Multifamily passive investing

[Don Scott]

What are your thoughts on investing as a passive in Multifamily?

[Brian Burke]

@Don Scott passive investing is a great way to achieve diversification in an investment portfolio and achieve exposure to real estate without having to do all of the work.

That said, it doesn't mean that there is no work involved. All real estate investments involve some degree of risk.  Passive real estate investments are no exception, but in addition to the real estate risk you also have an additional risk factor--the sponsor of the investment. It's critically important that you do your due diligence on the sponsor. 

You need to evaluate the deal.  Is it located in a good market?  Do the sponsor's projections make sense?  Is there enough of a budget to correct any deferred maintenance and upgrade the property?  Is the business plan logical and appropriate for where we are in the cycle?  

You also need to look at the sponsor's track record. How much experience does the sponsor have?  Have any of their deals fully cycled?  How did those deals perform versus the sponsor's original projections?  Can they provide references that have invested in other offerings?

A bad sponsor can destroy a great deal, but a great sponsor can produce a decent outcome from a deal that encounters unexpected challenges.  Stack the deck in your favor by aligning yourself with a good investment sponsor for your passive investments.