How to Invest in Your First Real Estate Syndication
When it comes to investing in a syndication, the process might be unfamiliar and daunting to many. In this article, we’ll cover the 5 steps to investing in your first real estate syndication.
Step #1. Get Educated & Set Investment Goals
Start by educating yourself about real estate and the syndication model. Through this process, you’ll be able to determine if real estate syndications are right for you.
Next, you should clarify your investment goals and determine what type of investments would help meet those goals. For instance, are you looking for cash flow or more interested in the profits when the property sells? Are you interested in value-add projects with tax depreciation benefits?
Step #2. Find Sponsors & Investment Opportunities
You should actively look for available opportunities that meet your investment goals. Once you’ve identified these opportunities, review the investment summary and attend the deal’s webinar. This will help you understand the sponsorship team, the market, the property and the business plan.
You should perform your own due diligence on the sponsor, market, submarket and the property.
Step #3: Reserve Your Spot
Once you’ve selected a sponsorship team and deal you want to invest in, you reserve your spot in the deal. The investment opportunities are offered on a first-come, first-served basis, and can often fill up quickly. You reserve your spot by placing a “soft commitment.” Submitting a soft commitment simply states your interest in the deal, but is non-binding.
Step #4: Review the PPM & Sign the SA
You confirm your interest by turning your “soft commitment” to a “hard commitment.” This includes reviewing the private placement memorandum (PPM) and signing the subscription agreement (SA). The PPM is the document that covers, in detail, the entire project, investment terms and investor expectations. The SA is the document you’ll sign to confirm that you accept the terms and will be committing a certain amount to the investment.
Step #5: Wire Your Funds
Once you’ve signed your documents, you will send over your funds. You should verify with the sponsor team the wire information before sending over the funds. Once you’ve wired the funds, let the sponsors know so they can confirm receipt of the funds.
Congratulations- that’s it! Your part is done. You can now sit back, relax, wait for the property to close, and let the sponsors take over the business plan from there.
