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Steps for Making Your First Real Estate Syndication Investment

Real estate syndication offers investors an opportunity to pool their resources and invest in larger, potentially more profitable real estate projects. This article is the final installment in our three-part beginner’s guide to investing in passive real estate syndications. If you’re considering making your first real estate syndication investment, it’s important to understand the process and take the necessary steps to ensure a successful venture. 

 

 

[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

 

So, you’ve found a great real estate syndication deal and you’re ready to take the plunge into the world of real estate investing. Congratulations! 

But before you dive in headfirst, it’s important to understand the step-by-step process of making your first syndication investment. 

We’ll walk you through the details, from reviewing legal documents like the Private Placement Memorandum (PPM) and subscription agreement to obtaining an accreditation letter, wiring your funds, and protecting yourself against wire fraud. 

By following these steps, you’ll be well-prepared to confidently navigate your first real estate syndication investment.

This is part 3 of a three-part beginner’s guide to investing in real estate syndications. If you want to go back and review the other articles in this series, you can access them here: Part 1: A Beginner’s Guide to Investing in Real Estate Syndications, and Part 2: How to Evaluate a Real Estate Syndication Deal.

 

[Note: If you want to be notified about future syndication opportunities, CLICK HERE to join our list]

 

Essential terminology

Before diving into the steps for making your first syndication investment, let’s review some essential terminology.

 

Private Placement Memorandum (PPM): A legal document that provides detailed information about the investment, including risks, fees, and terms. It is required for compliance with securities laws.

 

Operating Agreement (OA): A legal document that outlines the rights, responsibilities, and operating procedures for the members of a syndication. It serves as a contract between the syndication sponsor (the entity or individuals leading the investment) and the investors. The operating agreement typically covers various aspects, including the distribution of profits and losses, voting rights, management structure, decision-making processes, and the terms and conditions of the investment.

 

Subscription Agreement: A legal document used to formalize the relationship between the investor and the syndication sponsor. It is an agreement through which an investor subscribes to purchase or invest in the syndication’s securities (such as limited partnership interests or membership units). The subscription agreement typically includes terms related to the investment amount, payment terms, representations and warranties of the investor, transferability restrictions, risk disclosures, and other pertinent details specific to the investment opportunity.

 

Steps for making your first syndication investment

 

Step 1: Reviewing Legal Documents – Getting to Know the Fine Print

Okay, let’s talk paperwork. After identifying a syndication deal, you’ll typically receive a PPM and a subscription agreement. These documents may seem overwhelming at first, but they’re your gateway to understanding the investment opportunity. Take your time to dig into the details. Look out for information about the investment strategy, projected returns, fees, and potential risks involved. If you’re not a legal expert, no worries! Consider seeking advice from a professional to ensure you fully grasp the terms and implications before moving forward.

 

Step 2: Obtaining an Accreditation Letter – Proving You’re Ready to Invest

Now, let’s get accredited! Many real estate syndications require investors to meet certain financial criteria. The most common one is being an accredited investor. To obtain an accreditation letter, you’ll need to prove that you meet the accredited investor criteria set by the Securities and Exchange Commission (SEC). This usually means showing an annual income exceeding $200,000 (or $300,000 jointly with a spouse) for the past two years or having a net worth exceeding $1 million, excluding your primary residence. Getting accredited may seem overwhelming, but it’s not. Your deal sponsor will typically refer you to a company that can verify your accreditation and generate an accreditation letter. Your deal sponsor may also give you a templated form for your CPA or financial advisor to fill out, verifying your accreditation status. 

 

Step 3: Funding Your Investment – Let’s Get That Money Moving

It’s time to put your money where your investment goals are. To fund your real estate syndication investment, you’ll need to wire your funds to the designated escrow account. 

When it comes to wiring money, it’s crucial to protect yourself against wire fraud. Unfortunately, scammers are out there trying to take advantage of unsuspecting investors. 

To help you avoid this from happening, get in touch with the syndication sponsor or their representative to verify wiring instructions. Stay alert for urgent or last-minute requests for wire transfers, sudden changes in wiring instructions, or pressure to bypass standard verification procedures. If something seems fishy, trust your instincts and reach out to the syndication sponsor directly to confirm any changes or requests. And here’s an important heads-up: be on the lookout for wire fraud attempts. If you want to read more about common wire fraud tactics and red flags, click here.

 

Congratulations on taking the exciting step of making your first real estate syndication investment! If you haven’t read the first two parts A Beginner’s Guide to Real Estate Syndication and How to Evaluate a Real Estate Syndication Deal, we recommend that you read through it too! By following these detailed steps and tips, you’ll be well-prepared to navigate the process with confidence. Remember to thoroughly review legal documents, obtain an accreditation letter, securely wire your funds, and protect yourself against wire fraud attempts. And always seek professional advice when needed. With careful consideration and due diligence, you’re on your way to a successful real estate syndication investment journey. Happy investing!

 


Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD Facebook page and join our Doctors (for MDs or DOs only) or Professionals group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal oSr investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

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