When most people start investing in real estate, they automatically think of single-family homes or rental properties. They decide the city, neighborhood, and what kind of home they want. The process is familiar – find a lender and a realtor, inspect potential investment properties, and put in an offer.
Real estate syndication is an entirely different process, and if you’re not familiar with it, it can seem rather strange.
This is why we’re going to review, step by step. From beginning to end, seeing it come together will help you work your way through the real estate syndication process with confidence.
Here are the basics of investing in a real estate syndication:
- Determine your investing goals
- Find an investment opportunity that fits
- Reserve your spot in the deal
- Review the PPM (private placement memorandum)
- Send in your funds
Step #1 – Determine Your Investing Goals
Once you decide you want to invest in a real estate syndication, consider both your short-term and long-term investing goals to be sure to find investment opportunities that best fit your personal goals.
Think about the amount of capital you have to invest, the length of time you want that capital invested, the tax advantages you’re looking for, and whether you are investing primarily for ongoing cash flow to help offset your income, long-term appreciation, or a hybrid of both.
Step #2 – Find a Fitting Investment Opportunity
Once you’ve determined your investing goals, aim to find a deal in alignment with your goals.
There are countless real estate syndication opportunities and markets out there. If you’re looking for recession-resistant multifamily investments, we can help you surface the most substantial and viable options.
We will typically provide an executive summary and full investment summary and host a webinar for investors, which provides a full 360-degree view of the asset, the market, the deal sponsor team, the business plan, and the projected financials.
Be sure to take time to vet the track record of the operating team properly, ask them your questions, and read between the lines of any investment materials provided. Consider whether the business plan has multiple exit strategies, whether there are signs of conservative underwriting, and double-check whether the proposed business plan makes sense given the asset class, submarket, and current economic cycle.
Research market trends in job and population growth. Review minimum investment requirements, projected hold time, and projected returns. Finally, attend or review the investor webinar and make sure you get your questions answered.
Basically, at this stage, look for any reason not to invest in the deal.
Step #3 – Reserve Your Spot in the Deal
Once you’ve found an opportunity you want to invest in, it’s time to reserve your spot in the deal. Usually, deals are filled on a first-come, first-served basis, so you’ll want to take the time to ask questions and do your research before a live deal opens up.
Often, investment opportunities can fill up within mere hours, so it’s essential to have completed research, solidified your investment value, and have explicit goals. That way, when the opportunity opens up, you can jump on it.
Typically, the first step is to make a soft reserve, which holds your spot while you take time to review the investment materials. The soft reserve does not lock you in the deal; it merely saves you a spot in the deal while giving you more time to review the fine details of the investment and conduct your own due diligence.
Step #4 – Review the PPM
Once you’ve decided to invest in a deal, the first official step is to review and sign the PPM (private placement memorandum).
This legal document provides in-depth details about the investment opportunity, the risks involved, and your role as an investor. Although reading legal jargon may be no fun, it’s imperative you fully understand the risks, subscription agreement, and operating agreement of the investment.
As part of signing the PPM, you’ll also decide how you’ll hold your shares of the entity holding the asset and whether you want your distributions sent via check or direct deposit.
Step #5 – Send in Your Funds
Once you’ve completed the PPM, the final step is to send in your funds. Typically, you’ll find wiring instructions in the PPM document.
Pro tip: Before wiring your funds, double-check the wiring information, and let the deal sponsor know to expect it so they can be on the lookout.
That’s Not As Intimidating As I Thought It Would Be
Now that you’ve seen the process, it doesn’t seem so scary, does it?
Real estate syndications provide a great passive income – a set-it-and-forget-it investment. Your active part is in the beginning, as you’re finding your ideal opportunity, reading investor packets, reserving your space, reviewing and signing the PPM, and sending your funds.
While it may still feel somewhat overwhelming, you have someone on your side to guide you through the process. I’m here to help you make your first real estate syndication experience a positive and successful one.
The best part? The steps will become familiar and routine as you repeat the process each time you invest in more syndications.
Are you ready to get started?