Most people think of investing in real estate as buying and renting out single-family homes, and since most have owned a personal residence, they’re pretty familiar with the process. You choose a preferred neighborhood or two, identify a price range, 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. You don’t have to tour properties physically, you aren’t personally obtaining financing, and you don’t deal with renovations or tenants.
At first, you might think it odd for real estate to be such a hands-off investment, but I encourage you to explore the possibilities and allow yourself to imagine what it will be like to earn passive income without any additional responsibility or steep time commitment.
Let’s explore the syndication investment process together, from start to finish, so you can invest confidently in your first real estate syndication deal.
Here are the basic steps of investing in a real estate syndication:
- Determine your investing goals
- Find an investment opportunity that fits
- Reserve your spot in the deal
- Review the PPM (private placement memorandum)
- 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 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 that is in alignment with your goals. This is where we come in.
There are countless real estate syndication opportunities out there, and through the Viking Capital Investments Team, we help surface the strongest and most viable opportunities.
We will always provide an executive summary, full investment overview with returns , 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.
Take time to properly vet the asset management team, 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 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 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.
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 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.
By now, the process of investing in your first real estate syndication should be more clear, and perhaps, a little less intimidating. I’m also hoping you can see how these types of investments take you from frustrated and overworked to enjoying flexibility and the freedom to worry less about your work hours.
Real estate syndications are attractive because of their set-it-and-forget-it style. 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. After that, you get to relax, knowing your cash flow distributions are in the works, so you can focus on what really matters.
Don’t worry if this process still seems a bit daunting. That’s what we’re here for, we’ve been in your shoes, and we’ll be with you every step of the way, even investing alongside you, as you invest in your first real estate syndication. As you review and invest in more deals, the process will become second-nature.
To get the process started today, join the Viking Investor Club.