Most people think of single-family homes or rental properties when they think of real estate investments. They decide which city, neighborhood, and kind of home they want. Then they start the process of finding a realtor, a lender, vetting possible properties, and finally, they put in an offer.
Real estate syndications work in an entirely different way, and if you’re not familiar with the process, it may seem to be a foreign concept.
This is why we’re going to go over each step, from beginning to end, to help you go through the real estate syndication process with confidence.
Here are the 5 key steps to follow when 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, 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 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 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, 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.
Commercial Real Estate Investing Made Simple
Now that you’ve seen the process of how to invest as a passive partner in a real estate syndication, it shouldn’t feel so intimidating.
Real estate syndications provide you with a steady passive security and growth – a set-it-and-forget-it investment. Your active part is at the beginning, as you’re finding the right property, researching investor information, saving your spot, reviewing and signing the PPM, and sending your investment funds.
The process might still feel a bit different than a single-family home purchase, but remember that you have Koo Investments to guide you through your first (and next) real estate syndication deal. I’ll be there through every step. As you invest in more syndications, the more comfortable you’ll become, and the process will become comfortable.