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CPAs Amanda Han and Matthew MacFarland lost about $50,000 each in a failed real estate deal.
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They invested in a real estate syndication without conducting proper due diligence.
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It didn’t deter them from these deals, which can create passive income, but they approach them differently.
CPAs Amanda Han and Matthew MacFarland worked alongside real estate investors for years, helping them save on taxes.
However, working with investors and actually investing are very different, as the accountants learned the hard way.
The California-based couple has built an impressive real estate portfolio that includes rentals and syndication deals outside their CPA day jobs. But, early in their real estate investment careers, a mistake cost them about $100,000 worth of retirement savings.
“I think each of us lost like $50,000 in our 401(k),” MacFarland told Business Insider of the failed deal they invested in back in 2008.
“We were very prevalent in the industry of people talking about self-directed IRAs and using your retirement accounts, and so we happened to use our retirement accounts to invest in a syndicated real estate deal,” he explained. “In retrospect, the timing was horrible.”
It wasn’t just bad timing. Han and MacFarland forewent a critical step: due diligence.
Real-estate syndication is a way for a group of investors to pool their capital together and purchase a single property managed by a “syndicator.” Once the investor contributes capital, their role in the deal becomes completely passive, as the syndicator is responsible for finding the deal, executing the transaction, and, ultimately, delivering returns to the investors.
The hands-off nature of these deals is great for investors with more money than time, but you’re putting a lot of trust in the syndicator and depending on their competence. You’re investing in both the deal and the person running it. And while a good syndicator can turn a mediocre property into a success, a bad one can ruin a great opportunity — or, drain your retirement savings, in the case of Han and MacFarland.
They met the syndicator through a colleague and, “we trusted that he knew what he was doing,” said MacFarland. Looking back, they would have spent a lot more time on the vetting process.
An easy first step when vetting syndicators is to type their first and last names into Google along with keywords like “fraud,” “complaints,” or “SEC.” You can also talk to investors who have worked with them in the past and ask about their experience.
