that we see most people talking about with real estate investments. They may not be inherent to every deal, every single one of them, but these are things that you need to weigh, and this is really like your own comfort zone and your own risk taking strategy of where you're at in your investing. So these are measured against your own risk philosophy, I want to say, and if you don't yet have a risk philosophy, maybe as you're thinking about your goals, it's a good thing to say. Like, like, these are the types of things that feel risky to me with investing just in general, and that's going to help you evaluate these deals and know if they're right for you or not. So one thing is that these investments are illiquid. So if I put $50,000 into a real estate syndication, I cannot pull that $50,000 out at any point that I would like that money is invested. So as opposed to the stock market, which I might be able to put $50,000 into a money market account, I might be able to pull money out in a month. It may not be 50,000, it might have gone down, but it might have gone up, we don't know. But you can kind of play with that money a lot more. So this is money that you're not going to need access to for the lifespan of the hold period.
00:35:59 - Annie Dickerson
Yeah, exactly. So you don't want to invest with money that you're going to need next month or even next year. You want to make sure this is, quote, play money that is okay if you keep it in for a longer period of time. Because, again, this, you know, there's going to be a projected hold time, usually around five years for each deal, sometimes. So just to give you a quick behind the scenes of what happens during that five years, and typically, why we make it five years is with a lot of these value add deals, we're doing a lot of the work upfront within the first couple of years. So we're going in and we're renovating the units. And then as we renovate those units and people's leases come due, we offer to move those people into the upgraded units for a little bit of a rent bump. And usually they're very excited about the new finishes and the opportunity to move into a nicer unit. So they take that opportunity. Then their unit that they've now vacated, that's the next one that we then go and renovate. So it's kind of like a domino effect throughout the community. And as you can imagine by, you know, let's say two years in, we've done most of the renovations that we have planned. And so by that time, sometimes, depending on how the market is going, we are ready to sell. And in some cases, we've sold in as soon as two to three years. But if the market is not great or it's still going up at that time, we may choose to refinance and pull out some of that initial capital, or we may choose to continue to hold on to the property until the full five year hold. And that gives us a little bit of a buffer in case the market is not exactly where we want it to be at the time when we're ready to sell. Sell.
00:37:55 - Susan Elliott
And that leads to another risk is that market fluctuations. And, I mean, I think this is a risk of any investment, right? You're investing in something that could go up or down. This is what an investment is, at least, you know, in the stock market, there's market fluctuations. We have a historical average return of what you might see in the stock market. But if you're looking at a five year, a ten year span, that could be across the board. So there's market fluctuations here, but there's the built in sort of safety net that we can hold on to that and wait it out, too. Their flexibility is built into to sort of counter that risk that goes into it. And I would also say, and not to like, point to every risk, like the glass half full side of every risk, but the illiquidity. I mean, you said that, like, you're going to want to lock this money up sometimes. That's a relief for me. Yeah, I'm going to put this money in, and then I literally don't have to worry about what to do with it for a while. And I know, for instance, that you've had investments that have actually sold a lot sooner than you thought. And it's a funny thing to receive sort of like frustrations or difficulties from people. I absolutely can understand this because, like I just said, I love the idea that I don't have to find another investment for that money for a while, but if you sell in two years, then suddenly you have the problem that now you have a large chunk of cash that you're giving to your investors, or they're earning on their money that they then have to deploy again. So having illiquid funds can also kind of free you up your brain space to not worry about that investment money. And then the last risk that I want to point to is that you are giving up a certain amount of control here. You are relying on the sponsor and the way that you mitigate that risk. And again, take a look at your personal list of risks in investing and then ask yourself, like, how would I mitigate that? Because the risks are there and everything is that you're going back to that first step in the process of vetting the team. Do I need to talk to someone one more time? Do I need to do a little bit more research? Do I need to visit a property, for instance? There's a lot of things you can do to better understand where your money is going and understand the sponsor. And so, you know, that's a risk here, that you're relying on someone else to carry out the business plan.
00:40:07 - Annie Dickerson
Yeah, absolutely. And so with that, we've got those three big risks for you to consider. The illiquidity, which can have pros and cons, the market fluctuations, and the reliance on the sponsors. So, you know, there's ways to mitigate all three of those. And that's a big part of your journey as an investor to figure out the level of risk that you're comfortable with before you invest. Real quick, before we wrap, I want to touch on two more things, Susan. One is the common misconceptions, and then the other that I want to wrap with is just how you and I use syndications as part of our personal investing portfolios and strategies. So kick us off first with the misconceptions. What are some of the common misconceptions that people have about real estate? What are this? I'm going to start that again. So tell us, what are some of the common misconceptions that people have about investing in real estate syndications?
00:41:13 - Susan Elliiot
I think of two big misconceptions here. And the first is that you have to be an expert to do this. You have to be an expert in real estate investing. You have to have built up your portfolio of single family homes and become exhausted and sick of it and want to get out and then go passive. I thought that, I thought, oh, I can't do that until I, I've done the grind. And that's just not true anymore at all. You can actually educate yourself on this really quickly. There's groups out there like good egg investments that invest a lot of energy into helping people understand how this works because of the mission behind it, because of, we want more people to understand and leverage this so you no longer have to be an expert. And the second is that it's only for wealthy people. There are what's called accredited and non accredited statuses that we all fall into, and they're essentially wealth thresholds. And there's, there's many loopholes to define these two. But an accredited investor is someone who has a million dollars in net worth minus their primary residence or not including their primary residence. There's also income brackets that fall into that. So maybe you don't have a million in net worth, but you're, you're bringing in $300,000 as an individual, or, I'm sorry, as a couple and $200,000 as an individual, sort of consistently for the past couple of years. And I, with the knowledge you're going to continue that. So you're meeting certain kinds of like requirements for wealth to be able to consider it accredited. And those are open. Accredited investors are open to any. Okay, let's start that over. Investments that are open to accredited investors, you can invest in any of them. Now, if you're non accredited, meaning you're not yet at those big wealth sort of milestones, you can still do this. And this is thanks to new regulation that's come up with regulation crowdfunding, where there are certain sponsors that allow more opportunities for non accredited investors. And this is a huge misconception, honestly, that's been busted just in the past couple of years.
