The 5 Steps It Takes to Invest in a Real Estate Partnership
For many people, investing in a commercial real estate partnership will be a new endeavor. We outline the process so that you can confidently invest in your first partnership, with the right due diligence and avoiding any stumbling blocks along the way.
The steps it takes to invest in a partnership
Here's what to remember as you pursue an investment in a real estate partnership.
1. Get to Know Your Partner
The first step is to get to know the general partner, or sponsor, you are investing with. At Rev Projects, we like to arrange a phone call or meeting to understand your investment goals, whether our projects would be fitting for you, and your accreditation status. Investing in private real estate is not for everyone, and we want to ensure that each investor is making the best decision for themselves and their family. We aren’t private wealth advisors, but we can offer some guidance on what to look out for as you add real estate to your portfolio. Use a meeting like this to get to know your partner and ask any questions on your mind before investing. To learn more what kinds of questions to ask a sponsor, take a look at our post on how to evaluate a real estate sponsor.
2. Review Investment Offering
The project sponsor will often present the investment offerings in either a Private Placement Memorandum (PPM) or an offering memorandum (OM). We at Rev Projects produce an OM, since all of our investors accredited and our offerings are registered as 506(b) offerings by the SEC. Both of these documents will detail the property summary, business plan, principal terms, and other risk factors.
Review the documents diligently and make note of anything that stands out to you or raises questions. While the OM will project the expected rate of return and waterfall distribution, investors should understand that these numbers are projections and are not guaranteed. It’s vitally important that you understand the terms presented in these documents, and review it with the sponsor before you commit to the investment. Understanding the risk factors will help you decide whether the project is the type of risk you want to introduce to your personal portfolio.
At Rev Projects, we have an online investor portal that allows investors to download and review all of the documentation, with maps, links, pictures, and videos.. It’s an excellent way for investors to explore a new investment offering. Each of our investors is provided an account to login, allowing them to view projects they have previously contributed to and view future Rev Projects investment opportunities.
3. Follow Up
Ultimately, a new investor will want to ask their sponsor as many questions as possible until they feel confident enough to make a decision. A good general partner will make themselves available and more than willing to tackle any questions about the deal.
At Rev Projects, we hold conference calls, webinars, and Q&A sessions to ensure that all investors understand the strategy and terms behind the deals. For investors who live nearby, we offer in-person tours of prospective properties, which facilitates face-to-face meetings so we can more effectively help you with all your questions. We believe in total transparency on all aspects of a project. We want to understand our investors and their needs, whether that means diving deeper into the offering memorandum together, touring the project in person, or providing backup for our analysis.
4. Execute Documentation
In terms of legal documents, real estate partnership deals usually require both parties to sign a partnership agreement, oftentimes in the form of a LLC agreement. These legal documents are the industry standard for bringing investors into a deal.
Make sure to read carefully, as these agreements will also detail the legal terms of an investor’s ownership shares. In addition, there is typically a subscription agreement to formally subscribe to the investment, ultimately formalizing your execution of the LLC agreement.
We recommended that you consult with your sponsor about the particular legal documents you will need to execute. If there are any documents that are more complex, you should consult a legal advisor to ensure that the terms are fair.
5. Fund Contribution
By now you’ve made it past the most time-consuming steps. The last step to investing in the deal is to fund your investment with your contribution. Oftentimes, the project sponsor will accept either a wire transfer or check.
Be considerate of the project’s closing timeline and fund your contribution punctually. The sponsor is managing a lot of moving pieces with the acquisition of the project, and it can’t be held up by delays in funding. And of course, check on where contribution is being funded--there should be a bank account established in the name of the project entity, usually an LLC.
To consider future investment opportunities with Rev Projects: Get Started Here!