If you answered “To get rich,” let’s stop right there for a minute.

Of course we all would like to get rich. But investments are tools that move you in steps toward your goal.

If your goal was to lose weight at the gym, you wouldn’t just walk into the gym and start randomly using the exercise machines and lifting free weights. Without a plan, you won’t progress toward your goal as efficiently as you could, and, worst case, you could end up just wasting your valuable time.

Each investment has pros and cons that should be considered as you fit them into your plan.

Real Estate has a several benefits. To get the most out of them you need to prioritize which one is the most important to you.

Cash Flow – Adding to or replacing your current income source(s).

Equity (Wealth) Growth – Multiplying the original amount you invested, usually through improving a property to force the value to increase. This is usually distributed when the property is refinanced or sold.

Tax Offsets – Using the depreciation on a new investment to offset the taxable profits made on another investment. This advantage varies by investor and the guidance from a CPA is recommended to determine if it can be used.

Experience – If you are thinking about sponsoring your own real estate deals in the future, you may consider investing in other sponsor’s deals to build your resume.

If you serious about investing in the next 12 months, we recommend you review all of these questions and then reach out to a qualified syndicator to see if your goals align with the types of deals they offer before making any commitments.

In the industry, we call this having a “substantive relationship” with a syndicator before you talk about investing in a specific deal.

It’s not only a wise thing to do, but it is required by law.

Think of it like dating to see if you are compatible before making a financial and legal commitment to a plan that you will be in for several years.

There are two parts to this question.

· How much money would I feel comfortable investing in a single deal?

· How much of the total money I have would I invest across multiple deals?

Be realistic on this one. It’s easy to dream big when you are thinking about the potential returns on a deal.

But, you also need to be able to make a quick commitment and have funds ready to transfer when a deal that matches your criteria is presented.

Every deal is different, but all deals require a minimum investment that could range from $10,000 to $50,000, depending on how big it is and how it is offered.

Part of building a trust relationship with a syndicator is being realistic and honest up front about what you could commit “tomorrow”.

This keeps the syndicator from wasting your time offering you deals you won’t or can’t invest in, and you don’t put an entire deal at risk by making a pledge or “soft commitment” and not being able to follow through with the funds.

Again, you want to be realistic with this answer. Funds can come from a variety of sources:

· Investment savings

· Selling stocks, bonds, or mutual funds you own

· A recent inheritance

· Excess profits from your business that you want to have work for you

· An old 401k that you can convert into a self-directed IRA (individual retirement account)

The key here is that the funds need to be accessible, since there is usually a 30-60 day window between the day an opportunity is announced to when the syndicator needs all of the funds deposited into the deal for the purchase.

If your plan is to use money from something that might take a while to sell, like a single family investment home you own, then you may want to consider liquidating that asset before you make a commitment to any deals.

The next three questions elaborate on this one as part of your personal “due diligence”.

You don’t have to be exact on this one. But, this question can be a great opportunity to figure out your net worth if you haven’t done that recently and get an idea of how much of your wealth you may be tying up in a deal.

We have a personal financial statement (PFS) spreadsheet available for your personal use.

Some syndicators may request a copy of your current financial summary before accepting your investment as part of their due diligence to protect smaller investors from over-extending themselves on a deal.

A copy of the first page of the PFS would provide this information without disclosing any specific financial details.

Repeat after me. Never, never use money that you keep in your emergency fund!

It may be tempting to put this money to use if it’s been sitting in your savings account for years earning 0.1% interest. But, odds are, as soon as you lock the funds up in a deal, something breaks and you’ll need the money.

Now, I will say that most, if not all, partnership agreements used on these deals include a section with rules for handling an unforeseen emergency that comes up with one of the passive investors.

I would read these sections carefully before investing any money I think I might need before the planned investment period is over.

Most syndications have a projected investment period between 3-5 years. Some that are held for cash flow might extend as long as 7-10 years.

If you have questions about why this is, please read our Roadmap #3 – The Timeline of a Deal.

You should think about these investments like buying Savings Bonds and not like buying stocks.

They are a buy to hold investment with larger potential returns because they aren’t bought and sold on the open market.

There are passive investment opportunities in a wide range of real estate investment types and sub-types.

Some syndicators focus on multifamily (apartment) buildings in a certain class or number of units.

