A question I am frequently asked from passive investors (LPs) pertains to the process of a real estate syndication. In prior articles we discussed helpful tips on evaluating the sponsorship team, the market, the sub-market, property types, and the deal structure/underwrite as well as the different syndication structures. In today’s quick tip article, we will provide a step by step overview of the syndication process and what to expect at each stage.
The Syndication Investment Process:
1. The sponsor announces that they have a deal. In that announcement (typically sent via e-mail or text), the sponsor will also invite you to the investor presentation.
- If the offering is a 506 (C), the sponsor may advertise that publicly.
- If the offering is 506 (B), the sponsor would share the deal only with investors whom they have a pre-existing substantive relationship with.
2. The sponsor conducts the investor presentation webinar, which is typically recorded. This is your opportunity to ask your initial questions to determine, if this is a deal you want to invest in. You should feel free to address follow up questions directly to the sponsor you have a relationship with after the presentation too.
3. The sponsor will send a call recording along with a link to the investment portal.
4. You review the investment offering presentation and decide to invest.
5. You submit your soft commitment via the investment portal, specifying your investment amount.
- Real estate syndications are almost always filled on a first-come, first-served basis. As such, if you want to guarantee your reserved spot in the deal, you should wire the proceeds as soon as you feel ready to invest.
6. Once you submit your soft commitment via the portal, you will also gain access to the investment documents – PPM (private placement memorandum), the investment offering, and the operating agreement, investor questionnaire, and wire instructions.
7. Read and understand the PPM and ancillary documents (we will soon publish a quick snippet educational article re this). This is your opportunity to ask follow up questions to ensure you are comfortable with the management team, the market, the key underwriting assumptions, and deal structure.
8. Execute the subscription agreement, complete and submit the investor questionnaire and W-4 form.
- For 506 ( C ) structures, you will need to submit additional information, which is used to verify your accredited investor status.
9. After signing the PPM, you wire in your funds.
10. The sponsor confirms that your funds have been received.
11. The sponsor notifies you once the deal closes and next steps.
- You should be receiving frequent updates between the time of wiring your funds/executing the PPM and the deal closing, which typically takes place about 45 days after the investor presentation.
- We like to send weekly updates.
12. The sponsor provides periodic updates and reports post close (usually monthly updates and, if determined by the sponsor, quarterly webinars). The monthly updates are sent via e-mail. Monthly financials and annual K-1 reports may also be posted on the investor portal (under your profile). The K-1 statements are typically due by March 15th.
13. You start receiving distributions (monthly or quarterly). Some distributions start immediately and some may start at a later point of time, as determined by the sponsor (which is usually communicated upfront).
14. The sponsor executes on the business plan, sells the asset, and you receive your share of the gain.
15. Rinse and repeat on your way to financial freedom.
Should you have any questions or want to learn more about real estate investing or for an overview of our target markets, please reach out to firstname.lastname@example.org.
Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.