Four Steps To Becoming A Limited Partner In A Multifamily Syndication?
Passive income has become a buzzword of sorts in the investing community. Many understand and desire to have income that is decoupled from their time working but are unsure of how to get started. While investing in multifamily syndications is a great passive investment option, there is some upfront legwork that must be completed before arriving at this destination. Today's article will review these steps to provide a blueprint to your first passive multifamily investment.
Investing in any type of asset should be preceded by a solid course of education into the details of how that investment functions and what makes it successful. This will allow you to understand the potential risks associated with a given investment and the questions that you should ask of the sponsor. An investor who has this level of understanding is referred to as a sophisticated investor. While becoming a sophisticated investor is a process that requires effort, it is important an important first step to take to ensure that you are making sound decisions on your investment choices.
Everyone recognizes the importance of investing in a deal that has a strong business plan and offers appealing returns. However, new investors might not realize that it is also important to consider the sponsors who will be closing the deal and executing the business plan. Developing these relationships takes time and therefore it is good to begin searching for sponsors well before you are ready to actually invest. Meetups, podcasts and online resources are all great ways to find sponsors with whom you can have a one on one conversation in order to begin the relationship building process. This process is mandatory when investing in 506b syndications, but really is advisable for making any type of investment.
One of the common misconceptions held by many new passive investors is that reviewing deals is only for active inventors. While it's true that passive investors don't need to underwrite deals or weed through as many as active investors, it is important that they understand how to and take the time to review deals seriously. Most syndications are a long term investment and finding the one that is a good fit for your criteria will take time and repetition of reviewing deals. If you have completed step 2 above, then you should have a fair pipeline of potential passive investment opportunities coming to your email inbox. In the same way that an active investors reviews many deals to find one good one a passive investors should plan to review a number of deals as well.
Once you have reviewed a number of deals you will get an idea for what types of syndication investment options are available and which ones interest you the most. While it is important to complete the three steps above before jumping into a multifamily investment, it is equally as important to be ready and willing to pull the trigger when the right investment choice arrives. The process for investing can vary from deal to deal but generally required the review of a private placement memorandum (PPM) following by the signing of a subscription document and finally the wiring of the funds to the investment. One might be tempted to think that once the wire is complete that there isn't anymore work to do, however it is important to continue to read the updates provided by the sponsors and ask any questions you might have in order to stay on top of the status for each project in which you are invested.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting with us through our Calendly link and subscribe to our weekly blog here.