The Process Of Investing In Your First Real Estate Syndication

When it comes to investing in real estate, most people are familiar with the process of

buying a single-family home or rental property. You choose the market and neighborhoods,

determine how many bedrooms and bathrooms you are looking for, get together with a lender and a broker, tour potential properties, and then make an offer.

However, when it comes to investing in a real estate syndication (group investment), the

process can be entirely foreign, especially if you have never invested in syndications before.

For this reason, let us explore the syndication process together, from start to finish, so you can

invest confidently in your first real estate syndication.

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, tax advantages you are 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 have determined your investing goals, aim to find a deal in alignment with your goals.

There are real estate syndication projects available ranging from ground-up construction to

value-add assets, and even turnkey syndications.

Deal sponsors typically provide an executive summary, full investment summary, and an

investor webinar for investors, which provides a full 360-degree view of the asset, market, deal

sponsor team, business plan, and the projected financials.

Take time to properly vet the sponsor team, ask them your questions, and read between the

lines of any investment materials they provide. 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 the investor webinar

and ask tough questions.

Basically, at this stage, look for any reason NOT to invest in the deal.

Step #3 – Reserve Your Spot in the Deal

Once you have found a team and an opportunity you want to invest in, it is time to reserve your spot in the deal. Usually, deals are filled on a first-come, first-served basis, so you will want to take the time to ask questions and do your research BEFORE a live deal opens.

Often, investment opportunities can fill up within mere hours, which is why it is important to have completed research, solidified your investment value, and have clear goals. That way, when the opportunity opens, you can jump on it.

The option for a soft reserve may be available, which holds your spot while you take time to

review the investment materials. So, you might combine Steps #2 and #3 by reviewing the

executive summary, reserving your spot in the deal, then reviewing the rest of the materials.

This allows you the opportunity to back out or reduce your investment penalty-free.

If you are late in putting in your soft reserve, the deal may be full by the time you decide you

want in, at which point your only option is to join the backup list or wait for the next deal.

Step #4 – Review the PPM

Once you have 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 is 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 will also decide how you will 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.

Conclusion

By now, the process of investing in a real estate syndication should be more clear, 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, 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.

Do not worry though, if this process still seems a bit daunting. That is what we are here for, and we will be with you every step of the way as you invest in your first real estate syndication. As you review and invest in more deals, the process will become second-nature.