How It Works: Investing in a Commercial Real Estate Syndication

by | Jul 14, 2022 | Investing Advice

It’s not unusual to invest in real estate, you may have done it before, or maybe you’ve got friends or colleagues who have bought a single-family home to rent out as an investment property. We are very experienced with that model, having more than 100 single-family properties between us, and more than 200 Multifamily units, we’re used to finding suitable properties, working with brokers and lenders, then making a deal and closing. 

But, as you might expect, being part of a group investment looks a little different. It can feel a little daunting to invest in a real estate syndication. But rest assured, we’re here to support you every step of the way. We’ve put together this article so that you can see the whole process clearly laid out and understand how the process works. 

We take set steps as part of the syndication, and we’re going to walk you through them right now so you can see how we move from one stage to the next and feel confident about making your first real estate syndication investment. 

There are five defined stages that investors need to progress through as they prepare to join a syndication:

  1. Define your objectives
  2. Locate the ideal investment
  3. Commit to the deal
  4. Understand and approve the Private Placement Memorandum (PPM)
  5. Transfer your funds


Stage #1 – Define your Objectives


This is an integral part of the process — you need to enter each investment opportunity with your eyes open, and a considerable part of that is being clear about your financial goals. When you’re defining and clarifying your objectives, take both short-term and long-term investing goals into consideration for a holistic view of which investments will be a good fit for your current portfolio.

Factors to consider are:

  • How much capital you want to invest
  • How long you want to tie up that capital
  • Whether there are any tax advantages 

Before deciding about possible investment vehicles, you also need to determine if you prefer to prioritize ongoing monthly cash flow or long-term appreciation for a comfortable retirement or similar goal.

Stage #2 – Locate the Ideal 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 viable options.

We will typically provide an executive summary and full investment summary, plus 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 take time to vet the track record of the operating team properly, ask them your questions, and read between the lines of any investment materials provided. Consider 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.


Stage #3 – Commit to 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, so it’s important 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 place in the deal while giving you more time to review the fine details of the investment and conduct your own due diligence.

Stage #4 – Understand the Private Placement Memorandum (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, you must understand the investment’s risks, subscription agreement, and operating agreement.

As part of signing the PPM, you’ll also decide how you’ll hold your shares of the entity holding the asset (ie in an LLC or personally) and whether you want your distributions sent via check or direct deposit.

Stage #5 – Transfer 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.

Confidently On Your Way Toward Your Syndication Investment

Is everything a little clearer now? Our explanation should have made the stages of investing in a real estate syndication a little clearer, and hopefully, you feel less like you’re moving forward in the dark with your investments.

We love real estate syndications because they’re a plug-and-play deal. Your cash passively generates income without you needing to be involved in the investment day in and day out. 

As you can see from the process stages, you front-load the work — in stages 1-5, you’re preparing to plug into that deal that can change your financial trajectory. You’re selecting a deal, checking it fits your objectives, evaluating it, and sending in your money. 

This blog series aims to help you understand how the whole process works. We know that committing your hard-earned cash to a new investment vehicle can be stressful, but we’ll be with you as you prepare to invest in your first real estate syndication. (And again, when you invest in your second, third and fourth until you’re the expert!)