#realestate – Noblivest Blog

10 Steps to Invest in a Real Estate Syndication (Step 6: Review and Sign the PPM)

The Private Placement Memorandum is an offering document, sometimes called a prospectus, offering circular, or PPM. The majority of early startups, real estate syndications, and emerging growth companies commonly raise money through what are called private placements.

A placement is simply a sale of equity ownership (or debt) in the company to private investors that become owners (or lenders) in the company. The reason they are classified as private is because the offer and sale of equity (a security) does not involve any public filing or registration of the security with the US Securities & Exchange Commission (“SEC”) and falls under an exemption to the registration requirement.

Put simply, private placements are not available on the open market so not everyone has access to these opportunities. They are private transactions.

The PPM is a legal document prepared by an attorney and provided to prospective investors and its purpose is to 𝐟𝐮𝐥𝐥𝐲 𝐢𝐧𝐟𝐨𝐫𝐦 𝐭𝐡𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐚𝐛𝐨𝐮𝐭 𝐚𝐥𝐥 𝐚𝐬𝐩𝐞𝐜𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬, 𝐜𝐨𝐦𝐩𝐚𝐧𝐲, 𝐢𝐧𝐝𝐮𝐬𝐭𝐫𝐲, 𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭, 𝐩𝐫𝐢𝐨𝐫 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞, 𝐚𝐧𝐝 𝐟𝐮𝐭𝐮𝐫𝐞 𝐩𝐫𝐨𝐬𝐩𝐞𝐜𝐭𝐬, 𝐚𝐬 𝐰𝐞𝐥𝐥 𝐚𝐬 𝐩𝐫𝐨𝐯𝐢𝐝𝐢𝐧𝐠 𝐜𝐞𝐫𝐭𝐚𝐢𝐧 𝐫𝐢𝐬𝐤 𝐟𝐚𝐜𝐭𝐨𝐫𝐬 𝐢𝐧𝐯𝐨𝐥𝐯𝐞𝐝 𝐰𝐢𝐭𝐡 𝐢𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠,

The SEC and state regulators want to be sure that you disclose what is required and don’t over-hype your company. The anti-fraud statutes state that you need to fully disclose all material information so that you are not defrauding or misleading investors.

The PPM is a very long legal document. It is recommended that you thoroughly review it with your attorney. If you don’t have one, try to review it completely to the best of your ability so that you fully know what you are getting into.

When the PPM is signed, you have officially committed to the investment. However, you are not 100% in yet until you complete the final step, wiring the funds.

10 Steps to Invest in a Real Estate Syndication (Step 5: Subscribe To The Deal)

Once you have reviewed all the specifics of the deal, attended the webinar and received answers to your questions, it’s decision time. Are you going to move forward?

Only you can decide if a particular project aligns with your individual investing goals, but in the event that it does and you’d like to subscribe to the deal, the next step is the paperwork.

First, you will need to sign up for the investor portal to review the documents and sign the Private Placement Memorandum (PPM). Once you have committed to a deal, the sponsorship team will send out an email with instructions on how to create a portal account so you can access the PPM.

Many syndicators use a secure online dashboard that keeps track of your investments and documents. It’s an easy way to communicate with the general partners, be kept up to date on the status of the property and manage your transactions and distributions as well.

The portal also houses many of your important documents, such as the OM, PPM, bank wiring instructions, K1 or other tax documents.

You can also set up whether you would like to receive your distributions via direct deposit or a check mailed to you. In the case of direct deposit, you can use the portal to directly link your bank account so your distributions get automatically deposited.

Transparency is important with any investment and this dashboard is a great way to see your money in action from the start to end of the investment.

10 Steps to Invest in a Real Estate Syndication (Step 3: Evaluate Potential Opportunities)

[𝐍𝐄𝐖 𝐃𝐄𝐀𝐋 𝐀𝐋𝐄𝐑𝐓]

After you sign up for an investor club list, when a deal is under contract and open to limited partners, you will likely get an email titled [NEW DEAL ALERT].

Most operators will schedule a follow up webinar or Q&A session so this is your first opportunity to review a general overview of the deal.

Here are some factors to consider:

𝙇𝙤𝙤𝙠 𝙖𝙩 𝙩𝙝𝙚 𝙡𝙤𝙘𝙖𝙩𝙞𝙤𝙣

– Is it an area that has great population growth and job/economic diversity?

– What kind of neighborhood is it in?

– Is it close to any employers?

– Is it convenient to shopping, grocery, restaurants, entertainment, etc?

𝙒𝙝𝙖𝙩 𝙞𝙨 𝙩𝙝𝙚 𝙘𝙤𝙣𝙙𝙞𝙩𝙞𝙤𝙣 𝙤𝙛 𝙩𝙝𝙚 𝙥𝙧𝙤𝙥𝙚𝙧𝙩𝙮?

– Is it a light value add?

– Is it a heavy lift?

– What’s the business plan?

– Are we looking to increase rents? If so, by how much and can the market support the increase?

