Syndicates commonly use a Private Placement Memorandum in real estate to help investors analyze potential investment opportunities. Why should you be interested in real estate syndications? There are plenty of reasons!
The biggest benefit is that syndication projects allow “small-time” investors to participate in larger-scale real estate investments, such as commercial buildings, apartment buildings, land/developments, etc.
Investing with a real estate syndicate also offers the added benefit of utilizing the syndicate’s experience, expertise, connections, and relationships in the real estate industry.
Finally, investing in multiple syndications can add diversification to your portfolio. To illustrate this, consider the following two scenarios: 1) You invest $50,000 in five asset classes allocated in different markets. Or 2) you invest in one apartment building for $250,000. The safer investment would obviously be smaller investments in many projects.
Quick Answer: What is a Private Placement Memorandum in Real Estate?
A private placement memorandum real estate (PPM) is a comprehensive legal document that sponsors use to present syndication investment opportunities to qualified investors. Think of it as the investment’s blueprint—it outlines everything from the business plan and financial projections to fee structures, distribution waterfalls, risk factors, and investor qualifications. The PPM is required by SEC securities law and serves as your primary due diligence tool before committing capital to any real estate syndication.
What’s Inside a Real Estate PPM
- Offering summary: High-level overview of the investment opportunity
- Legal disclosures & investor qualifications: SEC Regulation D requirements (506b or 506c) and accredited investor standards
- Property description & business plan: Details on the asset, location, and value-add strategy
- Financial terms: Minimum investment amounts, expected returns, preferred return rates, and profit splits
- Fee structure: Acquisition, asset management, disposition, and construction management fees
- Distribution waterfall: How cash flow and profits are allocated between investors and sponsors
- Risk factors: All potential risks and conflicts of interest disclosed in detail
- Company & operating agreements: How the entity operates and investor rights
How to Read a Private Placement Memorandum Effectively
When reviewing what is a PPM in real estate, focus on three critical areas: the offering terms (minimum investment and expected returns), the distribution structure (how and when you get paid), and the risk factors section (what could go wrong). Pay close attention to how fees are structured. If total fees consume a large portion of projected returns, that’s a red flag. Always have your financial advisor, CPA, and attorney review the PPM before investing.
The PPM comes with supporting documents, including the subscription agreement (your legal commitment to invest) and the operating agreement (which defines how the real estate syndication company operates). Understanding how to read a private placement memorandum and its companion documents is essential. These aren’t marketing materials designed to persuade you; they’re disclosure documents designed to inform you about real estate PPM requirements and protect both parties legally.
What is a Private Placement Memorandum in Real Estate?
A real estate Private Placement Memorandum (PPM) is an offering document privately held companies use to get investors to buy into a project. PPMs are vital tools for raising capital to fund larger multifamily properties or commercial buildings, for instance. They outline and describe the terms of an investment opportunity, including project details, eligible investors, timeline, anticipated return on investment, legal disclosures, potential risks, and more.
The fund managers are responsible for putting together a project’s PPM and presenting the offering documents to qualified investors.
Types of Real Estate Private Placement Memorandums
While there are several types of Private Placement Memoranda in real estate, the two main types are Equity PPM and Debt PPM. The type of offering or its purpose determines the type of PPM.
- Equity Private Placement: An equity offering is when a company allows investors to buy shares. With an LLC (limited liability company) or an LP (limited partnership), the offering may be to invest in rental units or a company’s limited partnership interest.
- Debt Private Placement: A debt offering is when a company sells a bond or note to investors. The company will explain the terms of the security being offered, such as the interest rate and the maturity date of the loan.
What is in a Private Placement Memorandum in Real Estate?
Investors are only responsible for reading and understanding the PPM to ultimately decide whether to move forward with the investment or not. While there are no finite placement memorandum real estate requirements, they generally should include the following sections with project information and specifics:
Summary of the Offering
A Private Placement Memorandum, as a whole, is meant to paint a picture of the investment. In the Offering Summary, found at the beginning of the PPM, is an overview of the project, highlighting the most important details. After reading the offering summary, the investor should have a good idea of what the overall investment entails.
Legal Disclosures & Investor Suitability Standards
Legal disclosures would include Regulation D disclaimers in accordance with SEC guidelines. Regulation D 506 exemptions control who can invest in the project or what type of investor the project is open to. The reason the SEC sets these standards is to protect investors who may not know what they’re doing.
