Private Real Estate Syndicated Funds – A Passive Way to Invest in Real Estate

In today’s economy, one thing is guaranteed. The world is attempting to ditch the US dollar as the reserve currency and keeping your money in CDs and money market accounts is straight forward unsafe. For decades savers and investors found it safe to keep their money parked with their banks however the current near zero rates of interest and volatility of the U.S. dollar are justified reasons that compel more folks to find better investment strategies for their money. That’s why many investors start looking for investments which keep up with inflation (real estate, gold/silver, commodities, and certain foreign currencies and stocks.)If Real Estate investing has been on your mind but aren’t sure where to invest, how to find the best deals or how to properly evaluate one, you may want to explore the opportunity of a passive way to invest in a Syndicated Real Estate Fund. A real estate syndicate is simply a group of investors who pool their money to purchase real estate. By pooling their money together these investors are able to purchase larger real estate properties with or without bank financing. This method of real estate investing has been a popular method of financing the purchase and sale of commercial properties such as shopping centers, office buildings and warehouses.Private Real Estate syndicates raise funds through a private placement which is a security – an ownership interest in a company that owns and operates investment real estate. Unlike the REITs (Real Estate Investment Trusts), these investment vehicles are not publicly traded and are not priced to market on a daily basis. While REITs may have high dividend returns their publicly traded shares are subject to a significant degree of price volatility, an event less likely to occur with private syndicated funds.Many real estate syndicates are offered as private placements, so it is important for you to understand the process and risk factors related to private placements. One of the most common risk is that the underlying investment is real estate, as a result these investments may be less liquid than shares in a REIT; when time comes the fund may be unable to sell the real property at a high enough price to generate the expected profits; or outside factors such as a further deterioration of the economy might negate the value added through rehabilitation work. Then, there is that uncertainty of unforeseen future expenses, taxes, and liability, all of which being typical real estate issues that seasoned investors are familiar with. My recommendation is that you thoroughly evaluate the risks directly from the private placement memorandum.Syndicated real estate funds are carefully crafted by using the expertise of attorneys, accountants, contractors, investment bankers, mortgage bankers, and real estate brokers. They are structured in form of a partnership agreement or limited liability company (LLC), whose code of ethics requires full disclosure of all material facts. To further determine whether this kind of investment is for you, you’ll want to find out the experience and accomplishments of all directors and managers, the minimum required investment, the time-frame of your investment, and the potential annual return and capital gains on your money.What I found enticing is the fact that one can invest in a private real estate syndicate by using his retirement account (IRA). A self-directed IRA is a unique hybrid tool that uses a self-directed IRA custodian and a specialized legal structure. Investments made with a self-directed IRA may grow untaxed provided the income generated is passive income.Some other potential benefits associated with investments in these funds are:* Gaining net cash flow through a passive investment. Owning real estate individually requires skills in assessing property values, negotiating purchase agreements, financing, negotiating leases and managing the property. An investor in such a fund has access to a group that has proven knowledge and experience to deal with all aspects of real estate.* Achieving a higher yield by investing in larger and more profitable properties. By pooling the funds of a number of investors, real estate syndicates can achieve overall better returns when compared to many individual investors.* Taking advantage of the distressed commercial real estate market by using the expertise of vulture investors.* Hedging against Inflation. Because inflation erodes the value of hard-earned money and reduces the individual purchasing power, investment diversification in tangible assets may potentially represent a more desirable way to maintain your current living standard.* Potential profit from property appreciation. Commercial real estate value is determined by its level of stabilization. High occupancy rates, stable revenues, carefully assessed expenses, and experienced property managers overall largely contribute to the increase in value.* Favorable tax treatment. Check with your tax adviser regarding tax savings on private real estate syndicates which may not be available when investing in a public company.* Various Investment Positions. As an investor, you can choose from a variety of positions that best suits your investment requirements.Overall I still think it’s a smart move to diversify your investment portfolio with a hard asset such as real estate. But no matter what you invest in keep in mind that a “healthy investment” is the kind that…* generates substantial revenues for you during good times and bad times;
* is made out of real assets that don’t vanish;
* does not lose its earnings potential with time;
* maintains its capital value;
* keeps up with inflation;
* is made out of assets that satisfy one or more human needs (housing, food, energy);
* can be passed on to your heirs and generate passive income for them.Finally, if you’re seriously considering placing a chunk of your money into such a fund don’t forget to ask the hard questions such as if the managers and directors are investing their own money in the fund; how can you verify that the company is real and not a hoax; what could go wrong and if it does what happens to your investment. Use common sense and your own instinct, learn as much as you can, make decisions, and act on them quickly so that when the economic dust finally settles, your egg nest will still be there, intact and unharmed.

