When you decide to buy a home, consider the neighborhoods and features in your must-have vs nice-to-have columns, speak with a lender to determine the size of the loan they are willing to offer you, move some items from your must-have column to your nice-to-have column once you receive your lender's pre-approval letter, then meet with a broker to tour properties until you find the home of your dreams and submit that offer package that the seller would be crazy to refuse.
By extension, it is also simple to understand the conventional approaches to real estate investing, which involve purchasing a home and selling it for a profit. Buy a house, make renovations, and then sell it for a profit. Buy a house, rent it out, and collect the rent payments each month. Beyond that, it becomes difficult for the average layman to invest in property, particularly when discussing topics like group investments (also known as syndications), in which one invests passively alongside several other investors—sometimes hundreds— to buy a sizable asset, like an apartment complex.
Today we are going to discuss how to invest in apartment syndication so anyone reading this article has a clear grasp of all the stages involved in passively investing in your future.
How to invest in apartment syndication in 7 steps
1. Decide whether to invest in real estate, first and foremost
Choosing to invest in real estate or not is, arguably, the most crucial step of all. After all, you might invest in other disparate asset types. To determine whether real estate investing can assist you in achieving your goals, you must consider your entire portfolio, think about your objectives, and make a decision.
Through real estate investing, you can learn a lot about people and connections, leverage, tax advantages, passive income, and the strength of a community. Real estate is typically a key component of an investor's portfolio and long-term plan to increase family wealth.
2. Set your investment goals
Once you've decided to invest in real estate, consider what you want to gain from it. Are you interested in making a long- or short-term investment? Are you expecting an immediate lump sum or a recurring flow of passive income over time? How much time and money are you willing to put into the project?
Consider trying a fix-and-flip or buying and holding a modest rental property if you aren't afraid to get your hands dirty and put in some sweat equity or if you want to pick your own tenants, cabinets, or flooring.
A real estate syndication might be a better choice if, on the other hand, you want an investment that you can make once and then forget about. Along with other investors, you can invest money, and an asset manager will then take charge, administer the asset, and execute the business strategy to update the units and maximize effect and profits
3. Are property syndicates a good investment?
Finding a syndication opportunity that works for you is the next step if you've chosen real estate syndication. A wide range of real estate syndication projects is accessible, from start-up construction to value-add assets and even turnkey syndications, just as there are many different real estate assets you can invest in directly.
Deal sponsors often offer some form of the following materials to assist investors in learning about investment opportunities:
Full investment summary
These key documents will provide you with a comprehensive 360-degree perspective of the asset, market, deal sponsor team, business plan, and predicted financials. It's prudent to pay close attention to the project management team when evaluating these papers. It is also important to confirm both their moral character and that they have a proven track record. Choosing the right team makes all the difference because you can offer a fantastic project to a bad team, and they will destroy it; or, you can give a failing project to a great team, and they'll save the day.
In addition to the team, you must also consider the business plan's logic in light of the asset class, submarket, and stage of the economic cycle. Conduct your market research, and look at population growth, job growth, and other trends. Consider the minimum investment requirement, anticipated hold period, and anticipated returns. If the team's Plan A doesn't work out, make sure that there are backup plans in place.
You must ask yourself at this point if it’s worth the hassle; are property syndicates a good investment at the end of the day? But, as you go over several investment descriptions, you'll develop your own set of requirements for what you want.
4. Set aside a spot for yourself in the transaction
Real estate syndications provide a first-come, first-served investment opportunity, which is important to keep in mind. This may be crucial for deals in competitive marketplaces with powerful deal sponsors. To determine how much money you want to invest and what qualities you're searching for in an investment opportunity, it's crucial to complete your homework in advance.
You must be thinking, ‘How do I invest in syndication opportunities as soon as they arise?’. There will frequently be a chance to add a soft reserve amount. To evaluate the investment papers, this will hold your place in the agreement. You won't be penalized if you later decide to withdraw or reduce your investment. On the other hand, if you don't reserve a spot but later decide you want to invest, there might no longer be space for you in the transaction, in which case you'll have to go on the backup list.
Although not every contract includes a soft reserve, you should always include one to give yourself extra time to consider the offer, go over the documentation, and conduct your research. This step and the one before it, step #3, may be reversed or more flexible for offers with a soft reserve, so you should typically read the executive summary first, reserve your seat in the sale, and then read the remainder of the materials.
5. Analyze the PPM
Once you've decided to invest in a deal, the signing of the PPM is the first "formal" (also known as "legal") step (private placement memorandum). This legal document, which is frequently fairly extensive, goes into great detail regarding the investment opportunity, the dangers associated with it, and your position as an investor in the project.
It's not particularly enjoyable to read the PPM, but it's crucial to do so to completely comprehend the investment opportunity, including the risks, subscription agreement, and operating agreement. You must choose how you want to hold your shares of the company that is holding the asset as part of signing the PPM. You frequently have the option of receiving your cash flow payouts via check or direct deposit.
6. Send Your Money
The next step is to transmit your monies (i.e., the amount you are investing in the deal) when you have finished the PPM. Usually, you can choose between sending a check or wiring in your money. I've used both approaches in the past without experiencing any problems.
Pro tip: Before wiring in your dollars, double-check the wire details. Also, notify the deal sponsor that your funds will be arriving so they can keep an eye out.
You succeeded! You've completed your due diligence on the investment at this point in the process, secured your place in the deal, gone over all the legal paperwork, and sent your money in. That indicates that you have completed all of your active investor duties.
After the property has closed, you'll probably get a note as the next form of communication. Deal sponsors frequently prefer to use a lot of exclamation marks and cheerful emojis in these emails.
There you have it, then; the answer to ‘how do I invest in syndication?’. Investing in a real estate syndication should be a little clearer and possibly a little less daunting today.