The 5 Steps To Invest In A Commercial Real Estate Syndication

by | Jun 11, 2022 | Investing Advice | 0 comments

Investing in real estate can be a scary step toward the passive income lifestyle. There are a lot of unknowns and often even after taking a real estate investment course or speaking to someone within the real estate industry, the investor still wants to invest IN someone or WITH someone they trust.

People are fairly familiar with rental properties and the process of becoming a landlord. They choose the market and neighborhood, determine how many bedrooms and bathrooms they’re looking for, get together with a lender and a broker, tour potential properties, and then make an offer. 

But, the moment you mention real estate syndication (group investment), real estate investing typically becomes a foreign concept. The real estate syndication process is not well known to most people, especially if you’re new to the world of investing in real estate.

It’s important to know the process of real estate syndications from start to finish. This way you can feel confident in your investment and know exactly how everything is going to work. 

Here are the basic steps of investing in a real estate syndication:

  1. Determine your investing goals
  2. Find an investment opportunity that fits
  3. Reserve your spot in the deal
  4. Review the PPM (private placement memorandum)
  5. 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 so you can 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 an Investment Opportunity that Fits

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 strongest and most viable opportunities.

We will typically provide an executive summary, a 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 properly vet the track record of the operating team, ask them your questions, and read between the lines of any investment materials provided. Take a look at things like 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, which is why it’s important to have completed research, solidified your investment value, and have clear 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 very important you 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 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.

 

The Not-So-Scary Real Estate Syndication Process

Hopefully, by now real estate syndications are not as intimidating as they were before and you’ve gained a little clarity.  

Real estate syndications are passive investments. If you’ve ever seen the infomercial for the Ronco Rotisserie oven, you’ll remember the catchphrase  “set-it-and-forget-it!”  This describes real estate syndications perfectly. You’re an active participant in the beginning, 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. After that, it’s all passive income from that point forward.

Don’t worry if this process still seems a bit daunting. But, that’s why we’re here. We can help every step of the way as you invest in your first real estate syndication. Then as you repeat the process, it will become much easier!

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