The Precise Process Of Investing In A Commercial Real Estate Syndication
The process of purchasing a single family home or rental property is common knowledge for most would-be real estate investors. You simply choose the market and neighborhoods, determine how much square footage and the number bedrooms and bathrooms you’re looking for, find a lender and a broker, attend showings of potential properties, and then make an offer on the property you’d like to purchase.
When investing in a real estate syndication or group investment, however, the process may be a little more foreign. In fact, if you’ve never invested in syndication deals before, the process might seem quite intimidating at first glance.
To simplify the process, let’s take a deep dive into what it takes to invest in a real estate syndication, from start to finish. Having a working knowledge of how the process works will allow you to confidently invest in your first real estate syndication.
Here are the basic steps of investing in a real estate syndication:
Determine your goals
Find a fitting opportunity
Reserve your spot
Review the PPM (private placement memorandum)
Send in your funds
Step #1 – Determine Your Goals
When investing in a real estate syndication, you should consider both your short-term and long-term investing and financial goals. This allows you to better find investment opportunities that fit your personal goals.
To determine your personal goals, ask yourself these questions:
How much capital do you have to invest?
What length of time are comfortable keeping your capital invested?
What type of tax advantages are you looking for?
Are you investing primarily for ongoing cash flow to help offset your income, long-term appreciation, or a hybrid of both?
Step #2 – Find a Fitting Opportunity
Once you’ve determined your investing goals, it’s time to find a deal that aligns with your goals.
There are limitless real estate syndication opportunities and markets to choose from. If you’re looking for recession-resistant multifamily investments, I specialize in helping you identify the strongest and most viable opportunities.
I typically provide an executive summary, 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 to give an overall picture of the asset’s potential.
Your responsibility as the investor is to do your due diligence and properly vet the track record of the operating team. Make sure to ask them your questions, and read between the lines of any investment materials provided. Take a close look at the specifics, such as 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.
It’s wise to also research market trends in job and population growth. In order to review minimum investment requirements, projected hold time, and projected returns, be sure to attend or review the investor webinar, this is the perfect opportunity to make sure you get your questions answered.
At this stage in the investment process, you’re looking for any reason not to invest in the deal.
Step #3 – Reserve Your Spot
Once you’re confident that you’ve found an opportunity you want to invest in, it’s time to reserve your spot in the deal. Deals are typically 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 becomes available.
Oftentimes, real estate syndication opportunities can fill up within hours. In order to act quickly when an opportunity opens up, it’s important to have already completed research, solidified your investment value, and have your clear goals determined.
The first step usually includes making a soft reserve or a tentative commitment. This reservation 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, you’re ready to fully commit. The first official step is to review and sign the PPM (private placement memorandum).
The PPM is a legal document that provides in-depth details about the investment opportunity, the risks involved, and your role as an investor. As boring as reading legal jargon may be, it’s crucial that you invest the time to gain a full understanding of the risks, subscription agreement, and operating agreement pertaining to the investment.
As part of signing the PPM, you’ll also have the opportunity to 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
The final step once you’ve completed the PPM, is to send in your funds. Wiring instructions on how to submit your capital is usually found in the PPM document.
Best practice for wiring your funds is to double-check the wiring information, and let the deal sponsor know to expect it so they can be on the lookout.
How I Can Help
Hopefully, this blog post plus the other resources I’ve provided on the topic of investing in multifamily real estate syndications has made taking your first syndication investing steps a little more clear, and perhaps, a little less intimidating.
Real estate syndications are a truly passive, set-it-and-forget-it type investments. That being said, all of your active participation is upfront, during the time you’re choosing a deal, reviewing the investor materials, reserving your spot, reading and signing the PPM, and wiring in your funds.
If you’re like most soon-to-be syndication investors, the process of investing in a multifamily real estate syndication may still seem a bit daunting. That’s what I’m here for. I want you to have the opportunity to leverage my expertise and allow me to guide you every step of the way as you invest in your first real estate syndication.
Plus, I’m not just a capital raiser. I’ll be here seeingn the deal through, alongside you the entire time. I’m passionate about personally underwriting the deals so that I can make sure all the metrics check out and that there are adequate risk mitigation plans in place. You trust me with your hard-earned capital, and I take that very seriously as I know first-hand how each deal can impact our community and our collective future. As you review and invest in more deals, you’ll become a passive investment pro in no time.