How We Reduce Risk And Protect Your Money Inside A Real Estate Syndication

by | Oct 18, 2021 | Uncategorized | 0 comments

Answer this question for me: 

What prompted your interest in commercial real estate investments? 

Was it the possibility of making a return on your money to deepen your pockets? If so, that is the number one reason why people are attracted to real estate syndication investments.

Large returns are something savvy investors strive for and one of the big reasons why commercial real estate syndications are so attractive. However, I propose there’s something more important to consider when assessing potential investment opportunities.

What could it be, you ask? 

A little something called capital preservation. We work hard to ensure that every commercial real estate investment opportunity we present has several different ways in which investors’ money is being protected.

Capital Preservation and Why It Is Imperative

Capital Preservation is obviously not as fun to talk about compared to passive income, but it is extremely important.

Capital Preservation is all about alleviating potential risks by trying to stick to the golden rule of investing as bestowed upon us by the great Warren Buffet, “Don’t lose money.” 

Regardless of what you decide to put your money into and with whom, there are five imperative questions to ask. Investigate these five capital preservation pillars thoroughly in any of your potential investment opportunities, and with the answers, you can invest your money with confidence.

5 Imperative Capital Preservation Angles

As we present opportunities and manage millions of dollars worth of real estate assets on investors’ (your) behalf, capital preservation is one of our top concerns. There are 5 aspects that compound upon one another to construct our preservation plan of action.

1 – Raise Capital Upfront

If we were to rely on asset-generated cash flow to cover capital expenditures, that could pose a big problem during any type of market slump, low occupancy phase, or unexpected accident. 

Relying on cash flow to fund events and necessary, yet unexpected repairs, such as a plumbing or insulation problem would pull funds that were originally planned for renovating the property, for example. This excess reliance on cash flow to fund any and all capital expenditures opens the tenants, property management, and investors to frustration, limitations, and potential liability. 

Not raising funds to cover planned capital expenditures upfront puts the property at risk of failing the business plan, and means investors won’t get to enjoy cash flow distributions because the money will be tied up for repairs and renovations.

Here at Great Venture Capital, we raise in excess of the property’s and business plan’s needs so everyone involved is set up for success from the get-go. With capital reserves, we can typically cover any emergency, unexpected disruption from Mother Nature, all planned renovations, and small repairs without disrupting the cash flow from rents collected to investors’ distributions. 

2 – Cash-Flowing Investments

Another highly-favored option is to invest in properties that will bring in cash immediately, even before any cosmetic upgrades and at the property’s current occupancy rate. These are excellent value add opportunities because, if the property is already cash flowing, then after renovations and market-level rent raises, it’s highly likely the property will cash flow even more dependably.

If your investment goals have you looking toward immediate cash flow over long-term gains, these types of real estate syndication opportunities are your jam!

By presenting investment opportunities with a promising business plan on properties that are already cash flowing, investors face less risk than on deals where they get no or very little cash flow and a steeper projected payout at the sale. Any time we can find a great deal on an already cash-flowing property, we dig in. 

3 – Stress Test the Business Plan

We take special care to evaluate the business plan, run calculations, and stress test the numbers against the worst possible scenarios, checking to see if investors could still be profitable. It’s important for us to know, before we present a deal, that it will be good for the community, the investors, and the tenants involved. 

4 – Have Several Exit Arrangements Established

Emergencies of all types can happen. Even if the business plan is based on owning a property for 5 years, no one can guarantee that the market will not change dramatically during that time. 

So, we always have backup plans in place. As we steadily work through the business plan, complete renovations, and approach the exit date, we’re always keeping an eye on the market, the state of the community, and other general geopolitical moves that may affect when and if the property will profitably sell. 

The general partner team can choose to sell early or hold the property longer, based on what is most beneficial for all involved. Having this built-in flexibility and a knowledgeable team to weigh in on these big decisions is something we’re grateful for every day. 

5 – Have a Strong and Knowledgeable Team 

Everyone, including the limited partner investors (like you!) and the property management team, plus the brokers, inspectors, and contractors need to be on the same page with the importance of preserving the capital. Just like with your personal budget, money inside the investment is spent according to plan with the exception of emergencies. 

When everyone on the entire general partner and sponsor team has the same goals for the community and the property (because it’s all laid out in the business plan), capital expenditures are made on purpose for a purpose. There’s success in numbers, right? So, when we ban together toward a singular goal, there’s no stopping our momentum!

What We Do To Protect Your Investment Capital

Even though preserving capital is not considered as fun as evaluating passive income or touting extremely high return rates, it is definitely just as important. Every move made with the capital invested toward executing the business plan is important as we build momentum inside each particular syndication deal forward its success.  

This meticulous management and strict adherence toward preserving investor capital and making the best possible choices is what creates trust, grows all of our collective wealth, and continues to produce deals in which your experience is something you want to share with all your friends. 

The five aspects of protecting your investment money include: Raising for capital expenditures upfront, purchasing already cash-flowing properties whenever possible, stress-testing all possible scenarios to check for profitability through any emergency, all several options for exit arrangements, and never stop fostering and building the experience, knowledge, and trust within our sponsor team. 

With these five aspects of capital preservation taken into consideration every step of the way in every real estate syndication opportunity we present, we extend as much protection over your investment capital as possible from start to finish.

If you have other questions around projected returns, capital preservation, or business plan features, we’d love to connect! Join the Great Venture Investors’ Club today so you’ll gain exclusive access to our existing and upcoming opportunities plus our community of like-minded real estate investors.

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