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Old 03-12-2006, 08:16 PM
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Post Making Big Investors Out of Little Ones

“I never get a chance at the really promising properties”, an investor told me recently. “They’re only available to people who can put in $20,000 or $25,000 apiece. So if an investment is really good, it’s snapped up by the big boys long before someone like me can buy a half-unit or two.”

I said, “You probably have friends whose bankrolls are about the same size as yours. Did you ever think of suggesting to three of them that each of you chip in $5,000, so you can offer twenty grand for a piece of one of those big attractive investments?”

No, he hadn’t thought of it. But now he’s doing it, and gurgling happily all the way to the bank. By pooling their spare cash, he and his friends sometimes earn three to six times the amount they put in, not counting the tax benefits.

The strategy of cash-pooling – sharing ownership through partnerships or other forms of syndication – is the wave of the future in real estate. During the 1980s it will be the smartest shortcut to big profits.

A buyer’s market in real estate is emerging. Property prices have climbed too far too fast. Asking prices on homes were out of line. We have seen home appreciation come to a halt in the last few months, and in some areas slide backward … there is over double the number of properties in the distressed category now as compared to a year ago, and w have a full-blown buyer’s market.

This trend is likely to last for years to come. Deep-seated economic forces will continue to cause unemployment and business failures, which in turn will cause many property owners to sell for whatever they can get.

Today smart investors are putting together syndicates that can buy big properties. Wouldn’t you rather own 5 percent of a milling-dollar property than all of a $50,000 house? Big investments tend to be better investments. Even a $100,000 apartment building is likely to be in bad shape, while a $10 million apartment complex is prime property – it has usually better tenants and faster cash flow. Its value rises more steadily. And the actual risk to its owners is less than in small properties, even though more dollars are at stake.

Think in millions. Maybe the biggest buy you’ve made so far is a $10,000 car with $1,000 down and three ears to pay, but don’t let a string of seven or eight digits scare you. You can negotiate a million-dollar transaction more easily than a small one, because the negotiators and lenders will treat you as a Very Important Person.

There are more big properties for sale than there are qualified bidders. A bank’s high interest rates needn’t deter these bidders. As I often point out, it’s not how much you pay for the rental of money that’s important, it’s how much you’ll make from the use of it.

For these and other reasons, I advise you to give thought to shared-ownership ventures – eventually organizing them yourself when you’re experienced enough, but probably starting by going into ventures organized by others when you find good ones.

What is a syndicate? Don’t be afraid of the word. It has various dictionary meanings, most of which don’t apply to real estate.

One of my dictionaries, published in 1948, says a syndicate is “a combination of bankers or capitalists formed for the purpose of carrying out some project requiring large resources of capital.” A more recent dictionary loosens up the definition a bit: “An association of individuals united to negotiate some business or to carry on some enterprise requiring large capital.” That’s approximately what the word still means in real estate, although the term “real estate syndicate” has no special legal significance. It includes any grouping investors for the purpose of buying and owing property together.

Of course “syndicate” has other meanings too. Newspaper columnists and comic strips are distributed to many newspapers by agencies called syndicates, such as the King Features Syndicate or the Times-Mirror Syndicate.
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