First Syndication Deal

[Brandon Craig]

Hi All,

I found a friend in my martial arts class that has been in real estate for 10 years. They are raising capital for a 506b (family and friends unaccredited) hybrid deal (in another state) that includes an apartment, selling some SFHs, building a few Multi families for air bnb etc.

I wanted to pass by you folks to make sure it's a decent deal for me. I am investing about 50k which is 3.3% stake out of 1.58mm capital being raised for the deal. 

The projected annual return is 43.86% with a 3.01 equity multiple.

They are sending me the operating agreement now. Anything else I need to be considering? Get a lawyer to look over the docs?

Thanks,
Brandon

[Taylor L.]

Don't focus as much on the projected returns. Focus on the team, their experience, and the business plan first and foremost. 

Are passive investors put first in the deal, earning a return before the sponsors? What are the risks and how are they being mitigated?

Although I will say, those projected returns are very high. Concerningly so. Anyone projecting returns that high had better have some strong reasoning behind it and a track record with this specific strategy. Even then, I always lean toward more conservative projections with the potential to outperform. You only need base hits repeated over time in order to become wealthy. Swinging for the fences every time is a recipe for losing money. 

Hiring an attorney to look at the documents is a good idea but doesn't come cheap.

I would recommend googling things along the lines of "Evaluating passive real estate syndications." The first couple of pages of Google actually turn up some decent advice that can get you started.