7 Steps To Investing In Your First Real Estate Syndication

Firstly, I want to emphasize that I love my children dearly. My youngest child’s joyful exclamations of “Dad-da!” never fail to brighten my day, and their affectionate gestures and sad farewells when I leave for work remind me of how much I cherish them. Although some may argue that the cons of parenting outweigh the pros, I believe that the positive experiences with my children outweigh any challenges that come with raising them.However, there are certainly obstacles that parents face, such as sacrificing their free time, waking up earlier than they would like, and transforming their homes into a playground. Additionally, parents may need to give up on their own personal dreams and aspirations to focus on raising their children. On top of these challenges, there are also financial burdens such as paying for daycare, sports lessons, and college while simultaneously saving for retirement.While I cannot provide solutions for all of these difficulties, I do have one suggestion for tackling the financial aspect: consider investing in a real estate syndication. This may seem daunting or complicated, but it simply requires an open mind and a willingness to explore different investment opportunities. With careful research and planning, investing in a real estate syndication can provide long-term financial benefits for parents who are looking to secure their financial future while supporting their children.

A real estate syndication may sound like a complex and unfamiliar term, but it’s a relatively straightforward concept. Essentially, it involves a group of individuals pooling their resources to purchase a larger and more expensive asset, such as an apartment complex. This strategy can offer advantages such as economies of scale, professional management, and risk mitigation that are not possible with single-family rentals.

Typically, buying a house is a familiar process for many people, involving deciding on a budget, preferred location, and desired features, obtaining pre-approval from a lender, and touring properties with a broker before making an offer. Traditional types of real estate investing, such as fix-and-flip or buy-and-hold, involve buying a property to either renovate and sell or rent out for monthly income.

Investing in a real estate syndication can be more complex, but it involves a similar process. Understanding the steps involved, from identifying a syndication opportunity to analyzing the deal, reviewing legal documents, and ultimately investing capital, can help individuals make informed decisions and invest passively in their first real estate syndication.

Although the timeline may vary depending on the specific deal, the process of investing in a real estate syndication generally follows a similar set of steps.

1. Decide whether to invest in real estate, period

2. Determine your investing goals

3. Find an investment opportunity that fits

4. Reserve your spot in the deal

5. Review the PPM (private placement memorandum)

6. Send in your funds

7. Celebrate

Step #1 – Decide Whether to Invest in Real Estate, Period

Before deciding to invest in real estate, it is essential to consider other investment options available such as stocks, bonds, gold, and coffee plantations. The decision ultimately depends on individual financial goals and portfolio preferences.

The author shares how they stumbled into real estate investing by purchasing their first house as their personal residence and renting out a room to offset costs. They continued to rent out the property when they had to move away and subsequently acquired more rental properties over the years. The author realized the potential of passive income from real estate investments and considers it a critical part of their family’s long-term wealth-building strategy.

Through investing in real estate, the author learned valuable lessons about people and relationships, leverage, tax benefits, passive income, and the power of the community. These experiences have solidified real estate’s position in the author’s personal portfolio and overall investment strategy.

Step #2 – Determine Your Investing Goals

When you decide to invest in real estate, consider your investment goals, such as long-term or short-term investment, lump sum or steady passive income, and the amount of money and time you can invest. If you’re willing to put in some work, you might try a fix-and-flip or small rental property, but be aware that it requires a lot of time and expertise.

On the other hand, investing alongside other investors in a real estate syndication can be a better option. With syndication, an asset manager takes charge of the property, carries out the business plan, updates the units, and maximizes returns. You don’t have to do the work yourself, and you benefit from economies of scale, professional management, and risk mitigation that individual investors can’t achieve.

Step #3 – Find an Investment Opportunity That Fits

If you have determined that investing in a real estate syndication is the right choice for you, the subsequent step is to search for a syndication deal that meets your needs. Just as there are numerous real estate properties in which you can invest directly, there are also a variety of real estate syndication projects accessible, including ground-up development, value-add assets, and turnkey syndications.

To inform potential investors about investment opportunities, deal sponsors typically offer some form of the following materials:

• Executive summary

• Full investment summary

• Investor webinar

The success of a real estate syndication investment largely depends on the team running the project. Even the best deals can fail if the team is not skilled or experienced enough. Therefore, it is important to carefully evaluate the team’s track record and expertise in managing similar projects. On the other hand, a skilled team can turn around struggling projects and generate attractive returns.

