April 23, 2008

Real Estate Syndication Questions & Answers: Part 10

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As we prepare for our seminar program that covers the concepts of successful syndication, many people are sending in questions that they have about the topic. We are organizing them into categories and I am answering them so that everyone who is interested in learning how to make money the same way that Wall Street makes money, can begin to understand how the business works.

In the coming weeks, I will continue to answer the real estate questions that come in using our weekly column. Feel free to submit your own questions as well. To register for our upcoming live event, go to www.SyndicateFast.com. To submit a question of your own, go to www.joelblock.com/capital.

More Questions about Real Estate Syndication

What are the important considerations when syndicating in a declining value real estate market? The major difference between buying real estate in a declining market versus buying real estate in an escalating market is that in an escalating market, everybody usually wins. That means you don't have to be the sharpest tool in the shed to succeed in a real estate investment. However, in a declining market, you better be one of the shining stars or you're going to go down the drain with everybody else. You want to position yourself as someone who is able to catch others as they fall. That means you have to be shrewd and you have to have a strong sense of value in the ability to calculate cash flow so that you can take advantage of the opportunities that will present themselves. Further, you have to select properties that will provide cash flow. Whether or not there is appreciation, always assume that you'll be in the property for longer than you expect, and build that into your projections.
Do you leverage land? I don't leverage land. I like to carry it without interest. I pay for it in full; and if our goal is to develop it, we don't take any loans against that property until such time as we're ready to take construction financing to do the development.
Is there liability? Somebody always has to be responsible; otherwise, a bank won't provide any capital. However, there are many ways that lawyers write the operating agreement to insulate the syndicator from most of the responsibility and liability. Although this is a legal question and I don't provide legal information, I know the lawyers that I deal with provide me with excellent liability coverage. They also recommend the use of insurance to protect you from certain kinds of errors and problems.
How should the syndicator hold his or her interest? Real estate can be held in a variety of entities, but an S corporation is typically not a preferred mechanism because you don't have good flow-through of real estate losses in those entities. An LLC is an excellent second tier protection which many syndicators use to hold their interest in the company.
Do investors care about the assets that you're buying in the syndication? Investors and syndicators all have preferences and have specific knowledge about the types of properties that they will buy and that they understand. If you understand commercial properties, then you should be syndicating commercial properties. If you're an expert in residential properties, then you should be syndicating residential properties. If your investors have a preference, then those are the types of deals that they should invest in. My business experience tells me that real estate investors don't usually invest in start-up businesses and people who are scientists and understand bio-technology frequently do not invest in areas where they don't have any background in the topic. When you leave your core competency too much, that's when you tend to get in trouble. The golden rule is to do what you know.

All this material and a lot more will be addressed at our live seminar in May called “How to Raise Money for Real Estate: Harnessing the Power of Syndication.” If you are a real estate professional or someone who is involved on the capital side either as an investor or facilitator, then this incredible two-day event is for you. For more information, go to: www.syndicatefast.com.

Real Estate Syndication Tele-Seminars!

Join Joel Block and his Expert Syndication Instructors www.syndicatefast.com

About Joel G. Block

Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.

Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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