Investor Suitability Standards are as follows:
Rule 506c
The investment is open only to accredited investors, and project details can be discussed with non-members (of RealWealth™ or no prior relationship required).
Rule 506b
Under this rule, the project is open to accredited investors and 35 sophisticated investors. Sophisticated investors must have a pre-existing relationship with the syndicator, where they can essentially “vouch” for your financial status and investing know-how.
Company Information, Fund Manager & Objectives
The real estate syndication company making the investment offering should provide its information and detailed objectives explaining the purpose and expectations of the project. The fund manager’s information and responsibilities should also be included in this section.
Property / Project Description & Note Agreement (if applicable)
What type of property is the offering for, where is it located, and what are the terms of the Note agreement (if the investment is being financed)? All of these details should be included in the PPM, along with the maturity date of the loan (if applicable).
Offering Terms
The offering terms and conditions will list the minimum investment amount and the expected return to investors. These terms will also define who is eligible to participate in the investment opportunity.
Investor Qualifications
Investor qualification or suitability standards will outline who can invest in the project and who can’t. For example, a project may be open to accredited investors only. While other projects may accept both accredited investors and up to 35 sophisticated investors. The subscription booklet (more on that below) should come with an Investor Suitability Questionnaire, which helps determine if you qualify as an accredited or sophisticated investor.
Location of Funds & Timing of the Offering
This section will explain where the funds will be kept during the investment period. The real estate Private Placement Memorandum should be completely transparent about the funds, where they will be held, and the timing of the offering.
Use of Proceeds
The use of proceeds outlines how the funds will be used. The proceeds could be used to buy an apartment building, a commercial property, or single-family rentals.
Allocation of Distributions, Profits & Losses
This section will outline how distributable cash will be allocated, i.e., to investors and the fund manager. The interest percentage investors will receive should also be outlined in this section of the real estate Private Placement Memorandum. It should also include expectations of when cash should start to be distributed to investors. Any profit-sharing restrictions should also be stated here.
An investment is only as good as its return. Investors should pay attention to how the expected return on investment (ROI) is presented and the details therein. For example, the Private Placement Memorandum in real estate may show a 15% expected return, but look at the fine print to make sure the actual cut for investors is versus the manager. There should be a clear distinction regarding the allocation of distributions.
Manager’s Compensation
The manager’s compensation section should clearly state how the manager will be compensated throughout the investment period. All reimbursements and profits to the manager should be described in detail.
Risk Factors and Conflicts of Interest
Every type of investment usually comes with some level of risk. This section should include a list of potential risk factors associated with the investment. Any conflicts of interest regarding the project, manager, and investors should be disclosed in this section.
Liquidity and Transferability
The liquidity and transferability section should set an expectation about how liquid the investment opportunity will be. For instance, buying rental units is a relatively illiquid investment, at least in the short-term. So those interested in investing should know that their money will be tied up for the length of the investment term. There may be an option to transfer or sell the units after a certain period of time. All of these terms and conditions should be laid out in this section.
Duration of the Investment
Investors should know how long the investment is expected to last. If a Note is being used to finance the project, the length of the loan should be disclosed here. Also, any prepayment options and/or penalties should be explained in the duration of the investment section.
How to Invest
Investors interested in joining the project will then follow the steps for how to invest. Typically, potential investors will be asked to fill out an offering package, subscription agreement, and perform their own due diligence. We’ll go into more detail about these documents and how to read them below.
Tax Filing Information
If you decide to invest in a syndication or group project, a Schedule K1 tax document will be sent to you annually. This will lay out any profits, losses, deductions, and credits, and will help file your taxes and investments properly.
How to Read a Real Estate Private Placement Memorandum (PPM)?
To help investors understand what they’re reading and potentially signing up for, fund managers will sometimes include a page explaining “how to review this offering” as part of the Private Placement Memorandum.
If you’re a member of RealWealth®, you’ll receive a one-page reference for any questions you may have while reviewing the PPM. There are also numerous online resources, including private placement memorandum templates and samples.
The Offering Package
The Offering Package is all the documents the fund manager deems relevant for investors to know before investing.
The Private Placement Memorandum
As we learned earlier in this article, the memorandum includes important legal disclosures, company structure, distributions, risks, etc.
The Company Agreement
This agreement details how the company will be run. It describes the duties, responsibilities, and rights of investors and the manager. The Company Agreement includes in detail how the company will operate, how meetings and votes will be held, how cash distributions will be made and when, where to access project books and records, and more. It’s a legal document that all parties must agree to and adhere to in order to participate in the investment.
