Individuals looking to grow their wealth by investing in low-risk, high-return portfolio options often turn to real estate as a solution. Real estate syndications can be an excellent avenue for people looking to build their portfolios, as these agreements allow investors to pool their resources and maximize returns.
And some real estate markets are more promising than others – and the current market in San Antonio, Texas, is one of them.
According to the National Association of Realtors, the San Antonio real estate market is a hidden gem due to its increasing popularity, wage growth, and job opportunities. There are a variety of other factors which make this real estate market highly desirable to buyers, renters, and potential investors.
Understanding Real Estate Syndication
Real estate syndication combines forces to create a better financial outcome for everyone. A real estate syndicate encapsulates two distinct roles — syndicators (or sponsors) and limited partners (otherwise known as investors). Each party has a unique skill set and a set of resources they bring to the table.
What is the Role of the Syndicator/Sponsor in Real Estate Syndication? Syndicators, or sponsors, take an active role in real estate syndication. They are experts with strong knowledge of markets, properties, and day-to-day operations of a real estate business. The syndicators do everything from choosing which properties to buy to completing all legal and accounting aspects of the real estate deals and leases to working with tenants and setting plans for managing and repairing the buildings. However, sponsors need access to financial resources, or capital, to effectively run their business. The financial backing is where investors come in.
What is the Role of Limited Partners/Investors in Real Estate Syndication? Investors or limited partners take a passive role in real estate syndication. However, they provide a valuable resource — the money needed to run the operation. Limited partners must contribute a certain amount of money to the syndicate. In exchange, they do not handle any decisions related to purchasing, selling, or running the properties.
Being a limited partner means enjoying the financial and tax benefits of the real estate market without having to deal with daily operations. This can be a big win, allowing you to generate passive income and other distinct benefits.
Benefits of Real Estate Syndication
Many of the benefits related to real estate syndication, especially multifamily investment syndication, come from strength in numbers. By having many investors come together to pool their capital, the real estate syndication can purchase larger-scale real estate projects for a significantly lower cost than a single investor can do independently.
Syndication, in turn, can result in the potential for higher returns on one’s investment, as an investor is providing a smaller amount of their own money in exchange for a stake in a much larger real estate operation. In addition, real estate syndications can work together to create a diverse investment portfolio of properties in various locations.
A final benefit is that the real estate sponsors are bringing their professional expertise to the table, meaning individuals who may not be as well-versed in real estate can still add properties to their portfolio and reap the benefits.
Evaluating San Antonio as an Investment Destination
San Antonio remains a highly desirable location for individuals looking to rent their homes and investors looking to break into the real estate market. If you are looking at which real estate markets to invest in, San Antonio should rank on the top of your list due to its wage and job growth, revitalization of many areas in the city, and the current buyer’s market.
Overview of San Antonio’s Real Estate Market
As the 24th largest metropolitan area in the United States, San Antonio’s population grew nearly 20% from 2010 to 2020. This city also has had a significant jump in six-figure job opportunities, at a whopping 163% increase, giving people more reasons to move there.
In addition to being affordable, San Antonio has other lifestyle factors which make this Sunbelt city a desirable location to move to, including no state income tax, good weather, and a great food scene.
A recent U.S. News report indicates that rent prices in San Antonio are steadily increasing, allowing investors to profit. The question then becomes which neighborhoods are the best in the area to purchase a property.
Researching Local Market Conditions
San Antonio has many great neighborhoods where investors can purchase property, each boasting unique cultural opportunities, good schools, and varying levels of affordability. To determine which areas offer the most potential and most significant return on investment, you should consider the following:
- Economic indicators: Consider the median home price and current prices; you can determine if purchasing a property in the area is feasible and if doing so will create a good return on your investment.
- Real estate supply and demand dynamics: Finding out what stage of the market the neighborhood is in can help you determine whether or not it is a good time to buy. Analyzing supply and demand can also help you determine whether or not a neighborhood is considered a desirable area to live in.
- Employment opportunities: The average income in the neighborhood you are looking at and the job market overall will let you know what types of renters and buyers are interested in these homes – and who you will likely be renting to. Job growth is also an indicator of a healthy market.
- Neighborhood demographics: Who is currently living in an area and looking to move there can tell you a lot about how the real estate market in a neighborhood may shift.
- Population growth: Simply put, you want to determine if the neighborhood you want to invest in is experiencing an increase or decline in population. Hence, you know how “hot” the real estate market is.
Although it is essential to do thorough market research into an area, remember that if you want to become a passive investor, you don’t have to go at it alone. Instead, you can become part of a real estate syndication and work with real estate experts.
Choosing the Right Real Estate Syndication Opportunity in San Antonio
Because San Antonio is considered an excellent opportunity for investors, it’s no surprise that many real estate syndications are popping up there. However, you want to ensure that the partnership you participate in matches you, your money, and your risk tolerance.
