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  • Philippe Schulligen

6 Steps To Investing In Your First Real Estate Syndication


When it comes to investing in real estate, most people are fairly 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’re 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’ve never invested in syndications before.


For this reason, let’s 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

6. Celebrate


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 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. 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 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’ve found a team and 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.


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’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.


Step #6 – Celebrate


You did it! By this point in the process, you’ve done your due diligence on the investment, reserved your spot in the deal, reviewed all the legal documents, and sent in your funds.


That means you’re done with all the active parts of your role as an investor. If we’re using the syndication-as-an-airplane-ride analogy, that means you’ve picked your destination, bought your ticket, checked your bags, reviewed the safety information, buckled your seat belt, and now you’re ready for a cocktail and a movie.


The next piece of communication you’ll likely receive is a note once the property has closed.


After that, expect monthly updates on the project, more detailed quarterly reports on the financials, quarterly cashflow distributions, and an annual K-1 for your tax returns.


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.


Don’t worry though, if this process still seems a bit daunting. That’s what we’re here for, and we’ll 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.


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