1. First, determine if Real Estate is the right investment vehicle for you.

There are several options to place your capital with varying degrees of risk. And there are several options to invest within the Real Estate sector. Real estate syndication has numerous benefits and is a great passive investment vehicle to add to your portfolio. 

2. A normal syndication will have a minimum investment amount of $50,000.

This can be a daunting amount; especially, if the most you have ever wired is $50,000 for a down payment on your own house. This is a large amount; but, if you have money in a savings account, it is being swallowed up by inflation as we speak. Even the equity in your home could be earning higher interest in other opportunities as well. Properly invested, $50,000 should yield annual cash flow as well as tax benefits and equity appreciation.

3. Can you invest? Is it a 506(b) or 506(c) offering?

This is a classification of the investment which specifies who and how the management can broadly advertise the offering. 506 is an SEC rule which identifies how a security offering can be advertised to the public. 

  • Accredited: Individual with gross income exceeding $200,000 in each of the 2 most recent years or joint income with a spouse or partner exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. 
  • A person whose individual net worth or joint net worth with that person’s spouse or partner exceeds $1,000,000 excluding the person’s primary residence. 
  • Rule 506(c) allows issuers to broadly solicit and generally advertise an offering provided that all purchasers in the offering are accredited investors. The issuer takes reasonable steps to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied.  
  • 506(b) allows a startup to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non accredited investors.

4. Review and sign the PPM (Private Placement Memorandum).

The PPM is the legal document that serves as a disclosure to prospective investors. Key factors outlined in the PPM will be: notices to investors, executive summary, company purpose, terms of the offering, risk factors, use of proceeds, financial information and management. The memorandum is a legally binding document and must adhere to the Securities and Exchange Commission (SEC) laws.

5. Wire Funds

At this point, the escrow account has become funded, and closing is nearing. Your syndicator sponsor should provide details as the date nears and especially as the project funds and closes. You should expect an announcement at that time. 

6. Updates and next investments

  • At this juncture, the management team should be providing you with consistent updates as agreed to prior to the investment. This can be monthly or quarterly. Some investing partners will provide a monthly newsletter with pictures of the project progress and others will keep communications quarterly. Either way, communication should be expected. If you need anything, you should have access to this team for questions any time.
  • Good investments are not available every day. Luck favors the prepared and while you may not have capital to deploy right this second, it is a good idea to consistently be reviewing offers and markets to find managers that have deals that match your criteria. This way when you have the capital ready, your criteria is narrowed and you can quickly identify where your capital is best placed.
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