How can you be prepared for the economic downturn that will inevitably occur with the market's ups and downs? All financial advice from the most successful investors in history points toward two things:
1) Invest in what you know and know what you invest in
2) Diversification is risk mitigation
It's up to you to walk the walk AND help other potential passive investors do the same.
Education & Research are the Most Important Pieces of Recession-Resistant Real Estate Investing
Don't invest in things you don't understand or haven't researched or thoroughly evaluated. Similarly, you wouldn't advise a newbie investor to throw his $50K into a syndication deal when he doesn't understand how the profits or cash flow will be calculated.
You also wouldn't invest your cash or advise anyone else to invest in a market, asset class, or price point before you run the numbers. Investment opportunities are everywhere, but smart investors only make moves based on market research, due diligence, connections they trust, and their comprehension of the mechanics of the deal.
Portfolio Diversification For Sponsors and Passive Investors
Second, having a diversified portfolio means having your investments spread out in differing asset types and sizes, locations, and target tenant demographics rather than putting all your money into a single property or business strategy. Diversification matters in the syndication space too!
For example, Class A new construction multifamily properties are only one small portion of the real estate market. They can expect higher vacancy rates during low points in the economic cycle. So, syndicating mobile home parks, storage facilities, office space, or multi-use facilities would be a diversification move. Similarly, owning multifamily properties in various inner-city and suburban locations across the US or owning various Class A, B, C, and D properties would play toward diversification.
The real estate industry is generally one of the most recession-resistant sectors of the market simply because people still need places to live, work, shop, and be entertained, even in tougher economic conditions and even if the amount they spend or the extravagance of their entertainment shifts downward.
How to Attract Passive Investors to Your Real Estate Syndication During a Recession
To expand your real estate syndication business during a recession, there's one big question you'll have to answer for potential passive investors as they fight the natural urge to hold on to their cash rather than face unknown risks.
Why should they trust YOU with their hard-earned cash?
Savvy investors know that wealth is built during recessions and that real estate investing is a smart move right now, but it's still up to you to win their trust. Use stories, anecdotes, and clear examples to show potential investors the benefits they'll enjoy from getting involved in your commercial real estate investments. Contrast those benefits with the losses they'll experience - from inflation or a missed opportunity - by doing nothing.
During tough economic times with looming job losses, people are most interested in the cash flow or passive income benefit of investing. Hop on Facebook Live, explain the numbers in simple terms, and walk through an example of how quarterly returns are calculated and how much someone might earn based on a $100K investment.
Other investors may feel secure in their recession-resistant careers but be more attracted by the tax benefits of the real estate world. So, host an open Q&A discussion Live on YouTube about how accelerated depreciation works and how that translates into a reduction of taxable income for the investor.
Risk mitigation is something everyone wants to hear about, no matter what the economy is doing. Before they send you their cash, they want to know what precautions you're taking to protect it, that you've considered and planned for every potential negative scenario, and that you value their money as much as they do. Consider producing a blog post series to inform investors about how you mitigate risk in your deals.
Once they decide they trust YOU, they'll want information about the property management company you plan to use, your research on the real estate sector, and the experience level of your underwriting team. They're asking...
Why should they choose YOU over the next trusted sponsor?
It's at this point that your passion and personality are most important. Potential investors are trying to decide why you stand out from the crowd in a positive light. Do they identify with you? Do you have similar backgrounds? Or perhaps you're living a lifestyle they want? They know that trusting the wrong person could lead to a total loss.
Your track record is a key factor for new-to-you investors simply because, other than personal references or "word on the street," that's all they can reference to learn how well you've managed past deals.
Increase your credibility with your audience by sharing about any continuing education you've enrolled in, any conferences you're attending, and any other events to exhibit that you're "in the know."
Earn transparency points with your followers by openly discussing your process for due diligence. This builds trust because potential investors can see why you said no to 10 deals before saying yes to 1.
Celebrate your strong team by sharing wins on an existing property. Real estate syndications are a team sport, and a fantastic asset manager, underwriter, property manager, or any other key partner can boost your credibility by association.
Making Smart Moves in The Commercial Real Estate Market
Aside from providing educational content so potential investors understand what you're looking for in a deal and why, it's important to share about the fail-proof systems and processes you've established behind the scenes.
The most experienced business owner can only go so far without the right systems, software, and infrastructure. So, earn some more transparency and credibility points by divulging how SyndicationPro makes deals efficient for you AND for them.
A less-stressed sponsor who isn't toiling away doing admin work at midnight makes better, less emotional, more strategic decisions, and that's who they want to invest with!
With SyndicationPro in your back pocket, plus the marketing tips above, you'll save time, reach more potential investors, and serve them well since you won't be chasing signatures, manually processing distributions, or sending emails one by one.
Provide your investor audience a variety of opportunities across markets, asset classes, and investment property types, even if that requires strategic alliances with other syndicators with expertise in those locations/asset types.
Make the best use of your Real Estate Investment Management Software by using its website integration, investor relations, and investor log-in portal to the max! It's all about providing your community of passive investors the opportunity to build wealth via education and diversification, using a powerful CRM platform to make it look easy.
To Pivot or To Lean In? That Is The Question.
Your responsibility as a sponsor/general partner in a particular syndication deal is to make the best, most ethical decisions using the information you have, with passive investors' best interests in mind. On a larger scale, however, your overall responsibility to the broader community of potential commercial real estate investors is to provide opportunities for efficiency, education, and diversification.
Remember, investors have the chance to invest in commercial real estate debt, real estate investment trusts (REITs), crowdfunding, and even residential markets, but they're choosing you and your offers for a reason.
This doesn't mean you have to become an expert in every city, suburb, class, and asset type. It simply means it's time to intentionally expand your network and your vision to include potential partners of varying expertise, a system for content creation (education), consistent communication with your target audience, a tried-and-true process for quickly evaluating potential real estate investment deals, and robust software to ensure the administrative side of your business runs smoothly.