Let’s start with the basics? If you are not familiar with how a real estate syndication works, then I would start here with this video overview.

Most are familiar with the residential home purchase process. But buying commercial real estate is a different venture. Fortunately the SEC, a government agency, made exemptions that allowed for syndication to be offered to the everyday person. Before, syndications were not offered, so publicly.

Lets say you are ready to invest, but not sure how to start. You should start with these steps.

1. What are your financial goals? In syndications you can attain cash flow, and/or appreciation. There are also tax benefits. Your goal depends on what you are wanting to accomplish. Maybe you need cash flow, so you can pay for your kid’s activities, college, or want an extra income, so you don’t use that credit card. Some investors invest in syndications for the tax benefit because the benefit of the depreciation on their overall holding is greater than the cash flow. I used to be a cash flow investor, until I achieved financial freedom and now I am an appreciation investor. The shorter the investment window the better, because “velocity of money” builds wealth faster.

2. What is short term liquidity needs? My favorite “drawback”. I always here about the illiquidity of syndications, as being a drawback. I actually love that investors can not easily sell shares from a syndication. If you think contrary, you should see what is happening to the stock market. There is a lot of volatility. I am very comfortable knowing that my wealth is tied to more rational financial metrics than the fear index. Once an investor understands its short-term cash needs, then it can better manage it’s financial goals. A typical syndication can range from 2-7 years.

3. Find the right syndication that fits your needs? By now, you had that talk with your self. You know, what life is throwing at you. You need monthly cash flow, some appreciation later, and the tax benefits are good, but not as important. Because you will use your cash deposit to invest, not an IRA/401k, you want your capital back in 3-5 years. This is great! Now you can narrow down the syndications that fit your future. Does it feel overwhelming? Well thankfully, we can dwindle the list even more. There are different asset classes, like apartments, storage, office, warehouse that may match up to your risk tolerance better. Also consider the markets the property is located at. Some markets are growing, while others are declining. I only invest in fast appreciating markets. You can do some easy research online, but your sponsor should provide you with market data explaining why their syndication is worthwhile in the PPM (more on that soon). At the very least, try and have a simple framework on what interests you. I like apartments because
everyone needs a place to live, and Arizona/Texas because of the population/job growth.

4. Reserve your spot in the syndication. So you selected a syndication to invest in. You are pretty sure, but not 100% sure. That’s okay. Everyone gets cold feet when they make these types of financial decisions. Most syndications have a “soft commit” window. A soft commit basically temporarily reserves your spot, while you review all of the documents. The sponsors team will reach out to you first to ensure you have what you need to make a final decision. If you decide not to proceed, then you are simply out. No harm, no foul. The benefit of soft committing is that some syndications go quickly, within 72 hours. Think of that perfect dream house you wanted and it was sold within the same week. The same concept holds for syndications.

5. Review the PPM (Private Placement Memorandum). You soft committed. Good for you! Now is the boring and exciting part. You will have some legal documents to review. Afterall, a syndication is a group of investors that own a piece of real estate. You don’t own a property management company, or a paper LLC. You own a hard asset. The fun part is reviewing the PPM. The PPM is your full look at the offering. If your sponsor is doing this correctly, the PPM will provide you everything. It will begin with the market, job report, population metrics, the property, business plan, investor returns, timeline – everything. This is where you will make your final decision. Ask a lot of questions. Do research on who your sponsor is. Have an attorney review the PPM. Walk the property. Ask about the consistency of communication on the project.

6. Send in your funds, and you’re an investor! Congratulations. You made the decision to commit and sent your documents into the sponsor. The final step to lock your seat in the deal is to send the funds. Once that is done, you are an investor.

My first investment was nerve racking, but I have gotten over the hump. I understand that I invest in hard assets, in fast appreciating markets, in asset types that people can’t live without (housing), and I trust my partners because we have been investing for many years.