How Commercial Real Estate Syndications Work to Build Passive Income

by | Apr 8, 2022 | Investing Advice | 0 comments

You’re probably familiar with the investment model of buying a rental property and becoming a landlord. The process is outwardly simple, but you have to put a considerable amount of effort not only into finding and buying a property but also on the management side when your property is finally ready to rent out. 

On the other hand, syndications are less familiar, which is why it can feel daunting to make the leap into becoming a real estate syndication investor. You may not know much about joining a group investment (let alone how the numbers stack up). 

After fixing and flipping small residential properties for years, we moved into investing in syndications because they match our very specific goals of not adding stress, headaches, and time commitments to our lives. Our day jobs in healthcare and making our children our priority means that although we are committed to exploring passive income opportunities, we just don’t have enough hours in the day to do everything that being a good landlord requires. 

But it’s imperative to understand just how investing in real estate syndications works, so we researched the whole process, and we’ve broken it down into five basic steps so you can join us in the journey toward ultimate time and financial freedom.

 Decide on your short and long term investment goals

  1. Find an opportunity that’s right for you
  2. Select the right live deal
  3. Analyze the Private Placement Memorandum
  4. Wire your funds


We’ve laid out the whole investing process from start to finish so that you get a comprehensive overview of how easy it is to invest in a real estate syndication. When you begin to notice how each step prepares you for the next, you’ll see how intuitive the investment journey really is, especially when you get to do it alongside partners you know and trust.

Step 1: Decide on your short and long-term investment goals

Once you decide you want to invest in a real estate syndication, consider both your short-term and long-term investing goals so you can be sure to find investment opportunities that best fit your personal goals.

Think about the amount of capital you have to invest, the length of time you want that capital invested, tax advantages you’re looking for, and whether you are investing primarily for ongoing cash flow to help offset your income, long-term appreciation, or a hybrid of both.


Step 2: Find an opportunity that’s right for you

Once you’ve determined your investing goals, aim to find a deal in alignment with those goals. 

There are countless real estate syndication opportunities and markets out there. If you’re looking for recession-resistant multifamily investments, we can help you surface the strongest and most viable opportunities.

We will typically provide an executive summary, full investment summary, and host a webinar for investors, which provides a full 360-degree view of the asset, the market, the deal sponsor team, the business plan, and the projected financials.

Be sure to take time to properly vet the track record of the operating team, ask them your questions, and read between the lines of any investment materials provided. Take a look at things like whether the business plan has multiple exit strategies, whether there are signs of conservative underwriting, and double-check whether the proposed business plan makes sense given the asset class, submarket, and current economic cycle. 

Research market trends in job and population growth. Review minimum investment requirements, projected hold time, and projected returns. Finally, attend or review the investor webinar and make sure you get your questions answered.

Basically, at this stage, look for any reason not to invest in the deal.


Step 3: Select the right live deal

Once you’ve found an opportunity you want to invest in, 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.

Typically, the first step is to make a soft reserve, which holds your spot while you take time to review the investment materials. The soft reserve does not lock you in the deal; it merely saves you a spot in the deal while giving you more time to review the fine details of the investment and conduct your own due diligence.


Step 4: Analyze the Private Placement Memorandum

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 – Wire 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.

Pro tip: 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.


Your Roadmap to Success With Real Estate Syndications

Now that we’ve walked you through the process, you should have a little more clarity on how exactly investing in a real estate syndication works. It might be an unfamiliar investment vehicle right now, but once the research is done, most people start to enjoy the hands-off quality of real estate syndications and embrace the worry-free time they get to enjoy with their family while their capital does all the work for them.

In all honesty, real estate syndications are research and investigation-heavy upfront, then you can relax and let your money go to work. It’s true that you have to put the effort in at the outset to find the right deal, review all the investor documents, and wire over your funds, but once you’ve done those tasks, there isn’t anything more required in the way of active participation. 

Having been in your position ourselves when we were seeking the right investment (and were more than a little apprehensive about making a mistake), we totally understand that you might want to dig into the process a little more deeply. 

If you have any questions or concerns, then don’t hesitate to drop us a message; we completely understand that you want to make the best choice for your family. We’re 100% happy to go over the real estate syndication process details to ensure you’re as confident as possible while investing in your first commercial syndication deal.


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