Be Careful When Doing Bigger Deals (but why they'll keep happening)

welcome back to the short-term rental richness podcasts we're talking about syndications this week that is another name really for big deals it's a way to pool money together the Oxford dictionary literally says it's a transfer of something for control or management by a group of individuals or organizations so the transfer of something in this case is money so they're pulling money together to do really big deals and this is the way most big deals get done in fact almost every hotel is sort of ran this

way and big apartment buildings and complexes and shopping centers most of the time these deals are put together by syndicating money and I remember when I used to work as a commercial real estate broker in Northern California we worked with a lot of investors this way I remember I was just a young buck back in the day but it was really good experience you know we sold shopping centers and we sold we sold apartment buildings and warehouses and land I mean we really worked with every

sort of commercial type of real estate investment and we only worked with investors so I remember them flying in and we'd drive around looking at apartment buildings and then all of a sudden we're making huge massive offers on these apartment buildings that aren't even really for sale but that that happens a lot in that side of the world those things usually don't come on the market at least the good deals anyways so that's what syndication is basically pulling money together um but there's a lot of

components to that so I want to break that down a little bit more for you and we're going to get to some short-term rental stuff here in just a few minutes in the in the end part of this episode because syndications are definitely finding their way into the short-term Rental World too where it used to be you just bought a vacation rental maybe you had a a second home something like that now there's some big big deals happen so I want to talk about that in

just a second but before we do there's a couple main parts to a syndication the first part is what you call the GP or the general partner and this is the active partner so you could think of this in terms of the manager the person putting the deal together and then you have the lp The Limited partner and this is just the passive partner so they're not actually involved in the day-to-day management or anything like that they're the ones just giving the money over hopefully to

a trust trusted GP someone that actually knows what they're doing these deals can get pretty complicated I mean they're really up to your imagination right but there's a lot of terms and different components that go into a syndication it really can be I mean no two have to be alike but very often there's some sort of guaranteed or preferred return advertised for the deal it doesn't necessarily mean that they're going to achieve that right so we got to be really careful there but there is a

that's really the end of the day someone's looking to invest their money and get a return back but there's a lot of other components that go into it so you might hear terms like waterfall you know a lot of times the GP charges an asset management fee a lot of times they charge an acquisition fees so a percentage just for finding the property there's a lot of different ways you can do it of course you know it has to be its own business it's a partnership

so you have to file different tax returns you have to make sure that you're filing k1s for all the investors there's different legal requirements based on the the person investing in the syndication so you'll often hear the term accredited investor this is someone that has a net worth of over a million dollars or I believe is making at least 250 000 a year although this can change so there are different filing requirements if you're accepting money from non-accredited investors then you have to go through a

whole bunch of legal paperwork to make sure that that deal is legitimate before you can actually take money from those investors so yeah there's quite a bit that goes into a syndication uh but this can be really beneficial really comes down to the fact that there's a lot of people out there that have a lot of money but they don't have a lot of time and there's a lot of people out there that have a lot of time but they don't have a lot of money

and so that's one of the beautiful things about real estate is that we can work together and we can do big deals together but you want to make sure you know what you're getting into so that's one of the reasons that syndications take place just in general but when we get into the short-term Rental World there's a few other reasons why this is happening the first reason is that people or bigger companies are chasing Trends now so it's no longer just the single individual vacation rental

now we have purpose-built communities being completed being constructed they require a lot lot more money and a lot more expertise to be pulled together so that's another nice thing about syndication is you can pull people with good expertise and people that have money to invest and it can be a good combination that is one of the things you want to double check though if you're getting into a syndication you want to check if the person the GP the general partner actually has some experience or do

they have money invested in the deal as well that's always a good sign that it can be a little more trustworthy so there's Trends happening in the short-term Rental World people are doing bigger projects and there's more money coming in the space mainly because people have realized that they can earn higher returns compared to Alternative real estate Investments I'm not saying compared to all real estate Investments but you can do very well in the short terminal world I hope that you've seen that side of things

if you've been listening to the podcast for a while then then we've talked a lot about just the growth of the industry and the opportunity here but it's still here and it's because people want experiences they're looking for alternative travel options and people are really living in short-term rentals now which I think is amazing it's amazing opportunity so I've kind of snuck a few words out in some prior podcast episodes but myself and a partner are also doing a purpose-built community right now our plans are

for 15 individual short-term rentals down here media and Columbia where I'm at right now it's really excited for that one uh I think it's gonna work out well but those projects take quite a bit of time so there's a lot of reasons for syndications it can work out really well for lots of people we just want to make sure we know what we're getting into because it can be sort of complicated so just to kind of recap here if you have one that you haven't happen

to be interested in you want to make sure that the person putting the deal together has experience in it again if they have their own money invested in it or some of their own money then that is a good sign as well uh you know if you're thinking of doing a syndication on your own you really got to learn the ropes first right and this we saw a lot of this over the last few years people going out and doing their first syndication and unfortunately a

lot of these deals are not working out uh not saying that they don't have the experience but the economy has also changed and so what's happening now is they're having Capital calls so they're going back to those passive investors those LPS and asking for more money to keep that deal alive so um hopefully you're not in a situation like that but that is going around we just want to be very diligent when we go into a deal and make sure we know exactly what's going on

so I'm going to leave you just with a little analogy to try to uh kind of recap this a syndication process one analogy that I heard recently and it's about a professional horse jockey right there's three components you need for professional horse race you need the jockey which in this situation this analogy would be the GP so that's the manager running the deal you need the horse which is the actual deal and then you have the track which the horse runs on and the jockeys on

top of the horse the track is the market so you gotta have all three of those pieces for a syndication to make sense right you need the market you need a property and you need someone to manage it but this is the thing about a manager or a professional horse jockey in this scenario a professional horse jockey knows how to ride an old horse so a really good manager is crucial to any deal we see this with short-term rentals all the time we can have two

that are right next to each other and they operate very very differently one can way out perform the other so if you're looking to get into one of these deals make sure that your jockey your manager your GP that's putting this deal together really knows how to operate the deal and it's someone you can trust and with that I hope that gave you a little more insight into syndications there's a lot of money coming in the short-term rental space we're going to see some really big

projects over the future until next time I hope you have a fabulous week I've dedicated years figuring out how to manage my personal portfolio remotely and it wasn't always easy and it took a long time but now my amazing team can professionally manage my properties without me and good news our team can also manage yours let us save you the stress and headaches and some money by offering you an industry low fee to find out more about partnering with us head to str-riches.com hit the property

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