Is this a good time to invest in syndicates?

[Eyedentist]

I am sitting on a lot of cash and trying to figure out next steps. Pre-tax accounts are covered, 529, backdoor Roth, monthly contributions to after tax account for years, no student loan debt, etc. I am pretty sure that direct investment RE ownership is not for me, so I am looking into three companies:

 

MLG capital

37th parallel

Origins Fund

 

I did a fair amount of research on these and actually became an accredited investor with all of them. I haven't pulled the trigger yet. My only concern is is this a good time to invest in syndicates in general given high possibility of upcoming recession? Should I continue hoarding cash or go for it now? Any advice/insight would be greatly appreciated.

[toofy]

I've got a few deals with 37th parallel but these are recent and it's too soon for me to formulate a good analysis.  I'm interested to hear from others also.

[CordMcNally]

Do you have a personal investor policy statement and what does your desired asset allocation tell you? You're basically trying to time markets at this point.

[nephron]

These "deals" seem too risky for me.  A 10% rate of return isn't that good if you consider that you could have a negative 100% return/lose all your money and compare that to 10% rate of return you could get on average in the stock market with an almost 0% chance of losing all your money if you are invested in a diversified mutual fund.  Most of the stuff that I have clicked on has been claiming a 10% rate of return, one website that I clicked on seemed to have a lot of "local" deals promising a 6-8% return if you didn't loose all your money because the business went under.    I'm sure the fees that these websites are drawing from these investors are astronomical, the facebook ads and google ads aren't for free.  I don't see why if someone really did have such a good deal, they would need to advertise to the general public to look for small time investors.  I certainly don't have the business know how to investigate these deals, I imagine that most investors don't.  I like having the SEC providing some degree of protection against fraud.   I agree with one of the wci podcasts where a guest said these things are made to be sold and not invested into.  I suspect that a recession would put your investments into these at far greater risks then a bear market in the stock market which again, may go down 50% but hopefully will come back up at some point.  I suspect that you would just loose your money in a lot of these deals if the economy went sour.   That's just my uninformed opinion though.

[Eyedentist]

Thank you for your comments.

I respectfully disagree with that comment that this is market timing. If anything real estate syndicate investments don’t have much correlation with equity markets, this is one of the reasons I am looking into them. I do have an investment policy statement and I routinely automatically invest into my taxable account with Vanguard and the three fund portfolio. Same amount every single month with yearly rebalancing. As I stated before, I have accumulated quite a bit of cash and looking for vehicles that do not correlate with equity markets.

For the comment that these are being heavily advertised to general population, this is not necessarily true. You do have to be an accredited investor to invest with these companies and screening criteria is quite stringent. With one of them, I actually had to pay an accountant to write a letter supporting all my other recommendation. They do take it quite seriously.

[CordMcNally]

Eyedentist wrote:

I respectfully disagree with that comment that this is market timing.

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Eyedentist wrote:

My only concern is is this a good time to invest in syndicates in general given high possibility of upcoming recession?

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Eyedentist wrote:

Should I continue hoarding cash or go for it now?

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Eyedentist wrote:

As I stated before, I have accumulated quite a bit of cash and looking for vehicles that do not correlate with equity markets.

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You can certainly call it what you want but I doubt your investment policy statement says to "start hoarding cash when the market is close to all-time highs for fear of an upcoming recession and look for investment vehicles that do not correlate with equity markets".

[Larry Ragman]

Unfortunately, there are not a lot of good places to deploy a cash horde in the near term. That said, I support real estate as part of a diversified portfolio. You can search WCIs blog for his experience with syndicates and real estate funds. Also, those are not the only alternative to direct ownership. You could also consider REITs. Vanguard’s REIT Index would be worth checking out, though it has had a good run lately.

[StarTrekDoc]

Good time to invest in xxxx?

--It's always a good time to invest cause the alternative is spend.   As Cord said, what's your IPS say you should do?  Syndicate investing is not even close to cash savings.  Risk is everywhere right now because of the extended bull run across all sectors.  So what's your horizon and risk tolerance?

If you're hoarding for the 'right place' that's really timing by another name --unless you're specifically doing direct investing which you stated it's not for you.  REITs is like any other fund -- you're trusting a party for large portfolio.   Syndicated -- you're choosing more tightly risk/reward - like sector funds or city/state bonds.    Direct Real estate- like direct stock ownership (but so much more!!!)

Real Estate will diversify your portfolio from equities.  As does bonds.  The risk/reward level has its own in real estate spectrum.   Syndicates are middle of the road.

[Andrew Musbach]

High income professionals will always be offered "access" to various investment deals, but you're better off trying to hit singles and doubles than going for home runs. Real estate adds diversification to your portfolio and REITs are great way to get you broad exposure without taking on concentrated risk or worrying about which deals to be a part of.

[MattH]

I think that this is a good question in that it starts the discussion on what you should look for when you’re evaluating an investment sponsor.  Any underwriting that you do should include questions about how a recession or market slowdown would affect the holding(s). Most deals that I invest in personally and put together (full disclosure: I do syndicate some real estate deals) are underwritten to include the possibility (because we all know it’ll happen sometime) of a recession occurring. Here are a couple of things that I would look for:

• All sponsors are going to give you a projected IRR for the exit on a deal. How does this change if the hold period is extended 1, 2, 5 years?


• Is the property being purchased with an interest only note? What happens if the hold period extends beyond the interest only period? Will paying principal and interest ruin the cash flow and returns if the deal needs to be held for additional years to achieve a satisfactory exit price?


• How are they pricing the exit? Unfortunately, many syndicators are basing their projected IRR returns on exiting at a lower cap rate than they bought it with.  This means that not only do they need to improve operations, but the market HAS to move in the right direction to get the return they are advertising.  Any conservative syndicator is going to underwrite the property for yield (cash flow) and exit at a similar rate that they bought it for.  It’s obviously the hope that the market will move in the right direction, but the deal should work without that happening.

These are a few of the things that I would ask when talking to a syndicator about their market outlook and how a recession would affect the deal.  I would also encourage you to look at what your goals are.  Do you want long-term passive income, or do you want to be constantly cycling through deals?  I personally prefer to have a steady 10%+ cashflow year after year than nothing for 3 years and then a big exit (hopefully).  That’s obviously a personal preference but I would make sure you know exactly what you’re looking for and that your goals are in-line with the investment sponsor.  There are a lot of great syndicators out there, just make sure you weed out the bad ones by really digging into their numbers.

And, as Andrew said:

Andrew Musbach wrote:

Real estate adds diversification to your portfolio and REITs are great way to get you broad exposure without taking on concentrated risk or worrying about which deals to be a part of.

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If you don’t want to have the personal relationship with the syndicator/sponsor and hear the ‘story’ about each deal, then REITs are another way to go to get exposure to this class of investment.

[Tim]

“Is it a good time” gives me the impression that a favorable time is desired for an investment.
Syndication is an investment legal structure.
Real estate is and asset class, it is included in the broad indexes too.
How and if you want tilt is a personal choice. Many techniques to achieve that tilt.
Zero opinion whether now is the right time to tilt your investments nor which invest vehicle you choose.

What is the “edge” you think makes it a better investment than pure stock/bond and why do you think it will actually be uncorrelated to the market? There are a lot of prudent due diligence steps that give a false sense of security, by that I mean, it doesn’t change the results. Your guess is better than mine. You did some homework.
Tilt if you choose. Investing surplus funds is a good thing. Maybe your periodic investments need to be higher. Maybe not. It’s a good problem to have. Good luck.