Common Structures in Commercial Real Estate Investing

When it comes to beginning your journey into the world of Real Estate Investing, there are many paths you could choose. Each comes with its combination of risks and rewards, tailored to fit different financial goals and experience levels. 

The most common strategies you’ll come across in commercial real estate investing are the Solo Strategy, Joint Ventures, and Syndications

These structures offer distinct approaches to property ownership, management, and profit distribution. From the hands-on approach of the Solo strategy to the collaborative efforts of Joint Ventures and the passive income potential of Syndications, there’s a strategy to suit every FAANG’s or high income earners’ preferences and circumstances.

I’m going to touch on all three in this post, but you’ll see that one clearly stands out at the end for the high income, busy professional.  

Solo: The DIY Strategy 

The allure of keeping 100% ownership seems like the obvious goal for beginners—until they discover smarter ways to leverage their income (and time). Trust me, I’ve been there, and let’s face it: a DIY approach also entails endless hours of work and the absence of passivity. And that’s just the beginning. Consider the need to acquire a completely different skill set, where learning often comes through costly trial and error. Imagine the complexities of deal-finding, financing, insurance, vendor management, leasing, maintenance calls at odd hours (think toilets), bookkeeping, accounting, figuring out legal paperwork for your state’s requirements, running market analysis, and more—all while juggling your demanding full-time job. Be honest: do you really want that?

This is exactly what my team does for me, so I don’t have to do it myself. 

While there’s a long list of requirements and systems to successfully running a real estate asset (which we’ll unpack together in another writing), one thing will never be more invaluable than the insights that another set of experienced eyes can give you. Networking and feedback aren’t just buzzwords; they’re lifelines in the real estate business. This is probably the biggest drawback associated with the DIY approach of real estate investing. You may silo yourself for your own good.

Support is imperative. Surround yourself with a team who has been there and done that. Recruit people who are able to identify holes in your thinking and shiny business plans, BEFORE you spend tens or hundreds of thousands of dollars.Partners (or your team) can be as important as the deal itself, and that’s why I don’t recommend this strategy if you’re a beginner. 

(If you’re looking for general advice on your own deals, let’s connect on this.)

Joint Ventures: The Dream Team

Enter the world of joint ventures, or JVs, where you’re not just a lone wolf but part of a pack that pools resources together for larger returns and better divisions of labor. In a joint venture, the partners distribute the workload and responsibility. Once the project is complete and the heavy lifting is done, the venture will be dissolved, and all parties will receive their slice of the pie (after months of sweet cash flow, of course). 

This split is determined by the JV agreement, which also outlines each teammate’s role. 

Your JV agreement should answer the following points: 

  • What amount will each party contribute? 
  • Who will make decisions about major property management issues? 
  • How will the cash flow and profits be divided? 
  • How will the need for additional capital be addressed within the venture? 
  • How will disagreements be handled? 
  • And much more. 

But beware… There are downsides, as you may have guessed. 

The main obstacle to joint ventures is their exclusive nature. First, you’re not just tossing in cash; you’ve gotta bring something extra. Investors are required to be active participants throughout the deal to avoid legal complications, and many JVs are picky with their deals and teams alike. Invitations are typically only extended after a seasoned relationship and a strong track record is developed. 

With the flexible nature of joint ventures, you may also experience conflicts of interest, decision-making dilemmas, and the need to put in more work than you had previously anticipated. All of these points can cast a shadow on even the sunniest of partnerships. 

Syndications: The Truly Passive Investment

Now, let’s talk syndications, which is by far the easiest to pull off and the only really passive investment option you have in this game. You don’t need insane sums of money to join– some opportunities start at just $25K. While other investment structures may encounter significant roadblocks, syndications really offer a smoother path to wealth.

Syndications offer clearly defined roles with opportunities to be active or completely passive in the project. In a typical deal, your general partner team is composed of various professionals, each with their own specialized knowledge and network. It’s a harmony of expertise where each member of the crew brings their A-game to the table. Contrast this to the DIY strategy, where you may be just “good” at everything, if at all. 

The passive mode of syndication is exclusively offered to the “limited partners”. 

Limited partners (LPs), unlike general partners (GPs), just put their money to work as equity on the deal and their downside is only limited to the amount they put in. They don’t have to deal with loans or be on the hook as personal guarantors. With this option, you do have to surrender more of the day-to-day control. And while offering some of this control may feel like relinquishing the helm, in exchange you gain the ultimate prize: freedom over your most precious commodity, your time

Conclusion

As you prepare to set sail on the vast seas of CRE, remember this: the journey to financial independence and early retirement (FIRE) is not a solitary voyage. Whether you choose the solitary path of DIY, the camaraderie of joint ventures, or the serenity of syndications, the key lies in finding the vessel that aligns with your aspirations and values. Surround yourself not only with people that know what they’re doing, but people that you like.

What’s Next?

Whether you decide to go solo, join a joint venture, or explore the syndication structures for commercial real estate investing, we’re here to help.

Our weekly newsletter is filled with investment insights, deal breakdowns, market trends, case studies, exclusive deal opportunities, and free commercial Real Estate Investing training and tools.

We’ll see you on the other side.

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