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3 Factors That Make A Real Estate Syndication Investment Riskier

We previously looked at whether investing in a real estate syndication is risky or not. Spoiler alert, yes investing in real estate syndications are risky, but investing in general is risky. The upside however is that real estate syndications of multifamily apartments provide one of the best risk-adjusted returns around when compared to other types of real estate investing and to investing in other asset classes like stocks. That means if you must take on risk then your best bet is to do so with real estate as you will be relatively well compensated for that risk.

Now that you know there are risks involved in investing in real estate syndication how do you find out about what the risks are in the specific deal you are investing in? In this article we will look at how you find out what the risks are and what are the 3 main factors that can increase risk in a deal.


What Are the Documents In A Real Estate Syndication That Tell You The Potential Risks?

Real estate syndications involve signing a lot more documents than buying a stock. The important documents in a real estate syndication serve a key purpose; they highlight the risks, potential rewards, rights and obligations you will have by making the investments. You will see the risks of the real estate syndication investment highlighted in the Offering Memorandum (also known as the Investment Summary) as well as the Private Placement Memorandum.

The Investment summary acts as the name states – it shows a summary of the overall deal highlights including the risks. Often syndication investments will be accompanied by an investor meeting (typically a webinar) where the lead syndicators will discuss the investment opportunity and related risks. Passive investors will have an opportunity to asks about risks and how they are addressed during this investor meeting.

The holy grail document of risks related to the investment is the Private Placement Memorandum. This lengthy document will include full length disclosures of all the risks that may come with the investment. There will be no sugar coating in the Private Placement Memorandum. As a passive investor it is important to review this section of the private placement memorandum in depth so there are no surprises once you have invested in the deal.