By now you are convinced that multifamily is an effective wealth-building asset and you are trying to figure out how to do your first passive investor deal. The following simple steps should be the bridge from where you are to becoming a passive investor.
1. Get Educated
Nothing beats education. Continued growth in understanding of the multifamily asset class is important even for passive investors. Passive investors should not be any less knowledgeable because they are simply passive; in fact, since they are entrusting their hard-earned money with a sponsor, it is critical to understand the fundamentals of multifamily investing: how the deal works, typical holding periods, what drives equity growth and assumptions in the underwriting underwriting, and more. To help expedite this learning, I created the Passive Investor Startup Guide, a free educational guide for new passive investors. You can download it here.
2. Develop Relationships With Sponsors
The most critical ingredient of any passive investment is trust. Trust is more important than the deal itself, so start today getting to know sponsors, who they are, their investment criteria and how their goals and mission aligns with yours. Check out these posts to help you out.
- How Passive Investors Can Find Great Sponsors
- What to Look for In Potential Sponsors
- 5 Great Questions for Potential Sponsors
3. Line Up Funds for Investing
Don’t yet have funds ready to deploy for investing? Now is the time to ensure that you are ready for the right opportunity. Otherwise, that opportunity could be missed. Create a savings plan for cash or make a plan to roll over old retirement funds that can be used to invest.
4. Get on Your Preferred Sponsors’ Mailing Lists
Once you have held a few calls to understand whether passive investing is right for you and established a relationship with a potential sponsor, you will be on his or her mailing list and this is how you learn of new investing opportunities. Vet these opportunities against your criteria, join the webinar (most sponsors will hold one to detail the investment), ask questions for clarification anything that is not clear or that you would like to know, such as on the market, asset and underwriting. It is likely that you will not invest in your first presented investment opportunity. But each webinar, email, call is an educational moment that brings you closer to your first passive investment.
5. Send Your Commitment and Celebrate
After you have selected a passive investment opportunity that makes sense to you, congrats! You are well on your way. You are not done. You will need to send your soft commit, sign a subscription agreement and wire funds when the sponsor tells you to do so. From there, you are in on the deal as a limited partner and well on your way towards your passive investing goals. You will likely receive updates from your sponsor monthly or quarterly, depending on the process, and updates on the timing of the first and subsequent distributions to investors.
Bonus Step – Track Your Investment
We always try to think ahead here. After investing in the deal, pay attention to the reports from your sponsor. These are great sources of information that make you a better investor and allow you to understand the performance of the asset: How renovations are going, improvements to occupancy and collections, etc. Read, learn, ask!
Passive Investor Startup Guide
If you have not downloaded this guide, this is your next step! In one our two reading sessions you will expedite your learning about multifamily real estate, financial freedom through passive investing and how to become a passive investor. Download it here.
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– I Rolled My 401k Into eQRP to Passively Invest In Apartments
Rodney Robinson II