Syndication Investment Criteria and Strategy

[Kay Kay Singh]

I am an accredited invester and have invested in two syndications already . I have been reading a lot about Multifamily Syndications and have been following a lot of syndication threads and listened to a lot of Podcasts on syndication investing.I am planning to invest $500000.00 in syndications in next 5 years .I am trying to write down my criteria for an investing but have been distracting from my ideas So I request the genius investors and syndicators here on bigger pockets to help me finalize my criteria and strategy for my investment. 

[Sam Grooms]

@Kay Kay Singh, my wife and I are in a similar situation right now. We're accredited investors and just invested in two syndication deals. However, we're now looking to do our own syndications. 

For your criteria, I would determine your minimum cash on cash return (8%+) and minimum IRR (15%+). That will allow you to easily screen deals that sponsors bring you.

Most passive investors will stop there, but there are more qualitative criteria you can look for, like what markets you want (emerging markets), class of property (C+ or better), class of neighborhood (B- or better). You can also decide what hold period you want. Do you want projects with a 10 year horizon, or do you want short 2-3 year value-add projects? Do you care what size property it is (20 unit minimum, or 300 unit minimum)? 

It just depends on how much you trust the sponsor/syndicator. If you're just starting out with them, I'd analyze everything about the deal, especially their assumptions. Are they projecting 10% rent increase per year, when historically the area only has 3%? Assumptions have a significant impact on your IRR. I would do my research on each assumption they make, to confirm it's realistic. As you get more comfortable with a sponsor, maybe you only need to know cash on cash and IRR, before deciding if you want to invest on the deal. Personally, I would still read through everything and make sure that there are no assumptions way out of the ordinary, even if you've done 10 deals with them. After that many deals, you should be able to read through it and determine fairly easily if they're realistic.

With that said, if a repeat sponsor brought you a deal in a new market that they haven't worked with in the past, I'd treat them like a brand new sponsor and go through and confirm everything.