So you are interested in investing in a real estate syndication. Before you’re fully committed to it, you need to know several details about investing in these types of deals.
The process of investing in an apartment syndication is different from picking a stock or a mutual fund online. Unlike typical investments, there are hold times, barriers to entry, and a whole set of expectations that you need to know about prior to investing in a deal.
As a smart investor, you’ve got to know exactly why you’re choosing a particular investment in addition to the required credentials, the process, what’s involved, and how long you should expect to wait until payout.
Guess what? You’re in luck! That’s precisely what you’re about to learn!
How long does an apartment syndication last?
Unlike a stock, bond, or mutual fund that can be exchanged daily or more, real estate syndications come with required, projected hold times. While each real estate syndication is different, we typically see hold times of 5-7 years.
Apartment syndication deals have to allow time for property renovations, management changes, occupancy rate increases, and even market conditions to adjust.
This means that you should plan to invest your capital for 5-7 years (or the timeline stated on the investment summary for each deal), because you will not be able to take your money out until the asset is sold.
Who can invest in real estate syndications?
Now you might be wondering if there’s any red tape. Is just anyone allowed to invest in this sort of thing? It seems pretty exclusive.
Well, you’re kind of correct. A large majority of real estate syndications are open to accredited investors only, though some are also open to non-accredited, sophisticated investors (i.e., investors who can demonstrate that they understand real estate syndications and their risks).
In order to be considered an accredited investor, you must meet at least one of two requirements.
You must have at least $1 million in net worth, not counting your primary home.
You must make $200,000 per year as an individual, or $300,000 jointly with your spouse, have made this amount or more for each of the last two years, and intend to make this amount or more this year.
If you meet either one or both of these requirements, then you are an accredited investor.
However, if you’re not yet an accredited investor, Hansen Holdings also offers apartment syndication opportunities for you as a sophisticated/non-accredited investor.
Due to regulations from the Security Exchange Commission (SEC), these opportunities for non-accredited investors cannot be publicly advertised. Hence, we educate you on apartment investing to make you a sophisticated investor. Then we can offer you exclusive invitation only investment opportunities like accredited investors have access to.
What’s the process for investing in a real estate syndication?
So maybe you’re accredited, or maybe you’re not, but you’re really wondering HOW someone invests in these elusive apartment syndication deals that historically only the ultra-rich had access to.
Here are the basic steps for investing in a real estate syndication:
- We (Hansen Holdings) announces that the deal is open for funding, usually via email.
- You review what is called an” investment summary deck” and decide to invest.
- You submit your soft commitment, telling us how much you’d like to invest.*
- We hold an investor webinar, where you can get more information and ask questions.
- We confirm your spot in the deal and send you a “private placement memorandum” or PPM.
- After signing the PPM, you wire in your funds.
- We confirm that your funds have been received.
- We notify you once the deal closes and lets you know what to expect next.
*Real estate syndications are almost always filled on a first-come, first-served basis. Thus, you must provide us with a soft commitment to help us determine who’s interested in investing.
By submitting a soft commitment, you are telling us you’re interested in the deal and want to invest X dollar amount. The soft commitment does not guarantee you a spot in the deal, nor does it lock you in. You can always back out or change your mind later.
Pro tip: If you’re thinking about investing in a deal but aren’t sure whether you want to invest $50,000 or $100,000, go ahead and put in a soft commitment for $100,000. This holds your spot in the deal.
If you decide later that you only want to invest $50,000, you can easily decrease your investment amount. However, if you had put in a soft commitment for $50,000 and later wanted to increase it to $100,000, you might not be able to increase your amount if the syndication is already over-subscribed or filled up.
What happens after I invest in a real estate syndication?
So, you’re sure you want to invest in a real estate syndication, you do your research, and you lock in a deal. Now what?
After you’ve sent in your funds, your active participation is done. Now you can sit back and wait for the passive income to start rolling in.
Depending on the particular deal, you typically will receive quarterly cash flow distributions, and they may start immediately, or not for many quarters.
Regardless, you will start to receive monthly updates as soon as the deal closes. These monthly updates will include information on the latest occupancy and progress on the renovations.
Every quarter, you will receive a detailed financial report on the property, and every spring during tax season, you will receive a Schedule K-1 for your taxes, which will report your share of the income and losses for the property.
As your projected hold date approaches, the monthly information you receive will include information about the sale of the apartment. Once the asset sells, you can expect your original investment capital to be returned, plus any percentage of profit due to you.
Now You’re In The Know
At this point, you’ve gone from curious, to interested, to knowledgable about passively investing in real estate syndication deals. You’re fully informed about who can invest, the hold time, the process, and what to expect.
All that’s left to do from here is to actually select a deal and get involved! Join the Investor Circle to get started today!