Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Multi-Family and Apartment Investing
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 6 years ago on . Most recent reply

User Stats

177
Posts
54
Votes
Davit Gharibyan
  • Saint Paul, MN
54
Votes |
177
Posts

Asking Questions To Syndicators

Davit Gharibyan
  • Saint Paul, MN
Posted

Hi guys, I need your advise/suggestions.

When and if you'd invest in syndicators deal what questions would you ask to learn more about the process and vet the syndication. Let's say I am clueless about the whole thing (e.g. I am a doctor and I want to invest in a deal but I have no idea about the process).

Thank you for suggestions.

Most Popular Reply

User Stats

2,283
Posts
6,908
Votes
Brian Burke
#1 Multi-Family and Apartment Investing Contributor
  • Investor
  • Santa Rosa, CA
6,908
Votes |
2,283
Posts
Brian Burke
#1 Multi-Family and Apartment Investing Contributor
  • Investor
  • Santa Rosa, CA
Replied

Investing in a real estate syndication carries all of the same risks as investing in a property directly.  But there is also an additional risk factor, and it is a significant one:  the sponsor.  You need to do your due diligence on the sponsor to be sure that you are investing with the right group.

Here are a few questions/considerations that come to mind:

  • Ask to see the performance of their full-cycle deals. Compare the actual performance to the projected performance so you can see if they achieve the results that they forecast. If they haven’t had any full cycle deals, they might not have enough experience to justify investing with them—they are untested if they’ve never sold a property. Unless you are a test pilot, you wouldn’t fly in a plane that has proven to successfully take off, but has never proven it can land, would you?
  • Ask to see comparisons between actual and projected performance of properties in the portfolio.  This gives insight into how well they are managing currently. How many properties they are buying or the returns they are projecting are not the yardsticks for their success. The Measurement should be if they achieving the NOI and distributions that they had forecasted on the stuff they've already bought.
  • Ask about the worst deal they’ve had or one that didn’t perform according to plan. What you are listening for is how they handled it. Their real character is revealed when things go wrong, not when things are going right. If they say they haven’t had one, they just haven’t been doing it long enough. So, will the one you invest in be “the one”?
  • Ask if they are obtaining financing based on their own cash reserves and net worth, or are they relying on “loan sponsors” to bring the financial strength needed to qualify for debt. Lenders require the borrower’s key principal(s) to have a specific net worth, such as 1:1 on the loan amount, and cash reserves, such as 10% of the loan amount. If the sponsor has to bring someone in to meet those requirements, you might have an undercapitalized sponsor.
  • Visit their office. You might find that some don’t even have one. Are they working out of their bedroom? Have no staff? You’ll find out, plus you’ll get to look them in the eye and shake their hand (even in today’s world of email and text messages, this is still relevant). Not to mention, you’ll find out if they are even willing to carve out that slice of time for you. If they aren’t willing now, they won’t be later when you have questions after you’ve made your investment.
  • Ask about their team. Is this a one-person shop? Key man issues could be a problem if the only guy that knows what’s going on dies. So ask about the depth of their team and staff, and succession plan in the event that something unfortunate happens to one of them.

A good sponsor that has survived market cycles can get the best outcome in the face of adverse circumstances, but a bad sponsor can screw up a perfectly good real estate deal.  This is why sponsor selection is the most important decision you will make in your journey of investing in syndications.  

Loading replies...