Commercial Real Estate Syndications: How To Invest Passively

The process of investing in a commercial real estate syndication is vastly different from any residential real estate purchase and quite different from any other typical online investment. You’ve experienced the home-buying process, and you’re savvy when it comes to allocating your retirement savings into well-rated mutual funds, for example. 

However, when investing in a real estate syndication (group investment), the process can be entirely foreign, especially if you’re new to syndications. You’ve faced more significant challenges (like med school) before and surpassed expectations with flying colors. So, don’t allow hesitation or overwhelm stop you now.

In this article, we’ll explore the syndication process together, from start to finish, so that you can invest confidently in your first real estate syndication.

Here are the five 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 seek investment opportunities that best fit your lifestyle and income goals.

Consider all angles, including the amount of capital you have to invest, the length of time you want that money invested, the tax advantages you’re seeking, 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 that aligns with and supports you toward those aspirations. 

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 vet the operating team’s track record 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 essential to have completed research, solidified your investment value, and have explicit 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.

The Simple Process Of Investing In A Real Estate Syndication

While the procedure to invest in a commercial real estate syndication is probably entirely different than anything else you’ve experienced, I hope the five steps illuminated here have made it much more transparent, and perhaps, a little less intimidating. 

Real estate syndication investing requires your active participation upfront when you’re choosing a deal, reviewing the investor materials, reserving your spot, reading and signing the PPM, and wiring in your funds. You get to select a deal that aligns with your goals and then carry on with your everyday lifestyle and schedule while your money works as hard as possible for you.

Don’t worry, though, if this process still seems a bit daunting. That’s what I’m here for, and I’ll be with you every step of the way as you invest in your first real estate syndication. If you haven’t already, make sure you’ve joined the DIG Capital Club so you and I can have a conversation about what you’re looking for in an investment. Soon after that, you’ll be ready to invest in your first syndication deal. Then, as you review and invest in more deals, the process will become second nature.