How to invest in real estate syndications as a passive investor

So you’re ready to take part in your first real estate syndication investment. What’s the process? Passive investing might give you a hands-off approach to financial growth, but it still takes some initial work on your end. Here’s a breakdown of what happens during the investment process from the perspective of our passive investors.

We send you a new deal

There’s nothing quite like getting an email with details on a potential investment. Once we are under contract on a property, we’ll send out an email with highlights of the new deal and an invitation to a webinar that will provide more in-depth details to those who are interested.

Keep in mind that we only send out these emails if we have a pre-existing, substantive relationship with the investor, which helps us get to know each other more and works in favor of both sponsors and investors. If you’re interested in being considered as an investor, contact us! We’d love to be in touch.

Join the webinar to learn more

For each deal, we host a 30-60 minute webinar where we overview the property for any of our investors who are interested. This gives you a chance to hear why we’re excited about the deal and to ask any and all questions you might have.

Send us your soft commit

If you leave the webinar confident that the deal is a good match for your investment goals, tell us how much you’re willing to commit to the deal. You’ll want to act quickly, because we bring on investors on a first-come, first-serve basis so that we can keep the ball rolling on our end.

Once you send us that soft commit, we can save you a spot in the deal. Expect the investment minimum to be around $50,000, although it can vary for each deal. While the webinar is a crucial time to decide whether or not you want to invest, you can send a soft commit anytime after we send that initial email about the new deal. The sooner you commit, the more likely it is that you will have a spot before other investors step in.

Look over and sign documents

Once you’ve sent in your soft commit and have a spot on the deal, we will send you the legal documents. These include the PPM (private placement memorandum), the operating agreement, and the subscription agreement, which all outline the business plan, company structure, sponsor fees, profit splits, and potential risks.

This is where it’s strongly advised to have an attorney read through the paperwork; not just to do your due diligence before signing, but because these documents can be over a hundred pages long and have a lot of legal language. Once you have confirmed the details with your attorney, you’ll sign these documents and send them over to us. As soon as you sign, you are officially committed to investing in the deal.

Wire in your investment

The next step is to send your investment to us, usually by wire or ACH. If you send the money by wire, it’s important to confirm the wiring instructions with us to avoid wire fraud and to ensure that everything goes smoothly. Once we have received your transfer, we will send you a confirmation receipt.

We close the deal

If this is your first multifamily investment, congratulations! The ball’s in our court at this point. We complete our due diligence, secure financing, and get a property management company and contractors for any needed repairs or renovations. Once we close, we oversee these vendors to make sure that everything starts running smoothly for you and the other investors.

We send email updates

Every month, we will send you updates on the status of the property. You’ll get an overview of current rents, vacancies, renovation progress, and other notable events at the property.

Every quarter, we send more detailed updates that include financial statements. This will give you a more in-depth overview of how the property is performing as an investment. These updates serve the dual purpose of helping you understand how your investment is performing and keeping us accountable to you and to managing the property wisely.

You receive cash distributions

Here’s the part you’ve been waiting for! We will send you quarterly distributions from the cash flow on the property. It’s a great feeling to see checks from your passive investment hit your bank account and add up over time.

You receive K-1s

Every year, we send out K-1 tax forms in time for you to submit your tax return. These documents will detail your income and relevant deductions from your investment. Send it to your CPA with your other tax documents when you file your taxes.

Due to depreciation on real estate, your K-1 may show a loss even though you received income over the year because the depreciation offset your passive income. If you see this, don’t worry--this benefits your tax deductions and is just one of the unique benefits of investing in real estate.

Receiving proceeds from the sale of the property

When the time is right, we will decide to sell the property and distribute the proceeds among the sponsors and passive investors. If the business plan that we set in place is executed properly, then you will get a good profit in addition to the return of your initial capital investment.

The sale of the property marks the end of the deal, which means that it’s time to find another deal to invest in!

Deciding to refinance

Depending on market conditions, we might decide that the best strategy is to refinance a property instead of selling it. A refinance can get us better loan terms to improve cash flow for our investors, and it allows us to hold onto the property for a longer period of time, whether to continue making returns or to sell at a later time in a better market.

A refinance also allows us to return a portion of your initial investment back to you, which you can use to reinvest in a future deal or incorporate back into your finances.

Your role as a passive investor

Your biggest responsibility as a potential investor is to make relationships and decisions that will benefit your investments and finances. Establishing a relationship with us, evaluating the deals we send, and having an attorney you trust to go over legal documents will protect your capital and your goals so that you feel confident choosing to invest. Once you’ve committed to a deal, you can step into the “passive” part of the role as our team manages your investment responsibly.

Interested in investing?

I provide opportunities to passively invest in larger multifamily properties. To learn more, visit www.jheckrei.com. If you want to get started, join our investor club.