The Subscription Booklet
In order to buy into a project, investors must fill out a Subscription Agreement and Booklet. This document also has legal implications and asks for investors’ representations and warranties in order to qualify. In other words, the Subscription Booklet determines if a person meets the suitability standards to invest in the offering. Investors will also include how much they want to invest in the project.
Investors Must Conduct Their Own Due Diligence
No matter how much experience you have investing, your financial advisor, CPA, and lawyer should always review an offering before moving forward. Consulting with a financial expert who specializes in real estate will be your best resource as you navigate the waters of investing.
Investor Tip: It’s important for an investor to understand both the real estate Private Placement Memorandum and Operating Agreement (also called the Company Agreement ).
Business Plan vs PPM vs Prospectus
A business plan is more of a marketing tool to promote your company and future plans. A Private Placement Memorandum in real estate isn’t meant to persuade or promote; rather, it is descriptive, discloses information, and focuses on the value of the investment.
A prospectus is similar to a Private Placement Memorandum, but is used in the publicly-traded sector. For example, when a publicly traded company lists on the stock exchange, a potential investor would find all relevant information in the Prospectus.
Final Thoughts
Understanding a real estate Private Placement Memorandum, what it is, and how to read one, adds another tool to your real estate investing toolbox. While combing through the details of a Private Placement Memorandum is one of the less glamorous parts of real estate investing, it’s one of the most important. If you know how to read and interpret a Private Placement Memorandum in real estate, it will help you decipher a good investment from a bad one.
Frequently Asked Questions
A real estate syndication is a partnership in which multiple investors pool their capital together to purchase a property or project that would be too expensive for them to buy individually. With this investing strategy, you are a passive investor: you contribute funds and receive a share of the returns, while the sponsor (such as RealWealth Developments) handles all operations, including acquisition, management, and eventual sale. Depending on the deal type, investors may receive distributions from cash flow, a lump-sum payment upon sale, or a combination of both. A real estate syndication strategy allows you to invest in institutional-quality real estate without active management responsibilities while benefiting from tax advantages and appreciation potential. Get the full breakdown of how syndications work→
Syndications are typically illiquid investments with a 3–7-year holding period. Some may be shorter or longer depending on the project.
Most syndications require a minimum investment of between $50,000 and $250,000. The amount depends on the sponsor and the size of the deal.
We put together a free webinar that walks you through the whole thing. You’ll see examples of real syndications, learn what makes a good sponsor versus a sketchy one, and understand how the money flows. Watch our free real estate syndication webinar→
For 506(c) offerings, which RealWealth Developments specializes in, you need to be an accredited investor. For a 506(b) deal, you do not have to be an accredited investor. According to the SEC, an accredited investor must have at least $200K in annual income (or $300K if married) or a net worth of at least $1 million, excluding your primary residence. Why? They’re trying to protect people from jumping into investments they don’t understand. Learn exactly what it takes to qualify as an accredited investor→
Passive investors typically receive cash-flow distributions from rental income or property sales in development projects (monthly, quarterly, or annually) and a share of profits when the property is sold or refinanced.
