The Simple, Five-Step Process to Investing In A Commercial Real Syndications
Before I started investing passively in real estate, my wife and I would fix-and-flip single-family homes.
Because of that, I was comfortable with the nuances of a piece of property. That familiarity helped me when my wife and I decided to start investing passively into real estate and eventually start our journey into raising private capital.
The process of buying a single-family home or rental property is what most people are familiar with when they think about real estate investing.
You choose a market, decide on the size and location of a property, find funding, and make an offer.
After our first couple of single-family fix-and-flips, I quickly realized the power of scale with commercial real estate investing. I quickly took action to educate and empower myself to learn about the commercial real estate space. While some of the terms and language are similar, there is a learning curve when you dive into commercial real estate investments.
My goal is to help you understand the entire process so that you can confidently make the best investment decision based on your goals. Once you get started, you will begin to develop sustainable, long-term incomes and build wealth in an increasingly unstable world.
For this reason, let’s explore the real estate syndication process together, from start to finish, so that you can invest confidently in your first real estate syndication.
Here are the basic steps 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 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, and the tax advantages you’re looking for. Then also consider why you are investing. Is it: primarily for ongoing cash flow to help offset your income, long-term appreciation, or a hybrid of both?
You also want to consider how and when you want to retire, what kind of legacy you want to leave your family, and how real estate plays a role in your overall investment strategy.
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 fund opportunities and markets out there. We can help you surface the strongest and most viable opportunities if you’re looking for recession-resistant multifamily investments.
We will typically provide an executive summary, full investment summary, and co-host a webinar for investors, which provides a full 360-degree view of the asset(s), the market, the deal sponsor team, the business plan, and the projected financials.
Be sure to vet the operating team’s track record properly, ask them your questions, and read between the lines of any investment materials provided. Take a look at whether the business plan has multiple exit strategies or 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, double-check the wiring information, and let the deal sponsor know to expect it so they can be on the lookout.
The Process is Simple; the Results are Meaningful
By now, the process of investing in a real estate syndication should be more transparent and, perhaps, a little less intimidating.
Real estate syndications are more of a set-it-and-forget-it type of investment, so your active participation is upfront. In the beginning, you choose a deal, review the investor materials, reserve your spot, read and sign the PPM, and wire in your funds.
After that, the deal is in the hands of the sponsors of the properties.
Even if the process seems daunting, I’m here to help! I’ll be with you every step of the way as you invest in your first real estate syndication. Then, as you review and invest in more deals, the process will become second nature.
