Passive investment can be a perfect way of diversifying your investment for even better returns. Passive investment in real estate particularly , if you invest wisely, can be a source of constant cash either as a supplement or replace your main source of income altogether.
It isn’t a surprise that a good number of passive investors gave up their lucrative jobs and focused their attention on passive investment. Whether you are a newbie in passive investment or a seasoned investor, this article is surely going to provide valuable information regarding the passive investment process. Discussed below are the steps you should take when you encounter an opportunity to join passive investment. Read on!
Step One: Decide Whether you should Invest in Real Estate
Basically, this is the most critical step of all, answering the question ‘should I invest in real estate?’ There are so many other things you can invest your money, from agriculture to other income income generating ventures.
This is a question no one else is going to answer but you, the decision is in your hands and you have to make it. You have to go back and look at your overall financial capabilities and decide whether you want to venture in real estate investment or not. Assess the goals you want to achieve and find out whether investing in real estate will help achieve them.
Step Two: Determining Your Investment Goals
What do you want to achieve with your investments? This is the step you should think about what you want to achieve out of your investments. Are you seeking for a long or short term investment? Do you want to gain a large sum of profit at once or a steady stream of passive income over a long period of time? How much are you willing to invest and for how long? These are some of the many questions you are supposed to answer in this stage.
Be it investing in your own rental apartment or through a self help group, you have to figure out what you want your end game to be. If you chose to invest in an asset that gives you a high amount of money at a go, you have to ensure you have mechanisms in place to help you achieve it.
On the other hand, if you want more of a set it and forget type of investment, real estate is the perfect option for you. This can be best achieved through investing your money alongside other real estate investors, let a manager take care of the asset and do business plans for you.
Step Three: Find a Fitting Investment Opportunity
At this stage, if real estate syndication is what you have decided to venture and invest in, the next thing you ought to do is find a real estate investment opportunity that suits you the best. There exists various real estate syndication projects that you can invest in, just like it is with different real estate assets. Value-add assets, turnkey syndications as well as ground-up construction are some of the projects you can venture in.
To get a good understanding of the project ,you should look at some key aspects regarding it. These include the Executive summary, investor webinar and the full investment summary. These aspects will give a real picture of the asset, its business plan, projected financials among others.
It will depend on the type of material you are looking for. Some investors start by assessing who is running the project and ensure they have a solid track record and they are trustworthy. It is very possible to give an excellent project to an incompetent team and as expected, they will take you down with them. You can also give a struggling project to a competent team and they will turn it around.
You should do your own research about the project and find out whether it makes any sense, and where it lies in the economic circle. A project that requires a higher starting capital and significantly lower returns is a risk. Go for a project that will benefit your long term goals and has higher chances of good returns. Once you have justified that the deal is indeed worthy your investment, go ahead and invest.
The secret to getting the best project is through research, the more you research, the more you are likely going to land what you are looking for.
Step Four: Keep Your Spot in a Deal
In real estate syndications, you should note that the earlier you come across a deal, the better for you. First-come ,first-served is how it works here. A competitive market with strong deal sponsors can a be very tricky to trade in. Good deals attract a lot of people and it isn’t surprising to see multi-million-dollar investment opportunities fill up in no time.
This is the reason you need to your research well before making your investment. Know what you are looking for and what you want to achieve out of your investigation. Proper research will always put you in a better position to find a good deal when it’s still new.
Many times, you will be given an opportunity to book your spot through a soft reserve amount. This is meant to hold down your spot in the deal as you go through and review other investment materials. If you review the materials and find out it is not lucrative as you thought, you have the liberty to back out without facing any penalty.
Step Five: Reviewing the PPM
PPM refers to Private Placement Memorandum. Upon deciding to venture in a deal you’ve settled on, the first step towards making it official is through signing the PPM. This refers to a legal document that is oftentimes, very lengthy and gives detail about the investment opportunity, your role as the investor as well as the risks involved.
This is not a type of document you can review while having fun, it needs utmost seriousness at it carries important information regarding your asset. When signing this document, you will need to decide how you prefer to hold your shares and the entity it should be named.
Step Six: Send in Your Funds
This is the last step. Upon completion of the PPM, the final step will be sending in your funds, also known as the amount you are willing to invest.
You have the option of either wiring in your funds or sending it through a cheque. It is my hope that the above procedure will help you understand the process of investing in real estate syndication.