How To Begin Investing In Commercial Real Estate Syndications

by | Oct 18, 2021 | Uncategorized | 0 comments

The term “real estate investing” tends to make most people think of residential real estate rentals and the process of buying a single-family home or small duplex and renting it out to tenants. When it comes to small residential rentals, your first step is to decide which market and neighborhood you want to live in, then you consult with a lender and a realtor, tour potential properties, and make an offer – it’s just like buying your own home!

Syndications (group investments), on the other hand, can be a completely foreign concept to the masses. Most people have never even heard of a real estate syndication before, much less have they ever invested in one.

So, no matter your position along the passive income and real estate investment path, I think it’s important to introduce how you’d get started investing in commercial real estate syndications. 

I’m here to address the process as to how you’d get involved, where to start, and how you can make your first move into the amazing world of real estate syndications. In this article, we will walk together through the syndication process from beginning to end, so you can begin investing in real estate syndications with confidence.

To get started investing in real estate syndications, follow these steps: 

  1. Identify your investing objectives
  2. Identify a suitable investment opportunity
  3. Secure your place in the deal
  4. Examine the PPM (private placement memorandum)
  5. Transfer funds

Step #1 – Identify your investing objectives

You’ll want to ensure, from the beginning, that the investment opportunities you choose will suit both your long- and short-term personal objectives. So before you even start browsing how or where you’ll invest your money, you’ll need to take the time to identify your financial and lifestyle goals. 

As you start to think about your financial goals and lifestyle desires, consider how much investment capital you have available, the length of time you feel comfortable investing that capital, any tax advantages you’re looking for, and whether your goal is long-term appreciation, a mix of both, or ongoing cash flow.

It’s important to identify why you’d invest in a real estate syndication and what passive income would do for you. How would any investment support you toward the lifestyle you dream of? 

Step #2 – Identify a suitable investment opportunity

Once you’ve established your investing objectives, seek investment opportunities aligned with them. 

If you need immediate cash flow and you want your capital back in less than six years, you’ll begin the hunt for a deal whose structure is similar. In the wide world of commercial real estate investment opportunities, there are countless markets and asset classes available for syndication. Here at Great Venture Capital, we focus on identifying the strongest and most viable investment opportunities in the multifamily sector, and only presenting the cream-of-the-crop deals to you.

To ensure our investors (you) are fully informed, we typically provide an executive summary, a full investment summary, and a webinar with information on the asset, the market, the sponsor team, and the project financials.

I encourage you to take the time to thoroughly vet the operation’s history, ask the operating team many questions, and read the fine print of investment materials before committing. Make sure the proposed business plan makes sense in light of the asset class, submarket, and current economic cycle, as well as whether there are multiple exit strategies and signs of conservative underwriting. 

Analyze market trends for population and employment growth. Examine minimum investment requirements, projected hold times, and anticipated returns. In addition, attend or review the investor webinar so you can ask questions. 

The idea is to search for any reason not to invest in the deal at this stage.

Step #3 – Secure your spot 

As soon as you find an investment opportunity you want to participate in, it’s time to reserve your spot. You should do your research and ask questions before a live deal appears. Deals are usually filled on a first-come, first-served basis. 

It’s important to have completed your research, solidified your investment value, and established a clear goal so you can be confident investing in an opportunity that may fill up in just a few hours. By doing so, you can take action with certainty toward investment opportunities when they arise.

You’ll submit a soft reserve as you review the specific opportunity investment summary and related documents, which preserves your position while you study the investment materials. Soft reserves do not lock you into the deal. Rather, they simply grant you the time to conduct your own research and due diligence while saving you a spot in the deal.

Step #4 – Examine the PPM

Signing the PPM (private placement memorandum) is the first step toward committing to a specific real estate syndication investment opportunity.

As a potential investor, this legal document discloses all the details about the investment opportunity, including the risks involved and your roles. 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 – Funds Transfer

Sending in your funds is the final step after signing the PPM. Wiring instructions are usually included in PPM documents. This step might feel a little nerve-wracking, but this is the actual submission of your investment capital into the deal. After this, you’re officially a real estate syndication investor!

Pro Tip: Don’t be afraid to double-check wiring information before sending funds – and tell the deal sponsor to expect it so they’re on the lookout.

How To Get Started Investing In A Real Estate Syndication

Now that we’ve walked together through the 5 simple steps to invest in a real estate syndication opportunity, you can begin preparing to become an official commercial syndication investor with confidence! 

To review, the 5 simple steps to get started investing in commercial real estate syndications are: 

  1. Identify your investing objectives
  2. Identify a suitable investment opportunity
  3. Secure your place in the deal
  4. Examine the PPM (private placement memorandum)
  5. Transfer funds

Now you can sail through the process of making an investment in a real estate syndication feeling less intimidated and more certain about your choice.

Syndicated real estate is a set-it-and-forget-it type of investment, so you are actively involved during the initial deal selection and review, in reviewing the pre-publication documents, signing the PPM, and wiring in the funds. Then, once you’re invested, you get to sit back and relax, knowing that your money and your sponsor team are working hard for you.

Even if you still find this process intimidating, don’t worry. My role is to guide you throughout your first real estate syndication, so let me assure you, I will be there every step of the way. In time and with syndication investment experience, your confidence will grow (alongside your wealth) and it will become second nature to review and invest in various commercial real estate syndication investment opportunities.

0 Comments

Submit a Comment

Your email address will not be published.