𝙒𝙝𝙤 𝙖𝙧𝙚 𝙩𝙝𝙚 𝙡𝙚𝙖𝙙 𝙨𝙥𝙤𝙣𝙨𝙤𝙧𝙨 𝙖𝙣𝙙 𝙬𝙝𝙖𝙩 𝙙𝙤 𝙩𝙝𝙚𝙮 𝙡𝙞𝙠𝙚 𝙖𝙗𝙤𝙪𝙩 𝙩𝙝𝙚 𝙙𝙚𝙖𝙡?

– What is the track record of the general partners?

– How many of their previous deals have gone full cycle & did they hit their projections?

– Why made them pursue this particular deal?

𝙒𝙝𝙖𝙩 𝙖𝙧𝙚 𝙩𝙝𝙚 𝙧𝙚𝙩𝙪𝙧𝙣𝙨? 𝙃𝙤𝙬 𝙡𝙤𝙣𝙜 𝙞𝙨 𝙩𝙝𝙚 𝙝𝙤𝙡𝙙 𝙩𝙞𝙢𝙚?

– Is there a preferred return?

– When will distributions start & how often will they be received?

– What is the hold time for the project?

𝙒𝙝𝙖𝙩 𝙖𝙧𝙚 𝙩𝙝𝙚 𝙞𝙣𝙫𝙚𝙨𝙩𝙞𝙣𝙜 𝙧𝙚𝙦𝙪𝙞𝙧𝙚𝙢𝙚𝙣𝙩𝙨?

– Is this deal open for both accredited and non-accredited investors?

– What are the minimum/maximum investment amounts?

– Are there different classes of investors with different return structures?

𝙒𝙝𝙖𝙩 𝙞𝙨 𝙩𝙝𝙚 𝙩𝙞𝙢𝙚𝙡𝙞𝙣𝙚?

– Is there an investor webinar?

– When to sign the PPM?

– Where and when to wire funds?

– When is the closing?

𝙄𝙨 𝙩𝙝𝙚𝙧𝙚 𝙖𝙣 𝙞𝙣𝙫𝙚𝙨𝙩𝙢𝙚𝙣𝙩 𝙨𝙪𝙢𝙢𝙖𝙧𝙮 𝙙𝙚𝙘𝙠 𝙖𝙣𝙙 𝙋𝙋𝙈 𝙖𝙫𝙖𝙞𝙡𝙖𝙗𝙡𝙚 𝙩𝙤 𝙧𝙚𝙫𝙞𝙚𝙬?

If not at that moment, when will it be issued?

These are some of the key things you’ll see on a new deal alert. It’s basically the first communication that goes out that there’s a deal on the horizon. Sometimes in the first email, you will get the opportunity to “soft reserve”. You aren’t committed to the deal at this point, but you are just saving your spot since some deals can fill up in just a few hours.

Be sure to check out the additional blogs in this series to see all 10 Steps to Invest in a Real Estate Syndication.

10 Steps to Invest in a Real Estate Syndication (Step 1: Define Your Goals)

Step 1: Define Your Goals

Investing in a real estate syndication can be both exciting and daunting. Syndication is a great way to build your passive income by partnering with an experienced team

Of course, as with any investment, it’s important to research and gather information to help guide your investing decision.

So, to help you in your journey, we are sharing 10 Steps to Invest in a Real Estate Syndication. We will unveil each step over the next two weeks along with some suggestions on how to get started.

10 Steps to Invest in a Real Estate Syndication

Step 1: Define Your Goals

1. Cash Flow or Equity Upside?

Before you invest in anything, it’s important to clearly define your long term goals. Your life stage is a good starting point. Are you in your 20-30s and plan on working for a while? Or, are you in your 50-60s and closer to retirement? Do you want a higher cash flow for a consistent stream of income? Or would you prefer a higher upside that will potentially multiply 2-3x over 5 years? Sit down with your spouse or partner and think about what you want and the best fit for your current situation

2. Assess your Finances

Take a look at your finances and investment portfolios. Do you have a lot of cash sitting around in a checking or savings account? Are you too heavily invested in one investment vehicle? Would you like to diversify? Do you have a freedom number to achieve your goals? How much income do you need to make to cover your basic living costs? Think about how much you want to invest to start.

3.Are you an accredited or sophisticated investor?

Accredited investors meet one or more of the following criteria: an individual with gross income exceeding $200,000 in each of the two most recent years or joint income with a spouse or partner exceeding $300,000 for those years OR someone with a net worth of $1,000,000 or more, excluding their primary residence.

4. Do your homework

Start researching different syndication or investment groups. Start by meeting people. Join a Facebook group or investment club for passive investors. Start by looking up at their website and signing up for their lists. Book a call to get to know these individuals.

Ask questions about them and their experience or track record and pay close attention for clues on how they treat their investors.

𝙂𝙤𝙤𝙙 𝙨𝙞𝙜𝙣𝙨:

– They are taking an interest in you, and genuinely trying to help you with your financial goals

– They are open to build a relationship with you

– They are truthful and honest about themselves and their group

– They are not pressuring you to invest in anything

𝙒𝙖𝙧𝙣𝙞𝙣𝙜 𝙨𝙞𝙜𝙣𝙨:

– They don’t have time for you

– They rush the call

– They don’t seem interested in you and your goals

– Their only objective is for you to invest with them