M
atthew MacFarland and Amanda Han, both full-time CPAs and part-time real estate investors, learned a hard lesson about due diligence in their early days of investing. They lost around $100,000, or $50,000 each, in a failed real estate syndication deal they invested in without proper research.
The couple, who work alongside real estate investors to help them save on taxes, initially used their retirement accounts to invest in the syndicated deal through a colleague's recommendation. However, they soon realized that relying solely on trust was not enough.
Real-estate syndication involves pooling capital with other investors to purchase a single property managed by a "syndicator." The investor's role becomes passive, as the syndicator handles finding deals, executing transactions, and delivering returns. While this can be beneficial for those with more money than time, it also means putting trust in the syndicator.
Han and MacFarland would have spent more time vetting the syndicator if they had to do it again. A simple step is to research online using keywords like "fraud," "complaints," or "SEC" along with the syndicator's name. They also recommend talking to past investors who have worked with them.
The couple has since invested in multiple syndication deals, owning a portion of larger properties they couldn't afford individually. These passive investments provide quarterly or monthly distributions from the income generated by the property. However, the timing and structure of these deals can vary greatly.
Han emphasizes that both active and passive real estate investments have their advantages, depending on one's resources, strengths, and weaknesses. For them, passive investments make more sense now due to their busy schedules with young kids. They recognize their expertise lies in tax strategy and prefer to leverage the expertise of others for real estate investing.
MacFarland notes that they've learned from their mistake and now conduct thorough due diligence before investing in any deal.