Apart from the team, it is also essential to evaluate the business plan and its feasibility given the asset class, submarket, and economic cycle. A thorough analysis of the market trends such as job growth, population growth, and other economic indicators is necessary. It is also important to review the investment details such as the minimum investment amount, projected hold time, and expected returns. Moreover, it is prudent to ensure that the team has multiple exit strategies in place in case the original plan does not work out.

To gain more insights into the investment opportunity, attending the investor webinar and asking relevant questions can be helpful. It is also essential to look for conservative underwriting and conduct independent research to validate the investment opportunity. By assessing all of these factors, investors can gain a comprehensive understanding of the investment opportunity and make informed investment decisions.

Step #4 – Reserve Your Spot in the Deal

Real estate syndications typically operate on a first-come, first-served basis, which is especially important for deals in high-demand markets. It’s crucial to conduct research in advance, determine how much money you want to invest, and identify what you’re seeking in an investment opportunity so that when the opportunity arises, you can seize it promptly.

In some cases, there may be an opportunity to place a soft reserve amount, which enables you to reserve a spot in the deal while you review the investment materials. If you decide later to back out or reduce your investment amount, you can do so without penalty. However, if you don’t hold a place and then decide to invest, you may miss out on the chance, and you’ll be placed on the backup list.

Although not all deals offer soft reserves, it’s always a good idea to use them when they’re available and when you’re potentially interested. It gives you additional time to think about the deal, examine the materials, and conduct your own research before making a final decision.

Step #5 – Review the PPM

The PPM (private placement memorandum) is a critical legal document that marks the first official step in investing in a deal. It provides a comprehensive overview of the investment opportunity, including the potential risks and your role as an investor in the project. While it may not be the most exciting document to review, it is crucial to read through it carefully to fully understand the investment opportunity.

Unlike the fine print found in stock or mutual fund investments, the PPM is a transparent document, with no tiny print to hide behind. It outlines all the potential risks and rewards associated with the investment opportunity, providing investors with a full picture of what they are getting into.

Reading through the PPM may take time, but it is necessary to ensure you understand all aspects of the investment, including the subscription agreement and operating agreement. As you become more familiar with these types of documents, you will find it easier to move through them quickly.

When signing the PPM, you will also need to decide how you want to hold your shares in the entity holding the asset. Additionally, you may have the option to choose how you receive your cashflow distributions, either via check or direct deposit.

Step #6 – Send in Your Funds

After finishing the PPM, the subsequent action will be to submit the funds you’re investing into the deal. You’ll usually have two options: either wire in the funds or send a check. In my experience, both methods have been trouble-free.

A helpful hint to keep in mind is to verify the wiring information before submitting your funds via wire transfer. Additionally, make sure to inform the deal sponsor that your funds are on their way so they can be on the lookout for them.

Step #7 – Celebrate

Congratulations! You have successfully completed all the necessary steps to invest in the real estate syndication deal. This includes conducting due diligence, reserving your spot in the deal, reviewing legal documents, and sending in your funds. As an investor, you have fulfilled your active role in the process and can now sit back and relax.

The next communication you will receive will likely be a notification that the property has closed. Deal sponsors tend to include enthusiastic language in these emails, complete with smiley emojis and exclamation points. It is a moment of celebration for the sponsor team and investors alike.

As an investor, you can expect to receive monthly project updates, detailed quarterly financial reports, quarterly cash flow distributions, and an annual K-1 for tax purposes. These regular communications will keep you informed about the project’s progress and performance, ensuring that you remain up-to-date with the investment’s status.

Conclusion

Investing in real estate syndications may seem daunting at first, but it’s a straightforward process once you understand the steps. The majority of your involvement as an investor is upfront, such as reviewing the investor materials, reserving your spot in the deal, signing the PPM, and sending in your funds. Real estate syndications are a “set-it-and-forget-it” type of investment, which can provide additional income streams to support life’s challenges.

Raising a family requires a significant investment of time, love, and money. Traditional methods of working for a living and relying on a 401k may not be enough to cover all of life’s expenses. However, by thinking outside the box and following the steps outlined above, investing in real estate syndications can become a routine and effective way to generate additional income and provide financial stability.

Joining the Onbridge Capital can be a great way to begin your journey of investing in apartment communities and achieving early retirement. To get started, you can sign up for the club’s quickstart guide to real estate syndications.