Exsqueeze Me, Baking Powder?”
If you haven’t seen Wayne’s World, please stop reading and go watch. That’s more important right now. (Kidding, but seriously, be better.)Wayne dropped the infamous line of, “exsqueeze me, baking powder,” after being told about an occupancy permit he needed and had ZERO idea about.
Wayne dropped the infamous line of, “exsqueeze me, baking powder,” after being told about an occupancy permit he needed and had ZERO idea about.
I gave a similar reaction the first time I was asked about syndications and now receive that bewildered reaction when talking about what I do.
Wayne’s World / Syndication World
Whether I’m meeting people at a cocktail hour, chatting with neighbors, or having an informal conversation at a church activity, saying “apartment syndication” is usually met with eyes that glaze over. Not because they lose interest, but because the term is synonymous with uninformed!
Here’s what’s interesting, I would have considered myself a fairly savvy investor the first time I learned about real estate syndications. I had some single family rentals, had been involved in some flips, hell, I had even wholesaled a few smaller apartment buildings. Yet, I had no idea what apartment syndication meant.
In fact, the reason I decided to wholesale the small apartment buildings was because I had NO idea how to fund the acquisition of something that size. Looking back, ignorance caused me to accept short term dollars instead of acquiring long term wealth.
I thought the only people who could own a big apartment complex were the extremely wealthy!
“Pardon me, do you have any Grey Poupon?”
WHAT IS APARTMENT SYNDICATION?
The most basic definition of syndication I can think of is, “a group of individuals or companies combining their resources (time, expertise, money, etc) to do something they couldn’t do, or that would be very hard to do, on their own.”
A LOT of people would love to benefit from owning an appreciating asset, like an apartment complex, that provides cash flow and extremely attractive tax incentives. However, very few people have the ability (time, expertise, money, etc) to purchase a big apartment complex on their own.
Problem: Individual Ability
Solution: Real Estate Syndications
“Excellent!”
WHAT APARTMENT SYNDICATION IS NOT
For clarification, an apartment syndication is NOT the same thing as a REIT (real estate investment trust). A REIT is a privately or publicly traded company that owns and manages real estate holdings. When you invest into a REIT, you’re not investing into a specific investment, but rather into a specific company.
A syndication differs in that, when you invest with a syndicator, you own a percentage of the property itself. This is important because it allows you, as an investor, to actually own and benefit from all that real estate has to offer. One small example, (with a big impact), investing in a REIT doesn’t provide you the same tax shelters that come from owning a percentage of the actual property.
Just want to make sure you “cross the t’s and dot the… lower case j’s.”
FINANCIAL ILLITERACY
The more I explore the investment world, the more I realize my own financial illiteracy. The more I talk about apartment syndications, the more I realize I’m not alone in that illiteracy. The majority of the population view their investment options as follows…
1- Owning their personal residence
This is not an investment. “Buying a house is a major financial decision that can give you peace of mind and a wonderful place to live. But it’s not an investment.”
2- The American 401k, 403b, or traditional IRA
“Employer match and tax breaks, not a bad deal, right? Until you’re ready to retire, that is. That’s when a 401k or 403b suddenly becomes the worst possible retirement plan.” -Michael Reese, Kiplinger
If (the American 401k) were an ice cream flavor, (it would) be pralines and dick”