Background check on investors & deal sponsors: Recommendations?

Question

A local investor I have met is doing a J-V deal for a 9-plex with a stranger who has only done one previous property, and it was recent. Does anyone have a service they recommend for doing background checks on one's investors or deal sponsors? At a minimum, it seems one should run a credit check, employment verification check (to verify their past is what they say it is), criminal background check, bankruptcy check, perhaps research previous LLCs or corporations the person has formed. Checking references from previous investors would certainly be appropriate, but who ever gives a bad reference?

One would need a release from from the person being checked before proceeding.

Anyone know of a service that could do this? I guess a tenant screening service might suffice for some of it, if you're set up with one and get the investor/sponsor to agree to play tenant. But there are also companies that do background checks specifically for business issues. Any recommendations?

Jay Hinrichs · Answer

@Bill Hamilton  its appropriate to run a background check if your the money partner and you want to check out the partner who is suppose to execute.

@Marc C.  there are many services that do this.. you simply need name  DOB and SS and they do these for about 45 yo 60 bucks....

When asked I personally have a credentials package that includes:

1. background check

2. copies of all my state licenses

3. Introduction letter from my personal banker ( this is a highly sought after document that is not easy to get)

I don't find it attrusive.. not many of my folks ask for it because I am so transparent before I would do a deal with anyone.. but if asked i would in no way be offended.

AS HML through the years you would be amazed at whats behind the curtain with folks that seemed super nice and reputable.

Marc C. · Answer

@Anthony Chara - Not so much background checks for investors, but as an investor looking to place money with a sponsor. You certainly want to know about who you are handing $50K to, right? If you don't know the person otherwise? Is what they've told you about themselves the truth?

Rudolf K. · Answer

Check out intelius.com for your purposes.

Bill Hamilton · Answer

Other than a standard credit check or D&B credit, I doubt you would get much more from the Hard Money forum but who knows. I have done hard money as a borrower, a mortgage broker and as the Account Executive for a lender doing hard money deals and I have never had my background run nor run a background check on any deal. Given that these should primarily be asset based deals that kind of makes sense to me but others may well do it differently. I would guess you would come up with a great deal more responses for actual sources to run background checks if you posted in the landlord type forums. Background checks when you are renting to someone are usually the norm so I would guess those people could send you in the right direction.

Anthony Chara · Answer

@Marc C., got it. I misread your original post. I thought you were the one raising the money. Sorry, can't help you with the website or resources. I'm the one that is raising the money on my end for my own deals. Not one of my investors has ever told me they wanted to do a background search on me. I would have no problem if they wanted too, but I will not supply them with my SS# if they ask for it.

I'm actually being vetted right now by the SEC, because I'll be opening up a $25MM fund shortly.

Marc C. · Answer

No recommendations on a particular site or service anyone else has used? What, no one here partners with strangers, or no one does background checks if they do? Maybe I'm posting in the wrong forum; maybe hard money forum would be more appropriate?

Anthony Chara · Answer

Not quite sure why you would want or need to do a background check on someone who wants to invest with you/give you money.

As for your 'sponsor', the person that may sign on a loan for you, if you're getting a loan, the bank will generally take care of this for you. They will ask for the sponsor's PFS and do a credit check on them before they loan the project any money.

@Marc C., perhaps you could expand your thought process here for us to explain why you want to do a background check on your investors or sponsors?

Bill Hamilton · Answer

Maybe I am off base here but if I were to do a JV with you would you be okay with giving me all those details about your life? I understand wanting to know about someone you are going to partner with but the level of details you are talking about is pretty intrusive. But I am quite curious to hear others feedback.

Background check on investors & deal sponsors: Recommendations?

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