The LP Investment Process
In the journey of learning about real estate syndications, you probably want to know what the process looks like. Up until this point, your experience with investing has likely been just in your 401K, and they make it easy. You choose the amount they pull out of your paycheck every month, and you don’t have to think about it.
So what does investing in a real estate syndication really look like? In this blog, I’m going to break down what it looks like from start to finish. I’m going to assume you have been doing your research and have chosen a trusted sponsor you would like to invest with. The steps broken down will take it from there.
Solidify Funds
It’s important to take note of where your investment is going to come from. Are you investing cash that is saved up, or are you investing out of a 401K? If you’re investing cash, then you are ready to go. You just need to keep that capital ready to roll. However, if you’re investing out of a 401K, there is more preparation to do before a deal can happen.
If you’re investing using a 401K, you will need to open a self-directed IRA account and transfer a portion of your 401K over. To do this, you will need to speak to a self-directed IRA specialist who can help you move the capital over. It is important to get this set up before investing in a deal, as it makes the process so much easier once it’s time to invest in a deal. It’s one less step you have to take, and your money will be ready to go.
Soft Commitment and Webinar
The first order of business when an opportunity comes into your inbox is to provide your soft commitment to the sponsor and also get signed up for their webinar. It’s important to note that a soft commitment is not binding, so when you input an amount you would like to invest, you are just giving the sponsor an idea of your interest.
An investor webinar is a conference call or online meeting that’s led by members of the sponsor team. In general, the sponsors go over the investment summary, stressing the transaction framework, business strategy, market comparisons, and the sponsor's accomplishments.
The investor webinars prove to be a really useful resource if you're considering investing in a specific deal. This investor webinar is the perfect opportunity for investors to get acquainted with the sponsors and their business model since they will be the ones overseeing, managing, and guiding the entire project.
Signing Documents and Wiring Funds
Although it might not seem like the most interesting subject, it is crucial for investors to completely understand it before investing in a syndication or fund run by someone else!
Review all subscription agreements, which include a Private Placement Memorandum (PPM), a Limited Partnership Agreement (LPA), and any disclosure documents. Pay close attention to terms and conditions, investor rights, fees, profit sharing arrangements, and any other relevant provisions.
You must work with your financial institution after completing the paperwork in order to get precise transfer instructions. Start the wire transfer by following the steps and double-checking all the information to prevent any mistakes. Keep the bank's wire transfer confirmation as documentation of the transaction, and immediately inform the sponsor that the transfer has been successful.
Before signing anything, always consult with your CPA or legal counsel.
Monthly Communication
A good sponsor should be updating you on a monthly basis about the progress of the property and business plan. These normally come in the form of an email and can also include financials for the current month. Be on the lookout for these and be sure to reach out to your sponsor with any questions you may have!