How to vet a syndicator! Lets hear your methods

[Colton Hahn]

Hey BP Fam,

I work for an operator in the Midwest and wanted to provide some insight to passive investors on the kinds of questions I find the most useful. 

I am making the assumption you, the reader, have already done their homework in terms of what a syndication is, and the benefits of it.

The first step you should take when considering syndications is decide what your time horizon is, the market you want to hit, and find out what your investment return goals are. Many people find it overwhelming the number of operators to choose from so the point of deciding these things is to filter the ones that match up, to make it easier.

Once you have a list of operators that match your preferences, it is time to start contacting these companies. Comb through their sites and note how well the site is put together. Afterall, this is what they are using as the "face" of their company. If the website is not user friendly, is confusing, and looks outdated chances are they are not running a tight ship. 

Have a list of questions prepared based on their current offering, and track record. The questions are almost as important as how the person is articulating them. If the company has a representative unable or unwilling to answer certain questions, that should be a cause for concern. Questions should cover things like: What is the worst deal you have invested in and why, is your track record audited, why did the company start, what is the macro/micro strategy for the offering, can you show example proformas, what are your debt terms, what are the minimum investments, are you willing to provide an investor reference, how are you handling the current economic environment (inflation, rising rates, recession concerns etc).

The person you are talking to should be able to answer these questions without a hitch, and if they are unable to answer those questions without looking them up that says to me they are unprepared and are not trained well.  Once these steps are completed, you should have a company or two in mind. Ask to speak to someone higher up to firm up any final thoughts, and see how far the previous answers to your questions stray based on who you talk to. 

The things I would focus less on are: Splits or fee schedules. At the end of the day what is important is the return the investor is getting. Would you rather get 20% IRR and a larger piece of a smaller pie or 28% IRR with a smaller piece of a larger pie? At the end of the day, the return is all that matters for an investor and often I see investors choosing lower returns for the good feeling a better split or fee schedule brings. At the end of the day you are investing in a worse operator, with lower returns.

Comment what things you focus on when talking to an operator, curious to hear others thoughts!