Syndications – a.k.a private placements and private funds – aren’t for everyone. They aren’t for everyone since most require investors to be accredited (i.e., meet certain income and net-worth requirements) to participate.
Accreditation status is one reason syndications aren’t for everyone, but besides that, syndications attract a special breed of investors that you don’t typically find trading on Robinhood. Most syndication investors have been successful in another field and are looking to expand their passive income streams in a different industry by leveraging the knowledge and experience of experts.
I see advertisements all the time from competitors advertising how “everyone should (must) invest in real estate syndications…” but that’s false.
Not everyone should invest in real estate syndications. They’re for the sophisticated investor, not the day trader. Sophisticated investors turn to private investments like syndications to get away from the day traders who continually rock the Wall Street boat because they’re so susceptible to the latest headlines and social media buzz.
Syndications are only for a select group of investors – not just from a compliance standpoint but also from a psychological one.
Sure, one could complain that the SEC (securities and exchange commission) discriminates in favor of the wealthiest investors with its investor qualification requirements, but it’s more than that. They understand that private investments aren’t for the weak of heart and want to ensure investors know what they’re getting into. It takes a certain type of mentality, and typically, investors with the financial wherewithal to participate in syndications have this mindset.
The definition of investing is expending money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property or by using it to develop a commercial venture.
What most retail investors are doing on Wall Street is not investing. They’re speculating. Speculating is defined as engaging in any business transaction involving considerable risk or the chance of large gains. It sounds more like gambling.
Day trading is not investing. Trying to buy something low, thinking you’ve outfoxed the market with the expectation that some sucker down the road will pay more for it, is not investing. It’s trying to time the market, and nobody’s particularly good at it. Nothing changes with the underlying asset – just what someone is willing to pay for it. There are no underlying economics involved; no analysis is needed.
Speculators are a nervous bunch. Everything is always hanging in the balance, just like with Vegas gamblers.
Real Investors like syndication investors don’t waiver. They are not anxious or prone to public sentiment. They can’t stand the crowds, so they avoid Wall Street. Instead, they seek out private markets to invest in rock-solid assets and ideas where underlying economics and fundamentals mean something. Then they ignore the chaos, gossip, and commentary from talking heads and basement-dwelling Reddit bloggers.
Syndications are not for those who:
- Are prone to anxiety about their investments.
- Are easily swayed by public opinion.
- Are constantly asking a friend for their opinion before making decisions.
- Follow Reddit to direct their investment choices.
- Look for reassurance affirmation after every investment decision.
- Don’t understand and are not willing to learn about economic fundamentals and financial projections, and metrics.
- Are leery of partnering with a third party – even though the management team has rock-solid credibility.
- Are constantly second-guessing everything they do.
- Are constantly chasing the latest shiny object or the next home run.
- Has an investment time frame measured in hours – not years.
- Invest based on gut feelings and not data.
- Lives by the mantra “buy low and sell high.”
Syndications aren’t a good investment for everyone but for those with the right mentality; they can be excellent investments conducive to creating and growing wealth.