Before reading this article, be sure to first read “Intro to Group Real Estate Investment” and “The Group Investment Structure”
A group investment in real estate (also called a Syndication) typically is considered a security under Securities and Exchange Commission guidelines. Because it is a security many laws govern how such an offering can be offered and who can participate in them. One option that allows anyone and everyone to participate in a group property investment is the full registration as a public offering with the SEC, unfortunately this involves months if not years and HUNDREDS of thousands of dollars just to register, and is expensive to maintain (think of Real Estate Investment Trusts on public stock exchanges). Obviously this prohibitive cost causes most group investment opportunities to not register for public sale; so most are set up as a private offering with the SEC under specific exemptions to public registration allowed under law.
“Private registration” usually requires that these opportunities are never advertised to the public and only offered privately directly to “friends, family, and business associates” that already have an established relationship with the sponsor before the opportunity is presented to the investor (So don't expect a sponsor to meet you, and in the same day discuss any specific opportunity they are working on, they have to establish a relationship with you first). In addition to this restriction, those that invest in the syndication must meet certain accreditation or sophistication requirements to make sure they are qualified and knowledgeable enough to evaluate a private offering themselves. So when inquiring about such opportunities, be prepared to fill out a simple form that asks about your financial status and expect the group sponsor to talk with you about your investment experience and general financial condition….They are required to do so under the law!
Once a sponsor has qualified you are an “accredited” or “sophisticated” investor, you can then start discussing the opportunities the sponsor has available and cal receive the Private Placement Memorandum (PPM) and subscription agreement. These documents basically amount to the business plan of the investment. What the property or properties are that the group is going to purchase, the financials, the operating plan, the risks, the expected profits, and all other information that could affect the investment are included in the PPM. The subscription agreement will outline how the group is structured (profit distributions/splits, lifetime of group, etc). These documents should be reviewed thoroughly before making your investment. Once you are ready, you simply fill out how much you would like to invest and send it to the sponsor.
Depending if the group is going after an already identified property under contract or if it is an opportunity fund where only the criteria of the properties that will be purchased is known, will determine when your full or partial investment will be wired to the group bank account, held in an escrow account until a property is identified, or if it is just a commitment to fund once property is identified (or some combination of the three).
Once you are part of the syndication, expect at least quarterly reports of income, expenses, market challenges, opportunities and the general performance of the investment. The better sponsors will also have the ongoing financials and anything else an investor may want to see available and open for the group to view at any time they wish….the more open the better!
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