How It Works: Investing In A Multifamily Real Estate Syndication

by | May 21, 2021 | 0 comments

When it comes to investing in real estate, most people are relatively familiar with the process of buying a single-family home or rental property. You choose the market and neighborhoods, 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. 

Or, in our case, purchase a property wherever you’re stationed to accumulate equity that can one day fund your retirement property. Initially, we were learning as we went with single-family homes, discovering various nuances of owning property in different states, different property management companies, and dealing with the roller coaster ride of emotions with each occupancy change.

With single-family homes and small rental properties, you’re likely the sole investor – shouldering all the burdens, funding the whole deal, and making all the decisions. But with real estate syndications, you’re investing as a team into an apartment complex, for example, with professionals in place to handle each aspect of the deal. 

So, things look pretty different!

For this reason, let’s explore the syndication process together, from start to finish, so that you can invest confidently in your first real estate syndication.

Here are the 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 be sure to find investment opportunities that best fit your personal goals. What is it that you want as a result of your investing journey?

Think about the amount of capital you have to invest and the length of time you want that money invested. Also, consider the tax advantages you’re looking for and whether you invest primarily for ongoing cash flow to help supplement your income, for long-term appreciation, or a hybrid of both.

Consider, for example, what you want your life to look like at 3-year and 10-year increments out into the future, and how investing might help support that vision.

Step #2 – Find a Fitting Investment Opportunity

Once you’ve determined your investing goals, aim to find a deal in alignment with your goals. 

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 most robust and most viable options.

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 fill 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.

Investment opportunities can often fill up within mere hours, which is why it’s essential to have completed your 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 commitment or reservation, which holds your spot while you take time to review the investment materials. The soft commitment does not lock you in the deal; it merely saves you a place in the deal while giving you more time to review the fine details of the investment and conduct your 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). Don’t worry! That’s just a fancy name for the legal paperwork on a real estate syndication deal. 

This 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 for 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.

Investing In A Real Estate Syndication is Different, but Easy!

By now, the process of investing in a real estate syndication should be more transparent, and perhaps, a little less intimidating.

Sure, it’s pretty different than the process of buying small residential properties. But those properties, even with a great property management company in place, require you to individually shoulder all the burdens that come with being a landlord. 

Real estate syndications are more of a set-it-and-forget-it type of investment. Your active participation is 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 aren’t a landlord, and once you choose a syndication deal in alignment with your investing goals, there’s nothing to do except collect the quarterly distribution checks! You have the freedom to spend more time with loved ones, work without feeling attached at the hip to payday, and live out your passions.

Don’t worry, though, if this process still seems a bit daunting. That’s what we’re here for, and we’ll be with you every step of the way inside the Starboard Equity Club. Join today, and you’ll get access to our past and present deal details, as well as exclusive access to upcoming investment opportunities. At Starboard Equity, we support you in identifying deals that align with your goals and help you invest with integrity and confidence so that investing in syndications to grow your wealth becomes second nature.

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