00:43:12 - Annie Dickerson
And so, okay, so with that in mind, so both of us have kind of overcome these misconceptions and we know what real estate syndications are really about. So now that you know, I know you've done a fair amount of work educating yourself and dipping your toes in and really trying to make sure that you've got the full 360 on what real estate syndications are about. So now that you're in that space, how do you use real estate syndications as part of your overall wealth growth? My goodness, today is just, anyway, yes. So now that you're in a space where you understand real estate syndications and their potential, how do you use real estate syndications in your overall wealth building journey?
00:44:00 - Susan Elliiot
Great question. Right now in this phase of my life, I have no intention of going out and buying a rental property, and I don't know if I ever will again. So whenever we have a certain threshold of cash saved up from that, we want to deploy into investments. We kind of run it through the gamut of do we want to put this into an IRA, do we want to put it into, you know, these retirement accounts? And then I start thinking about the types of deals that I want to invest in that are going to complement the other deals that I have. So to give you a, I do have a couple of rental property type investments, so that's part of my diversification. I have some money in the stock market and index funds, for example. But then I have some money in a Dallas apartment building. I've got hotels. I've got a hotel fund investment as well. And I've got two other apartment buildings in my portfolio that are in Orlando, Florida, as well as in North Carolina. So I'm going to kind of think about where else do I want to do to add to this? What types of deals do I want to do, knowing that I might have a chunk of change to do this? And then I run through the process of deploying that capital. What I would add here is that another way that I invest is for my kids college fund. So my kids are only two and six. And so I'm able to put money right now into one of these syndications with pretty good confidence that that money is going to be returned to me before my kids go to college because they're young. Right. So I might actually invest in several cycles with my kids college fund money to be able to then deploy that in and, but as soon as they start to get closer to 18, I may decide to put that in a more liquid type of investment because I'm going to want to be able to pull that out and pay for their college or supplement their college fund with it. So that's another way that I a little bit of a creative way that I invest. And then the third thing I want to say is that I am non accredited. So I am looking for those regulation crowdfunding offerings to be able to do this.
00:45:58 - Annie Dickerson
I love that you mentioned kids, too, because that's such a unique part of this. My kids sometimes will save up some of their allowance and they'll invest with us even though they're non accredited. But, you know, we'll just save a piece of our investment for them and we'll give them some of the returns. But it's a fun family affair, or it can be, but I'll just stack onto your strategy. You know, as we've had the good fortune of being able to invest in many syndications, I've learned a lot of things. Not all of them have been winners. Some of them have been duds, unfortunately. But I've learned from everyone, you know, when you lose money, that's tuition that you're paying so that you're more educated for the next one. But I've invested in syndications across the gamut, with multifamily, with hotels, with industrial, with self storage, with mobile home parks, all sorts of things. And it's been across a lot of different markets as well. But what I've realized now that I've done all these different investments is that I have to have at least, at least a couple of buckets, if not three distinct buckets, for my investments. One is the most stable, solid, non sexy types of investments that are just going to get me a good, stable, steady return that doesn't have a ton of upside potential, but also doesn't have a ton of risk either. I want a good amount of my money in those types of investments, and then I have some that have a little bit more risk, but a little bit more reward potential. And those are some of those value add deals that I've invested in that have good potential. And so that makes up a good portion of my portfolio as well. And then I have the really speculative stuff. This is like the crypto stuff. And, you know, things that are kind of out there that if I lose it, you know, it's, it's okay. But I, if I win at those, then I stand to gain a huge amount. And so I kind of have those three buckets in mind as I'm investing. I want to make sure that even though it's not sexy, I have a good amount of money in those stable and steady investments. And then I also have some investments outside of syndications, as you mentioned, not necessarily in rental properties, because again, I'm not at the phase of my life where I want to deal with that, but in things like the stock market, just to diversify and to have some investments where that money is liquid. And so I think at the end of the day, you know, diversification really is the name of the game, putting a little bit here and there to grow your overall wealth over the long term. Okay. So with that, hopefully through this conversation, I know we've covered a lot and you might be overwhelmed with all of this, but the good news is you can go back and listen again and take notes. You can also go to our website. There's a ton of information for you there. We've got lots of blog articles. We've got a great start here page. We've got videos for you to because this is syndications is a complicated thing to understand. So you want to not just hear about it once, but really do your due diligence and learn about all the different pieces and facets and perspectives. So with that, Susan, any last thoughts before we wrap?
00:49:30 - Susan Elliott
I would just say take these steps by steps. Take them little baby steps steps. So if this is sparking intrigue, just start to look into a sponsor, look at their website, schedule a call, and even ask silly questions on the call. They are not silly. Every person has those questions and take the first step.
00:49:50 - Annie Dickerson
Absolutely. And well, we've made it to the end of our show. So thank you so much for listening to this episode of the Life and Money show. The show all about helping you you to create a meaningful and intentional life by design. And of course, for the show notes, you can go to lifeandmoneyshow.com. and for more about how you can invest with us to build wealth for your family, you can go to goodeginvestments.com. till next time, remember that your financial journey is a lifelong adventure and we're here with you every step of the way. Thanks for listening and we'll see you next time.