Most people are fairly familiar with the process of buying a single-family home or maybe an individual rental property. Pick the neighborhood, and how many bedrooms and bathrooms you want, talk with the bank, tour potential properties, and then make an offer.
However, when it comes to real estate investing as part of a group in a larger project, the process can be very different. Often these are referred to as syndication; so let’s talk through what that process can look like so that you can invest confidently.
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) and subscribe
- Send in your funds
Step #1 – Determine Your Investing Goals
Most people consider both short-term and long-term investing goals and investment opportunities.
Think about your amount of investment capital, how long you want it invested, the tax advantages you need, and whether you are seeking cash flow to help supplement your income, long-term appreciation, or a hybrid of both.
Step #2 – Find An Opportunity That Meets Your Goals
Now, start looking for a deal that aligns with your goals. There are real estate projects available ranging from ground-up construction to value-add assets to long-term holds of existing properties that simply cash flow.
Deal sponsors typically provide an executive summary as well as a full investment package which provides a full view of the asset, market, deal sponsor team, business plan, and projected financials.
Take time to properly evaluate the sponsor team, ask questions, and read between the lines of the investment materials.
What are market trends for jobs and the population? What are minimum investment levels, projected hold time, and projected returns? Ask the tough questions.
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 that opportunity you like, 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.
The option for a soft reserve may be available, which holds your spot while you take time to review the investment materials. So, you might combine Steps #2 and #3 by reviewing the executive summary, reserving your spot in the deal, then reviewing the rest of the materials. This allows you the opportunity to back out or reduce your investment penalty-free.
If you are late in putting in your soft reserve, the deal may be full by the time you decide you want in, at which point your only option is to join the backup list or wait for the next deal.
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.
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.
That’s it. By now, the process for this kind of real estate investing should be clearer, and perhaps, a little less intimidating.
Real estate syndications are more of a set-it-and-forget-it type of investment, so 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.
Don’t worry though, if this process still seems a bit daunting. As you review and invest in more deals, the process will become second nature.
Call or email us if you would like to discuss more about our alternative investment strategies.
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Prevail Innovative Real Estate Opportunities, LLC., (PREO) is affiliated with Prevail Wealth Advisors, LLC (Prevail IWA) and Prevail Strategies LLC., because they are under common ownership and control. PREO was formed to provide real estate investment opportunities for high-net worth investors looking for diversification. Prevail Wealth Advisors, LLC., is a federal registered investment advisor. Registration with any securities authority is not an endorsement of the services offered by the investment adviser. Fixed insurance products and services are offered through Prevail Strategies, LLC., a licensed insurance agency. Any investment by a Prevail IWA client into a PREO sponsored real estate investment would be without the involvement of Prevail IWA and should be not seen a s a recommendation by Prevail IWA. Additionally, Prevail IWA clients should realize that any capital they invest in a PREO-sponsored real estate investment would be completely outside of their advisory relationship with Prevail IWA and not part of their Prevail IWA account going forward. Finally, there are material differences between the type of investments PREO may offer and the investments on which Prevail IWA provides advice in terms of risk profile and liquidity, and the compensation PREO earns from a real estate project in which Prevail IWA clients invest may be materially different than the investment advisory fees Prevail IWA charges its clients.
An offer or solicitation to acquire interests in the investment may only be made by our Private Placement Memorandum (“Memorandum”) in accordance with the terms of all applicable security laws. All information contains herein is subject to and qualified by the contents of the Memorandum. Participation in any securities offering is limited to Accredited investors. Please call to obtain a copy. You must read it before investing. Past Performance is no guarantee of a future results. An Offer to buy or sell any security is only made by our Private Placement Memorandum. Prevail Real Estate Opportunities, LLC., Prevail Innovative Wealth Advisors, LLC., and Prevail Strategies LLC., do not provide tax or legal advice. You should your CPA or tax professionals for decisions involving tax implications present and future.
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