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Common Misconceptions About Buying and Selling Real Estate

One of the tasks associated with my business is educating clients who have various misconceptions about real estate.Most believe information a friend has provided them is accurate without investigating themselves.Here then are some of the most common misconceptions about buying and selling real estate my customers have presented me…Foreclosures are the best dealMany who purchase real estate either for investment or as their primary home are under the impression that foreclosures are the best deals.While there are certainly some very good deals when purchasing foreclosures, often times making an offer on a property not in foreclosure is a better deal.If a home or property has been foreclosed on, there is a high probability that the owner neglected maintenance due in part to financial implications. When this is the case, the property may require a significant financial investment to return the property to a “livable” condition.When purchasing a foreclosure it is highly recommended that a full and thorough inspection be made of the property to ensure everything works and all significant features of the property are in good condition.Look first get a loan secondFirst time home buyers as well as those who have not purchased a home recently are often misled into believing they should look at homes before obtaining proper financing.While this may have been somewhat true during the boom years, many sellers no longer entertain offers on their property that are not accompanied by a letter of approval from a lender.In addition, when searching for a home it is imperative that your real estate agent know not only your wants and needs, but also the price range of which you can afford.Think for a moment about looking at several homes before obtaining pre-approval. An agent shows you several and you fall in love with one that costs $250,000. You make a full purchase offer with an earnest money deposit of $2,500 which is accepted, the sellers agent takes the property off the market so no other offers can be received.You contact your lender for approval, who responds that you are qualified for a loan up to $200,000.Not only have you found out you’re not qualified to purchase this home, but it may also be difficult to get your earnest money deposit returned to you. This can be a significant disappointment to you during your search for a new home. In addition, you’ve wasted the time of all parties concerned including yourself.Therefore, it is highly recommended before you start looking at homes, you get a pre-approval letter from your lender. At least then you know how much house you can actually afford to purchase.I must see all properties in my price range before decidingMany buyers believe looking at every available property for sale will give them more options before making an offer.Unfortunately the truth is actually the reverse – Looking at many properties tends to blur one into the next. When buyers view too many properties, they tend to forget or blend one properties prominent feature with another.Also, it takes quite a bit of time to view every single property on the market and may cause you to miss that special property that meets your needs by not making an offer before someone else.A preferred method of deciding which properties to view is to make a list of your wants and needs, discuss them with your real estate agent and together prioritize them.Your real estate agent will be able to print out the properties that best match your criteria and show these to you so you can make a quick, informed purchase offer.Real estate agents make too much moneyThis misconception is quite interesting – It is often expressed mostly by sellers wanting to haggle over a commission amount.Did you know that the real estate agent actually only receives a small amount of the total commission?Here’s why…First off there is the split with the office broker so now the real estate agent only gets half. But wait; there are two sides to every transaction so there is another split with the selling agent and their broker.So actually, the listing real estate agent only gets ¼ of the total of commission out of which their bills must be paid such as advertising, signs, MLS fees etc.While some agents do make a very good living, it is not because of the amount of commission but instead because they treat their clients well, are well educated and have good business sense and ethics.Buyers have to pay a real estate agentThis misconception is quite common in today’s market. Many buyers believe when they work with a real estate agent, it will cost them money.Actually, in many areas real estate agents work with buyers for free. The agents fee is paid by the seller when the property is sold and closed.So buyers go ahead and call a real estate agent and ask them – it’s the best decision you will make prior to purchasing your next property.Going directly to the listing agent will save moneyOften, a buyer will want to go directly to the listing agent in the hopes of saving money by negotiating or asking them to lower their commission.Lowering a commission however, helps the seller and hurts the agent and most agents are understandably unwilling to do so.Many buyers are not experienced negotiators, and may not be aware of what items may be negotiable besides the price of the property.Having your own buyer’s agent represent you helps when purchasing a property by having an experienced negotiator guide you on what items are negotiable, price and other ways to save you money.Working with more than 1 agent is OKThis extremely common misconception is one of the most wasteful of all.When working with an agent as your representative, it is vital that you work with just that one agent.Most real estate agents such as me work very hard for their clients. Their expenses tend to be quite high just getting clients: website fees, administrative fees etc are just a few of the costs real estate agents incur in their business.There are many acceptable reasons a real estate agent may be unavailable to show you a property: personal illness, prior engagement with another customer, family matter etc.These are not reasons to contact another agent and ask them to show you properties.However, there are also many unacceptable reasons agents may be unavailable: they went on vacation without letting their clients know or they failed to provide another agent as backup to assist their clients, perhaps the agent does not work the hours clients are available to view homes or perhaps the agent doesn’t work weekends or holidays and many others.The latter two are unacceptable for the mere fact that most potential buyers work during the day and are only available to view homes after work hours and on weekends.If your agent is unavailable for any unacceptable reason, rather than contact another agent to show you a few homes, perhaps instead you should be contacting an agent who will work for you when you need them.Listing with a friend/relative will save me moneyThis misconception can be quite damaging to a relationship. First off, if the agent is a friend and have agreed to reduce their commission, are you certain they are still able to market your property correctly?Also, an interesting issue that often arises when working with friends or relatives – if your property does not sell and you believe you are not being represented appropriately, will you be able to fire them and hire an agent who will?Working with a friend or relative may place a strain on this relationship and I highly recommend you hire a competent 3rd party to represent you.You can always ask your licensed friend to help you find an agent so they can receive a referral fee.SummaryAs you can see there are many misconceptions about buying and selling real estate, working with an agent as well as the procedures involved.When you’re looking to purchase or sell a property, get as many facts and information from licensed sources. This will ensure you not only have accurate information, but also can make an educated decision on your next property purchase.Copyright © 2001-110 All rights Reserved.