There are a lot of ways to get into investing in real estate. You have been doing some research and found that multifamily syndications are a good fit for you. You like the idea of investing in residential real estate, and you want to be a passive investor. This strategy is for investors looking for cash flow without needing to have the expertise of doing everything themselves. Now, you may be wondering what the process looks like from the passive investor’s point of view. In this post, we’ll outline what the process looks like and the steps you need to take to get started.
Get Clear on Your Goals
The first thing you need to do is what you’ve been doing already – researching and reflecting on your goals. You want to know that you’re interested in investing passively and you’d like to start investing in real estate syndications.
Find a Sponsor
Next, you will need to find a syndicator/sponsor. I encourage you to talk to a few, since it is an important relationship, and you want to feel good about who you are working with to make sure your goals align with the sponsor’s investment opportunities. Many syndicators have newsletters and/or let you schedule a call with them to learn more. Subscribing to their newsletter is a great way to learn about them, but it is better to get on a call so that both parties can see if it’s a good fit.
Once that relationship is established, the syndicator will notify you when they have new deals in the pipeline. Often syndicators only take on a subset of the people they talk to – it could be that they only take accredited investors. It could be something else. But the call is where both parties figure out if working together in the future makes sense. The syndicator will then send you an executive summary that outlines the details about the deal and the business plan. When an investment opportunity comes along, it is common for the sponsor team to set up a live webinar with interested investors to go over the business plan and return projections.
The webinar is your chance to ask any questions that you have about this deal. This will help you determine if this investment fits your criteria and aligns with your investing goals. If you don’t want to ask questions in the webinar, you can often set up a 1-1 call as well. This is a two-way relationship between the passive investor and the sponsor.
Make a Commitment
Once you decide that this is an investment you want to be part of, you can let the syndicator know. Typically they will have a form for you to fill out to reserve a spot for you. This is usually called a “soft” commitment.
If the investment only takes accredited investors (506c), the sponsor team will need to verify that you are an accredited investor. They’ll let you know the specifics of that.
After the soft commitment, you will be asked to formally make a commitment to how much you want to invest in the deal through an online portal or a form. You’ll then sign the Private Placement Memorandum (PPM), which is the legal agreement between you and the syndicators, as well as other legal documents they require. The PPM also outlines the full structure of the deal.
Closing
Once the required documents are signed and countersigned, you’ll need to wire or ACH your investment funds. When the funds are wired and accepted, you are now a passive investor (limited partner) in a multifamily syndication!
After the syndicator receives the required funds from all the investors and has everything in place, they can now close on the deal and start executing on the business plan. You will receive updates on the project on a monthly or quarterly basis (you should find out early on how often the sponsor team will be sending updates to the passive investors) and receive distributions based on the partnership agreement.
As you can see, this process can appear complicated and can take some time since there are many moving parts. The steps to invest in a multifamily syndication can vary from syndicator to syndicator, but overall the process is the same. To summarize, here is the overall process:
- Find a syndicator, get to know them, and get on their investor list
- Be on the lookout for emails about new opportunities
- Determine if the investment fits your goals and ask questions to see if this meets your criteria
- Make a soft commitment and make sure you meet the investor requirements (accredited vs. non-accredited)
- Formalize your commitment
- Review and sign the legal documents
- Wire the funds
- You get notified about the closing
- You should receive updates about the deal regularly (monthly or quarterly)
- You should receive distributions as outlined in the agreement
At Collective Investing, we sponsor syndications and take on Accredited Investors as limited partners. Schedule a call with us to get started in your apartment investing journey!