Others might offer deals in self-storage, mobile home parks, office or industrial buildings, or malls. Some focus on specific geographic areas.

Larger syndicators may be more impersonal and only accept accredited investors.

If you have a preference in this area, you should make that know early to your prospective syndicator to make sure you are aligned.

“If you have to ask, you probably aren’t” is usually applicable here.

We have a whole roadmap dedicated to talking about investor types as defined by the federal SEC (Security Exchange Commission).

In short, an accredited investor is a person or an organization that meets the SEC’s definition of being financially wealthy or experienced enough to participate in any investment without the safety net of extra protections set up under the law.

For an individual to be considered an “accredited investor”, they must have either (1) a Net Worth greater than one million dollars, excluding the value of their personal residence, or (2) earn a minimum of $200K per year ($300K per year if married).

For individual investors that don’t meet these requirements, they must be able to show proof that they have prior experience with the investment they want to participate in, and have a pre-existing relationship with the syndicator before investing in a deal. Remember question #2 earlier?

These investments are multi-year partnerships. You wouldn’t marry a stranger. You shouldn’t invest with someone you haven’t taken the time to get to know and align your goals with.

Prior investment experience is not necessary, but could be helpful if you are not an accredited investor to show that you have enough financial knowledge to evaluate the risks and rewards of a deal before making an investment.

Which leads to question #11…

Most of us are not financial geniuses.

We may have a lot of experience managing our checkbook and handling credit, but our eyes quickly glaze over when someone puts a spreadsheet of numbers in front of our face.

Don’t worry, you’re not alone!

When an opportunity is offered, the syndicator is required to provide a detailed summary of their financial analysis of the deal, how the deal will be funded, their financial projections, and their risk management strategy.

If you are eager to get into a deal, but the numbers overwhelm you, consider who in your circle of contacts might be the person with the ability to review the financials and help you make a decision.

If you have a CPA or tax preparer, you may want to have them review the plan before you make a commitment.

Some people use passive investment as a stepping stone so they can one day sponsor their own deals. If you have this interest, let the syndicator know.

Sponsoring a deal can be a full time job for a team of people.

You may find the sponsor has room on their team for a minor GP so you can learn the business while taking some of the work off the lead partners.

So, you like spreadsheets, you understand the basics of how to passively invest, but you are a few (thousand) dollars short of the minimum investment requirements of the first deal you want to invest in.

Don’t fret!

You may want to consider pooling your money with other family/friends as your own private partnership to purchase a minimum share of the deal.

After all, that’s essentially what the syndication you want to invest in is – a partnership. You would just be a small partnership who is investing as a member in a larger one.

A small disclaimer on this point. This is not legal advice.

If you do want to explore this option with family or friends, we recommend you do thorough due diligence, put a proper partnership agreement in place to avoid misunderstandings, and seek legal advice for your location to make sure everything is in compliance.

You may not have three concerns, but think about what would make you hesitate if “the” deal was offered to you.

You should only invest once any concerns or questions you have are answered.

In this age of private information breaches and identity theft, many of us are hyper-cautious about sharing any personal or financial information with someone we just met.

But, as I mentioned before, investing in real estate is a trust relationship backed by a legal arrangement.

A good syndicator will take the time to get to know your needs, goals, and concerns before inviting you into any investment deals.

In order to do that, you need to be willing to be honest about these points with them.

I’m not saying you need to disclose anything more than your investment size and goals prior to committing to a deal.

But, the more accurate the information you share with them, the easier it will be to determine together if the future deals they offer you match your needs.

There are a number of ways to get in touch with syndicators and let them know you are interested in investing.

The larger ones appear on Google searches.

But finding smaller ones that offer deals to non-accredited investors take some more work, since by SEC rules, they can’t advertise.

You could ask around your circle of friends. You’d be surprised who they might know.

Check Meetup and see if there is a multifamily investor group in your area. Go to a meeting and introduce yourself.

The big thing, especially for non-accredited investors, is to get in there and start developing a relationship with one or more syndicator before you start investing.

Just remember, unless you are an accredited investor, you can't just walk up to a syndicator and ask to invest in their current deals. You must first establish that relationship.

Investing your time in building the right relationships with syndicators up front can open the door to many years of easy and profitable investments in cash flowing real estate deals to grow your wealth.