Controlling Consequence: A Guide to Investing in Real Estate Syndications

After investing in 10 real estate syndications and seeing two market conditions with financial hardships, I got to see where the main risk factors in multifamily real estate syndication.

The main risk I see is the shorter loan term. Probably 70% of syndications have a 7 year or less loan term because the prepayment penalty matches the business plan.

Controlling consequence proposition.

Instead of investing all of your capital at once, spread it out over years. If you do two deals a year for 5 years, your loan maturities are spread out over a longer time frame. Say there was one catastrophic year in the market. Worst case you lose two deals and hold the other deals. Only 20% of your assets are at catostrophic risk.

If you do 10 deals all in one year and the loan terms are all the same, that exit year better be a good one. If the exit year is catostrophic, then 100% of your assets could be at catostrophic risk.