The Process Of Investing In A Commercial Real Estate Syndication

by | Jul 14, 2022 | Investing Advice, Multifamily, Syndication Basics | 0 comments

When it comes to investing in real estate, most people are relatively familiar with the process of buying a single-family home or rental property. And that is all I knew as well. So I bought my first rental properties with a doctor loan with 0% down and thought those properties would be my ticket! 

The process is pretty simple and the same for every rental property. You look through different markets and neighborhoods, determine the perfect house (how many beds/baths), get a lender and broker, tour some of the potentially excellent properties, and make an offer. 

When I first started looking outside the rental property bubble, I was told about real estate syndications, also known as group investments. The process was not so straightforward and seemed completely foreign to me. They seemed even harder to understand because I had never invested in syndications before. 

I know many new investors are like me. It is always a good idea to understand the process from start to finish before you start investing. 

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 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 most substantial and viable options.

We will typically provide an executive summary, a complete 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 vet the track record of the operating team properly, 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 imperative you gain a complete 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.


Becoming Familiar With How To Invest in A Real Estate Syndication

Hopefully, the real estate syndication process is a little clearer and less intimidating than at the beginning of the article.  

Real estate syndications are a little more of a long game investment or a set-it-and-forget-it type. Therefore, you have to be an active participant upfront while choosing the deal, reviewing investor materials, reserving your spot, reading and signing the PPM, and wiring in your funds.

After that, you get to kind of sit back and press play. 

If the process of real estate syndication still seems daunting or challenging, do not worry. I am here to share educational resources specifically about real estate investing strategies, and I’ll walk beside you every step as you invest in your first real estate syndication. Then, while you review and invest in more deals, the process will become easier.


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