Identifying Reputable Syndicators/Sponsors
When looking for a real estate syndication opportunity, you need to thoroughly vet the sponsors to ensure they have plenty of experience with the local market you want to purchase in. You should also discuss the syndication’s track record at length, including what types of deals they have entered into, how the investments have turned out, and what the syndication hopes to do in the future.
You should also be comfortable with the written agreements of the syndication partnership. Enter a real estate syndication that meets your standards for transparency and communication. Although you will not take an active role in the day-to-day operations, the properties are purchased with your money. Thus, you want to be informed about what the real estate syndication is doing and the required terms and conditions to join.
Analyzing the Syndication Structure and Terms
When you join a real estate syndication, you are to contribute a minimum amount of money as an investor. In exchange, you will receive a specific amount of profit. Exactly how much depends on the exact structure of the real estate syndicate, which determines how profits are allocated.
For this reason, you need to research real estate syndications ahead of time. Ensure the return the syndication aims to make on each investment aligns with your financial goals and how much risk you are willing to take.
Finally, remember that while real estate syndications are looking to acquire properties, the end goal will be to add value to the property to turn a profit. Make sure that you understand the syndicate’s planned exit strategy for each property you are investing in and when they are looking to sell. Once you understand the overarching structure of the real estate syndication you are interested in, you should look at the investment properties they currently own or are looking to buy to see if they are worthwhile.
Evaluating the Investment Property
Here are four criteria that determine if a property is a good fit for your investment goals:
- Location: This factor isn’t just a real estate buzzword – the location of your property means everything to potential renters. You want to ensure the home is located in a desirable area. Consider factors such as cultural opportunities, good schools, low crime rates, and environmental risks (such as if the neighborhood is in a floodplain).
- Property type: Multifamily housing offers distinct advantages for investors compared to single-family homes.
- Condition: This will affect the overhead which has to be put in to renovate or maintain the space and make it desirable to renters.
- Cash flow and projected returns: This is where the math comes in. You will need to determine how much the property will bring in and if the profit you will receive is worth it.
Overall, investing in real estate is a good investment option as it offers a high return. However, this doesn’t mean joining a real estate syndication is without risks.
Mitigating Risks in Real Estate Syndication
Like any investment, real estate syndication includes its fair share of risks. However, by being thorough up front and knowing precisely what you are getting into when investing in real estate, you can ensure that the investment choices that you are making are right for you.
Conducting Due Diligence
When vetting a potential real estate syndication to join, you should see all of their financial statements and any accounting documents they have, including pro forma financial statements. These documents will help you determine if the general sponsors have the expertise needed to make wise decisions with your money and can also help you evaluate the syndicate’s track record.
To ensure that the property is suitable, ask to inspect all of the paperwork related to properties you might invest in, including closing documents, home inspections, and leases offered to tenants. When you can, ask to see the properties yourself.
Assess the real estate market and any regulatory risks to ensure that the market is a good fit for the amount of risk you are willing to take on. You will also need to dig into the paperwork governing the real estate syndication.
Understanding Legal and Tax Implications
Before becoming an investment partner in a real estate syndication, you need to review the partnership agreements and your legal obligations as a passive investor. This information will let you know what sponsors and investors have agreed to and the amount of legal liability you have if anything should happen.
In general, keep in mind that investors who take an active role in the real estate syndication will lose their passive investor status, which means they are opening themselves up to new legal obligations.
You will also want to familiarize yourself with how passive investments impact your taxes. Be sure to speak to an account before signing any documents.
Once you’ve done your research, you’ll be well on your way to participating in a real estate syndication.
Tips for Successful Real Estate Syndication Investment in San Antonio
Whether you’re seeking a real estate syndication investment for the first time or are looking to grow your portfolio, there are several things you can do to ensure that you are fully informed and making smart investment choices. Being fully informed is particularly important in booming real estate markets like San Antonio’s, where there are many potential investors and syndications that are looking to buy properties.
First, remember that diversifying your investments, whether through different types of properties or even participating in multiple syndications, is always good advice. Diversifying your portfolio is one of the main ways you can reduce risk.
You also want to build a professional network across the area you want to invest in. In San Antonio, that means connecting with local agents, including Texas Realtors, or meeting up with local investors. Connecting with experts will also keep you updated on market trends in the area and changes to local regulations that could impact real estate law.
Finally, it’s essential that you regularly review your investment performance across all of your holdings. Don’t hesitate to communicate with the general sponsors so that you know what is going on and what their plans for the future are.
With the cost of living slightly lower than the national average, a vibrant cultural scene, and a steady job market, San Antonio is in the top 150 best places to live in the United States. These characteristics make the San Antonio real estate market a desirable location for individuals looking to move and a great one for potential investors.
A real estate syndication may fit your needs if you want to break into this lucrative real estate market. By familiarizing yourself with real estate syndications and building your knowledge to make wise investment choices and mitigate risks, you can be well on your way to growing wealth.