How do I vet a syndication as an investor?

[Kayla V.]

Hi all! I'm interested in passively investing in large apartment deals. I already have connections to a few operators and have browsed their packets but haven't pulled the trigger yet. 

Does anyone have any recommendations for educational resources (books, podcasts, courses, etc) for how to vet the operator and the deal itself? I understand the math but need more information on what to look out for as red flags. 

I'm seeing returns of around 18% IRR for a 5 year hold- is that in line with what most are offering?

Thanks!

[Spencer Gray]

an 18% IRR isn't out of the range for a 5 year hold, depending on the market and type of deal.

Here are a few red flags I look for -

High occupancy assumptions

Low exit cap rate

Short term or variable interest debt

Overly selective comps

No or little experience in the market (not a deal killer but must have plan)

New strategy for the sponsor (is it a total reposition/re-tenant and they have only done light value add)

Low payroll assumption 

No PM fee

If they require you to guarantee debt (it's ok to be asked but you should be compensated)

No expense growth

Compare year 1 GPR with the T-12 GPR

If sponsor refuses to give you T-12 or rent roll

Expense / Income ratio under 40%

If the deal relies on an early refinance 

Hope this helps!