What to expect when you make your first syndication investment

OK, you've done your homework. You have narrowed down the options for your next investment from the infinite down to multi-family, self storage, and mobile home syndications. You've landed on multi-family apartment syndications. You defined for yourself a set of investment criteria. You found a reputable syndicator, you became a member of their investing "club," you talked to them for the requisite half hour or so on the phone, you asked them probing questions, and you gave your email address so you'd be notified of new deals as they become available.

One day, the perfect deal appeared in your email inbox. It had everything you were looking for: a multifamily apartment building with more than 200 units (check), located in the Sunbelt region of the United States (check), in a growing part of the state you had identified as your initial target market (North Carolina). It was a B-Class Value-Added property. The hold time was 5 years. The minimum investment was $50,000. The pro forma showed that you could expect 7% per year in mailbox money on your initial investment (about $300 per month) plus an overall return of about 2x in the five-year hold period (meaning you could expect to get your initial $50,000 back plus a total return of another $50,000). There would also be great tax benefits along the way.

What can you expect next?

  • Most syndicators will ask you to commit to investing in the deal a few weeks to a month or two before it is set to close.
  • You can expect to be sent a document or documents to sign. During this era of Zoom and pandemics, the technology of choice is often DocuSign or something like it.
  • You will be expected to read a large set of documents or a single long document in a short period of time. These get easier to read over time but at first they can be really daunting. You might consider getting a lawyer to review it for you.
  • Realistically, you probably won't be able to negotiate many or even possibly any of the terms if you are a fairly small investor (say, you are bringing $50,000 to the table along with 200 other investors in a big apartment building syndication--I know, when did $50,000 become "not a lot of money"???). But you should know what you are signing and you should definitely ask questions about anything that seems off to you. You might catch an error in the documentation (lawyers make mistakes, too).
  • You will sign the DocuSign, binding yourself to participate in the deal.
  • A few days or weeks later, you will be asked to wire in the money to the syndicator.
  • Wire fraud is on the rise. It is a good idea to call the syndicator to confirm the banking information over a live phone call before you send your wire. If you wire $50,000 to a fraudster by mistake, you are possibly not ever getting that money back again.
  • The syndicator will put your $50,000 with all the other money in a separate bank account for the new LLC they have set up for the deal you are investing in.
  • When the deal closes, your money, the money of other investors, and probably money from a bank (the proceeds of a mortgage loan) will be paid to the previous owner of the apartment building.
  • CONGRATULATIONS! You are now a part owner of a beautiful, soon-to-be improved apartment building in North Carolina. In a month or two, or perhaps six months or more depending on the deal, you can expect to receive your first mailbox money from the cash flow at the property!

Navigation aid: On to the next (Post #3): What to expect once you are invested in a syndication deal. If you want to backtrack, we encourage you to start with Post 0, our Start Here page, and then go on to Post #1 on how to get started.