How to Invest in a Real Estate Syndication
Most people understand the steps involved in buying a single-family home as there are plenty of folks that have gone through, or know someone who has gone through, that process. The process involved in investing in a real estate syndication, however, is much less common. Let’s explore this entire process from start to finish together, so you can invest with confidence in your first real estate syndication.
1. Educate and Connect
The first step to investing in a real estate syndication is to educate yourself on these investments. Many investors are new to the world of real estate syndications, which is why we focus on education. You can follow our blog for insights, trends and other topics that will help you become a real estate syndication expert in no time! If you’re just beginning your real estate syndication journey, here are the blogs we recommend starting with:
If you’re interested in exploring further, connect with us so we can schedule time to review your personal investing goals and whether real estate syndications might be a good fit.
Once you’ve determined your investment goals, you will start receiving deal alerts that provide high-level overviews of new syndication opportunities from our team. We pride ourselves on deeply understanding each of the investors we partner with to ensure that each deal alert you receive aligns with your unique situation and investment goals.
If the information provided in the deal alert is interesting, you can request the investment summary deck which includes detailed information about the syndication opportunity. When reviewing the investment summary deck, focus on the Sponsor, Market, and the Property by asking the following questions:
What is the Sponsor team’s experience with real estate syndications?
What does their track record look like with previous real estate syndications?
Have they structured the opportunity for a win-win outcome?
Are they using conservative assumptions in their forecasts?
Is there strong job/population growth?
Is the property in a desirable location/sub-market?
Are there a diverse set of industries?
What are the initial and projected exit cap rates?
Does the value-add business plan for this specific property make sense?
What are the potential risks and is there a plan to mitigate these risks?
What are comparable properties able to charge for rent?
What have comparable properties sold for?
This type of detailed analysis and due diligence is time consuming which is why our team independently reviews every syndication opportunity prior to deal alerts being sent to our investors. This allows our investors to rest-easy knowing that they are only receiving high-quality, pre-vetted opportunities that have been vetted by experienced experts.
After you’ve decided that the syndication opportunity meets your investment and due diligence criteria you will then move forward with a soft commitment, which reserves your spot in the deal for the specific amount you want to invest. At any point during this time you can choose to not move forward, hence “soft” in soft commitment.
To actually finalize your investment in the syndication, you will be sent a PPM (private placement memorandum) which is the legal document that provides in-depth detail about the investment opportunity, risks and your rights as an investor. You will then need to sign the PPM and provide your banking details so you can receive your investment cash flow via direct deposit.
Once you have signed the PPM, you will receive instructions on how to send your investment funds which is typically handled via a bank wire. You will then receive a confirmation that notifies you when the funding is received.
4. Relax and Receive
Congratulations! Now that you have funded your syndication investment it’s time to relax and receive your passive income!
Your cash flow will be automatically deposited into your bank account on a monthly/quarterly basis (depending on the deal) and you’ll receive monthly updates on your syndication investment from the Sponsor team. These updates will include progress on the business plan, renovation schedule, occupancy and key financial metrics so you are fully up to speed on the state of your investment. Every spring, you’ll also receive your Schedule K-1 which will provide the information needed for your tax return.