Syndication deal presented to me

[Marc S.]

Morning BP community.

I was presented with a Syndication opportunity. I am fairly "green" in this type of investments and I am still in the process of investing in my first owed RE property. I have done a decent amount of research about the pros and cons of Syndication and being that it is being provided to me by a family friend, I want to be able provide some valid and competent Q and A, so it appears like I know what I'm doing (haha). My goal is to still obtain my first property of a multifamily, but I am thinking long term and the bigger picture and want to not limit myself to possible cash flow opportunities like this, especially since it's been coined "passive income".

If anyone can help and provide some of the "most" asked questions I should have in mind, specific information I should be looking for, I've been given the Offering Circular, I would appreciate any help! I am doing my DD on the GP of the offering and the company that he is associated with so I feel that is a good start being that is the backbone of the deal, if the operator doesn't know what he is doing, what's the point of investing.

I appreciate any feedback as I will probably post this in a couple of forums to get various opinions.

Thank you!

[Chris Levarek]

1. WHAT IS YOUR EXPERIENCE?

Asking questions on the sponsor’s track record and background in real estate is paramount to ensuring what is presented is delivered. What does the team look like and do they have knowledge/experience in this investment class?

2. HOW MANY OF YOUR INVESTORS ARE REPEAT INVESTORS WITH YOUR TEAM?

Knowing investors are returning to invest on additional deals with the sponsor usually means they have performed adequately on previous opportunities.

3. WHY SHOULD I INVEST WITH YOUR COMPANY OR TEAM?

There are a number of investment opportunities and sponsor teams. Ensure you are aligned with the team that fits your needs and investment goals.

4. WHY SHOULD I INVEST IN THIS ASSET CLASS OR APARTMENTS?

Knowing the benefits of the asset class you are investing in and ensuring these align with your investment goals can be a deciding factor.

5. HOW LONG DO I KEEP MY MONEY IN THE DEAL?

Being fully aware of the investment timeline is important to understand what you are committing to as an investor.

6. HAVE YOU EVER TAKEN A DEAL FULL CYCLE?

If the investment is a 5 year buy and hold with a sale in year 5, has the investor ever completed the cycle or executed this plan to a sale on another deal?

7. WHAT DOES A WORST-CASE SCENARIO LOOK LIKE FOR THIS INVESTMENT AND HOW ARE YOU PREPARED FOR THIS POSSIBILITY?

Not everything will go right in real estate and not every projection will be 100% accurate. Its important the operator/syndicator has reviewed and projected best and worst case scenarios as well as prepared for them.

8. HOW DO TAXES WORK WITH THIS INVESTMENT?

How will the investment depreciate over the hold and how does that translate to the investor in year 1, 2, 3, etc? Knowing when you will get your K-1 for your personal tax return and what tax benefits are available are important in any investment.

9. WHAT HAPPENS IF I WANT TO USE MY INVESTED CAPITAL FOR ANOTHER DEAL DURING THE HOLD? HOW AND WHEN CAN I PULL OUT OF THE DEAL?

Understanding how you can exit the deal if needed is important. Life happens and you as the passive investor need to know when and if you could sell your shares if something comes up.

10. WHAT HAPPENS IF YOU CAN’T MAKE THE PROJECTED CASH FLOW OR RETURNS?

Optimistic projections always look good in a presentation but similar to the worst-case scenario question, discover if the sponsor included verbiage in the operating agreement or PPM(private placement memorandum) regarding if the projected cash flows are not met? Will the preferred return be accrued and paid out prior to any split at sale? Will the sponsor guarantee a return if the preferred return is not possible due to a loss?

Hope that helps!