5 Easy Steps to Passive Real Estate Investing Without Being a Landlord
We said “Good-Bye” to our single-family rentals back in 2017. The concept of wealth building is there…put 20% down, rent out the property and earn a little extra each month. We had amazing rentals (net cash flow of almost 50% of our rents collected) and yet we knew it would take years of slow growth and lots of headaches to really move the needle. In 2021, it hit us like a freight train…we needed to invest in multifamily to reach our wealth building goals.
However, when it came to investing in real estate syndications, the process was entirely foreign. Growing up in the lower middle-class, we had never heard of such a thing. Syndications are private investments opportunities, so we were not alone, and either are you if you’re just learning about them and their wealth-building power.
We dove headfirst into becoming a sponsor of these private investment offerings by finding unbelievable investments to purchase and reposition. With our years of real estate experience combined with over 15 years of business ownership, we could confidently and accurately analyze them.
It was our decision to be an active investor in this arena, but only because it played to our career strengths. We love how it allows landlords or would-be landlords to be TRULY hands off and make even higher returns than purchasing one house at a time and dealing with property management. If the idea of spending the same amount of money on 150 units vs. 1 house, while being completely hands-off and making great returns sounds appealing, this might be your next investment strategy.
Here are the basic steps of how to invest in a real estate syndication or fund:
1. Determine your investing goals
2. Find an investment opportunity that fits those goals
3. Soft Commit to invest
4. Review the legal documents
5. Close the deal
Step 1 ~ Determine Your Investing Goals
Once you decide you want to invest in a passive real estate fund or syndication, consider both your short-term and long-term investing goals so you can be sure to find investment opportunities that best fit your personal goals.
Think about the amount of capital you want to invest, the length of time you want that capital invested, tax implications, and whether you are investing for ongoing cash flow to supplement or replace your income or long-term appreciation and wealth creation.
Our Hospitality Reimagined Funds are specifically geared to provide both consistent cash flow and big long-term appreciation.
Step 2 ~ Finding an Investment Opportunity
Once you’ve determined your investing goals, it is time to find a deal that aligns with those goals. Surprisingly, there are many real estate syndication opportunities out there once you start looking. Not all are created equal. It is important that you know the track record of the operating team, have the chance to ask them your questions, and read between the lines of any investment materials provided.
Take a look at things like whether the business plan has multiple exit strategies, whether there are lots of signs of conservative underwriting (especially when it comes to things like rents and cap rates) and double-check whether the proposed business plan makes sense given the asset class, submarket, and current economic cycle.
Research market trends in job and population growth. Review minimum investment requirements, projected hold time, and projected returns. Finally, attend or review the investor webinar and make sure you get your questions answered.
Basically, at this stage, look for any reason not to invest your money.
Step 3 ~ Soft Commit to Invest
Once you’ve found an opportunity you want to invest in, it’s time to soft commit. Usually, opportunities are granted on a first-come, first-served basis, so you’ll want to take the time to ask questions and do your research before an opportunity opens up for funding.
Often, investment opportunities can fill up within mere hours, which is why it’s important to have completed your research. This way, when the opportunity opens, you do not miss your chance to invest.
The soft commitment does not lock you in; it merely saves you a spot while giving you more time to review the fine details of the investment.
Step 4 ~ Review the Documents
Once you’ve decided to invest, the first official step is to review and sign the legal documents.
These legal documents provide in-depth details about the investment opportunity, the risks involved, and your role as an investor. It’s imperative to gain a full understanding of the risks outlined, subscription agreement, and operating agreement pertaining to the investment.
Step 5 ~ Close the Deal
Once you’ve completed the legal document requirements, the final step is to send in your funds. The sponsor will provide wiring instructions via the legal documents and in the investor portal. Now, instead of sending $50,000 to the seller of a single property that you are in charge of; you are sending it to a proven, successful operator of many units that has every interest in making sure you get a return. Usually, this a “preferred return” structure, and they will not make a dime until you do! Sponsors also have a reputation to uphold and that carries a lot of weight in protecting your investment.
Conclusion
We hope this provided enough of a “ah-hah” moment for you to consider investing passively through syndications and/or real estate funds. Maybe you will be like us and want to sell your entire rental portfolio and say Good-Bye to the headaches. (Before you do that, make sure you talk to us about a 1031 exchange!)
Also, make sure to check out our FAQ’s.
We almost always have a fund or syndication for you to be a part of at any given time. Check out the current offerings by creating your free account on our investment portal.
Don’t worry if this process still seems a bit daunting. We’ll be with you every step of the way as you invest in real estate with us. You can schedule a meeting with Andrea to discuss your goals, learn more about a particular offering, or just to see if we are a compatible fit!
