Criteria / Money Rules for investing with Syndicators

[Joe Boyer]

I have invested in numerous syndications and think I have a decent handle on what to look at when considering opportunities, looking to get better. I am looking for what people use as criteria or money rules for when you consider what a synidicator is presenting.  This is excluding location in specific cities. (Why you ask? - trying to make sure that deals are able to actually double my money over 5 years, I know it highly depends on the leadership/syndication team and population growth of the city, but if things slow down, how do I make sure I have a cash flowing, longer term hold property that is has a larger group of people wanting to purchase it later on when it is time to sell the property)

• Meaning, do you only invest in:
• Class a,b,or c properties?
• 1980 or newer, or older (does year matter to investors)?
• Things are a deal breakers (for the property) - Aluminum wiring, cast iron pipes, iron water line, etc..?
• Hud tenants, war zones, opportunities zones, located on a freeway or ?
• only over 100 units, only less than 300 units, does the count matter over 100?
• must haves - pool, washer dryer in units, security fencing, carports, garages???
• Flood zone ok, never do flood zone?
• Flat roofs only / pitch roofs only - does it even matter?
• What other criteria to most people use?
• Really appreciate any help and advice.  Thank you!

[Rick Martin]

@Joe Boyer yes there are books on how to vet operators, and plenty of market data to vet your market, so I will throw in a few deal specifics that I think people should look at, once comfortable with the team and the market.

Deal fundamentals - 

What is the cost basis? Did they get a good price/unit, or did they overpay? Can the deal stand on its own without the incredible financing that we are seeing? 

How achievable is the business plan? Are they not overspending on the renovation budget? Are they not shooting for the moon when it comes to rent increases?

Where do the rents land in comparison to the comps? Are they still around the median after renovations, or are they attempting to set the bar? Be careful if you are at the top.

Is there a good balance between cash flow and profit at the sale or a refinance if it is a value-add? Cash flow is realized income during the life of the hold, and if you are solely banking on the upside, you are increasing your risk and waiting a long time before you can evaluate the performance.

At this point in the cycle, sometimes deals are made and now found, so it doesn't hurt to have some good financing. What are the terms? Having 36 or 48 mo's of i/o can boost cashflows. Is it floating debt? Did they figure in future rises in interest rates? Did they purchase a rate cap? Are there line items on the t12 that missed a value increase (ex. RUBS, green program)?

Is the project well capitalized? Does it have a proper operating budget, renovation budget, replacement reserves? This is important with C class.

Did they include a refinance in their underwriting? That adds to the future uncertainty and can undoubtedly boost returns.

I'll stop now. Sorry, just had coffee.