A Private Placement Memorandum (PPM) is a comprehensive legal document that outlines the details of a real estate syndication investment. This includes the business plan, financial projections, fee structure, distribution waterfall, and potential risks. The PPM is required by securities law and must be reviewed before investing, as it contains critical information about how your capital will be used, when you can expect returns, and what risks to consider. While it may seem lengthy and technical, reading the PPM carefully ensures you fully understand what you’re investing in and helps you make an informed decision. Here’s how to read and understand a PPM→
Your preferred return, which varies by deal structure, is typically between 6% and 12% (and has been higher on some RealWealth Development Deals). It is the amount you receive before the sponsor receives any proceeds beyond their fees. A waterfall structure determines how profits are split between the sponsor and investors throughout the life of the deal. Many real estate syndications use tiered waterfalls, where the split might start at 70/30 (investor/sponsor), but once the sponsor hits a particular IRR hurdle, it shifts to 50/50, meaning sponsors take a larger share of profits as performance improves. At RealWealth Developments, we keep the profit split consistent throughout the entire investment without any hurdles, so investors maintain their full percentage of returns from day one through exit, which maximizes your share of the upside. Learn how preferred returns and waterfalls protect your investment→
Underwriting is just fancy talk for “did they do the math right?” Looking at their assumptions is key to underwriting. For example, are they projecting rent increases of 10% a year in a market that’s only been increasing by 3%? That’s a red flag. Conservative sponsors might show you lower returns, but those numbers are way more likely to happen. Ask yourself: if rent growth slows or vacancies rise, does this deal still work? Get our complete guide to evaluating syndication underwriting→
Yes! In fact, storage syndications have become really popular because the business is simpler than apartment syndications: kitchens aren’t breaking, no midnight plumbing emergencies, no tenants trashing units. Someone stops paying? You cut the lock and auction off their stuff. The deals work like apartment syndications. You invest, they improve the facility, you get quarterly checks, and everyone cashes out when it sells. Here’s everything you need to know about self-storage syndications→
Good question, as people often mix these up. When you invest in a real estate syndication, you’re working directly with the company that found the property and will manage it. They’re all-in on that deal. Crowdfunding platforms are more like a middleman. Typically, different sponsors post their deals on a website. The platform takes a fee, but they are not typically involved in the management of the investment. Direct real estate syndications mean better access to the sponsor. Platforms typically offer more options to browse through, and you may not need to be an accredited investor to invest. See our detailed comparison of syndications vs crowdfunding→
REITs are like buying stock in a real estate company. You can buy and sell shares instantly, but you have no idea which specific buildings you own. Syndications are the opposite. You pick a specific property, project, or fund, you know exactly where your money’s going, but you’re typically locked in for 3-7 years. REITs are available to anyone. Most syndications require you to be an accredited investor, which means meeting certain income or net worth requirements.
Depends on what you’re looking for. Want apartments? Self-storage? A specific region or market? Something else? Some companies are great if you’re new and need lots of hand-holding. Others assume you know what you’re doing and just give you the numbers. Learn more about the major players in the real estate syndication space→
When evaluating real estate syndication sponsors, you’ll want to 1) review their past performance, but also 2) ensure you distinguish between deals where they were the lead sponsor and deals where they were a passive partner. At RealWealth Developments, we now serve as the sponsor for our current deals, giving us complete control over operations, underwriting, and asset management. This is a key difference from our earlier investments, where we participated as silent partners. Thirdly, you’ll want to evaluate the sponsor’s experience, deal structure (including investor protections), and alignment of interests with you as an investor.
Fees in real estate syndications vary significantly based on the deal type and structure. Standard fees may include acquisition, asset management, disposition, loan, and construction management or development fees. All these fees should be clearly laid out in the private placement memorandum. If you’re adding up all the fees and they’re eating half your returns, that’s a problem.
Start with the private placement memorandum (PPM), which is the primary document that covers the deal in full, including all risks. Then read the operating agreement, which outlines your rights as an investor and how decisions are made. You’ll also want to review and complete the subscription agreement before signing. That’s your legal commitment to invest, and you can’t just back out once you’ve signed. Request the property’s financial projections and the sponsor’s underwriting to see their assumptions. If you don’t understand something in any of these documents, ask questions or have a lawyer review them.
Common asset types include multifamily apartments, self-storage facilities, industrial warehouses, single-family residential portfolios, land development, and build-to-rent communities.
Your money is typically locked up for 3 to 7 years, so you can’t withdraw it if you need it. The property may not perform as projected. Construction could get delayed. The market could tank. The sponsor might not be as experienced as they claimed. Worst case? You could lose the invested capital. This is why doing your homework on the deal’s underwriting is so important.
No. While sponsors may project certain returns, there are no guarantees. Market conditions, property performance, and operator decisions can impact actual results.
You can with a self-directed IRA or solo 401(k), but not with your regular employer 401(k). You’ll need to work with a special custodian who handles alternative investments, and any money you make has to stay in your retirement account until you’re old enough to withdraw it. Not every syndication company accepts funds from retirement accounts, so ask about this upfront if it matters to you.
Investors receive a K-1 tax form, which reports their share of income, losses, and depreciation. Thanks to depreciation and cost segregation, many investors can show paper losses even while receiving cash flow, thereby reducing their taxable income.
If you want access to larger commercial real estate deals without being a landlord, and you’re comfortable tying up your capital for several years, real estate syndications can be a strong addition to your portfolio.
Join as a free member—takes less than five minutes and costs nothing. You’ll get access to our current deals, all the details on each project, and the actual offering documents so you can do your homework. You can schedule a free call with our investment team to ask questions without any sales pressure. We also offer extensive educational content on syndications, regular webinars that walk through how everything works, and real investors you can talk to about their experience.
