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The Multifamily Investment Process From a Passive Investor’s Point of View

Updated: Mar 7, 2021

I’ve worked with many passive investors on a variety of multifamily properties over the years, and I’ve noticed that those who are new to multifamily investing aren’t aware that there’s an actual process to follow before agreeing to the deal and submitting their funds. To make it easier for new passive investors, I’ve developed a step-by-step process that will make investing in real estate syndication much easier.

Step #1: Navigating and Signing the PPM

Before I discuss the PPM (Private Placement Memorandum) and how it applies to your investment, I’d like to suggest a few other steps that you should take before you agree to anything. You’ll want to start by reviewing the investor package, which includes valuable information about the deal, the syndicator and his or her past projects, along with information about the team that’s in place to execute the business plan.

You’ll also want to do some due diligence on the market that the property’s located in. It doesn’t matter where the property is located, as long as you’re investing in a strong market. Syndicators are purchasing properties all over the country; so don’t be surprised if you receive a deal that it’s on the other side of the U.S.

How can you determine if the property is in a strong market? Is it showing population and job growth? What about rent growth? Does it have a high median income? What is the average vacancy rate in the city? Finally, you’ll want to be sure that it’s located in a landlord-friendly state, meaning there isn’t any rent control in place or that evicting a non-paying tenant doesn’t require an act of congress. You don’t want to be involved in a long and costly legal battle to evict a tenant.

After vetting the market, it’s time to turn your attention to the PPM. Be prepared to wade through a lot of information, as a PPM is a lengthy document. The PPM has four main sections, and each one has its relative importance.

First up is the Offering, which includes information about the general partner, a description of the property and the syndicator’s business plan. Often, you’ll find the Offering attached as an appendix to the PPM.

The second section is Warnings and Disclosures, outlining the risk factors that the investment includes, such as losing money or not meeting the monthly projections. In all probability the syndicator doesn’t expect this to happen, but the warnings are there to ensure that the investor is willing to accept a certain amount of risk when investing.

The third section will cover Distributions, which includes descriptions on the type of shares involved. An example would be Class A or Class B shares, and who is given those shares. It’s often based on the deal’s equity split. There will also be a distribution schedule, which discusses when the Limited Partners are paid, which is either monthly or quarterly. I prefer to pay monthly.

The final section covers the Operating Agreement. Remember, the Limited Partners and General Partner are all members of an LLC, and the Operating Agreement discusses how the company is run. If you’ve gone through the PPM and did the proper vetting of the property and the syndicator, it’s time to sign the PPM. Before you do, however, there are a few key issues to consider that are designed to help protect you in case something goes south on the deal.

One of these is whether or not you’ll be able to sell your shares in the LLC if you change your mind after signing the PPM. Some syndicators will let you sell your shares, but often with limitations. You may find this information in the PPM, but not all syndicators place it there. Be sure to ask questions about this if it isn’t spelled out. Additionally, there are some legal constraints on the minimum hold period before a passive investor can sell their shares, so you may not be able to sell them immediately.

Another part the PPM covers is the fee structure and the equity split. Syndicators earn money through fees and from income from an equity split. In exchange for their knowledge and hard work, syndicators get a percentage of the equity when it sells. Industry standards are 30%-70%, and 20%-80%, with the Limited Partners receive the higher percentages of equity. If you have any questions, ask the syndicator.

In addition to the equity split, the syndicator can earn fees, which depends on the type of property and the way the deal is structured. There is a 1% to 2% transaction fee, which compensates the syndicator for their work.

You must remember that there is a tremendous amount of work involved in putting a multifamily investment together, and it requires a substantial amount of knowledge on the part of the syndicator. It can take up to 6 months or longer to complete the deal, and the syndicators have operating and overhead expenses during this time. That includes travel, hotels, employee salaries and other overhead.

There is also an asset management fee, which is usually 1% to 3% of the effective income. This is to cover the syndicator’s time to find and oversee the property management company that manages the asset. The syndicator has extensive knowledge about the market, vacancy rates, rent structures and where to find quality tenants. Experienced syndicators also meet with the property management company on a regular basis. This fee is designed to cover their time and expenses.

When the property sells, the syndicator also receives a disposition fee, which is generally 1% to 2% of the actual sale price, and is used to cover the syndicator’s time doing a market analysis and working with a broker to sell the property.

Finally, look at the indemnification of the Sponsor. Just review the PPM to be sure that the syndicator isn’t indemnified for all causes, as it would leave the investors liable. If all is as it should be, you can sign the PPM.

Another important document is the Operating Agreement. This is the document that the syndicator (General Partner) files when he or she registers the LLC. It basically describes where the LLC was formed, who manages the LLC, his or her compensation and responsibilities, along with the different member classes, voting rights, and the distribution of funds to the Limited Partners.

Step #2: Wiring the Funds

After you sign the PPM, it’s time to fund the deal. There are usually two main ways to invest in the deal, either by a bank wire or by sending a check. Once you either wire the funds or submit a check, you should receive a written confirmation that you’re an investor in the deal, which will include the amount you’ve invested. Save this for your records.

Step #3: Receive Confirmation for Your Share in the Deal

Once the funds are accepted, you should receive a written confirmation from the syndicator, indicating the amount you invested and the identity of the property you invested in. This should be saved for your records as well.

Step #4: Get Periodic Updates from Your Syndicator

Once all investors wire the funds, the syndicator pays the seller and the deal is completed. This is the closing. Once the deal is closed, you will receive an email from your syndicator with the good news. After the closing email, you should expect a monthly or quarterly update from the syndicator. At Blue Lake, we send out a monthly emails with updates on renovation, occupancy rates, tenant events, etc. We also add the financials every quarter. This way, you can stay up to date with what’s happening with your investment.


Being a part of a multifamily investment is an exciting move for passive investors, but there are some steps that should be taken before wiring any funds and signing the PPM. The first step is to navigate through the PPM, and doing some due diligence on the deal. In addition to vetting the syndicator, you should make sure the market where the property is located is a strong market. That means it has job growth, population growth, and rent growth. Also, it should be located in a landlord-friendly state, without rent controls or laws that make it difficult to evict non-paying tenants. Check the fees the syndicator will receive, as well as the equity split between the limited partners and the General Partner. Be sure the Sponsor isn’t indemnified for all causes, as it would leave all investors liable. Also check on the ability to sell your shares in the LLC, and what the requirements are if it is allowed. If everything is as it should be, sign the PPM, wire the funds, and you’ll be a passive investor in a multifamily property!

Want to Invest with Ellie?

If you are interested in learning more about passively investing in apartment buildings, click here to schedule a call with Ellie Perlman.

About the Author

Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital at and learn more about Ellie at


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