All Forum Posts by: Justin Goodin

 These questions are not about 'getting started in real estate.' They are worthwhile questions to ask a sponsor before passively investing in a syndication. I hope that helps clarify.

Never invest a dime in a real estate deal until you ask these 38 critical questions:

1. What happens if you get hit by a bus?
2. What do you project the stabilized occupancy to be?
3. What’s the median income for current tenants?
4. What’s the business plan?
5. What are the projected premiums for renovated units?
6. How did you come up with the projected premiums?
7. How much money are you raising for this project?
8. How much of that is for the down payment?
9. How much of that is for cap-ex (capital expenditures)?
10. What is the overall equity multiple?
11. What are the equity splits?
12. Is there a preferred return? Why or why not?
13. How often do you pay out investor distributions – monthly, quarterly?
14. What’s the projected hold time for this project?
15. How did you come up with that timeline?
16. What if the market is soft when the projected hold time ends?
17. How are investors kept up with the progress?
18. Are you taking an acquisition fee?
19. Are you taking an asset management fee?
20. Is there a refinance fee?
21. Is there a disposition fee?
22. What would happen if I had an emergency and needed access to my funds?
23. Who is the property manager?
24. How many deals have they managed like this?
25. Have you worked with this property manager before?
26. Why is the owner selling?
27. How did you find this deal?
28. How much experience do you have with this asset class?
29. What is the total loan amount?
30. What kind of loan are you getting?
31. Is the debt recourse or non-recourse?
32. What are the terms on the loan?
33. What is the LTV (loan-to-value) ratio?
34. What is the debt coverage ratio in year 1?
35. Did you walk the property?
36. Who is on the team?
37. What are their roles and responsibilities?
38. Have you done deals together as a team before?

When you are investing your hard earned capital into a real estate deal, there are no dumb questions.

Every investment has risk. Just make sure you understand the deal and who's running the investment.

What would you add to this list?

Truth: An 8% preferred return, doesn't mean you receive 8% any year.

The preferred return in real estate syndications alludes to the precedence of limited partners receiving a specified return, BEFORE the general partners share in the profits.

// A preferred return (Pref) is not a guarantee or claim that you will get X% in any given year.

How much (or how little) the project cash flows, will determine what you receive on a quarterly basis.

🏢Example:
- $100K investment
- 8% pref

Year 1: You receive $2,000 (2%)
6% is accrued

Year 2: You receive $4,000 (4%)
10% is accrued

Year 3: You receive $6,000 (6%)
12% is accrued

Sale: Pref is caught up with sale proceeds. Then General Partners can share in profits.

It’s not unusual for syndications to roll over a balance right into the sale of the property. The profits from the sale are then redistributed with priority given to catching up on any missed preferred distributions.
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✅ Bottom Line: If a sponsor is offering a preferred return, it does not mean you will receive that % every year in distributions. This is NOT a bad thing and pretty common with real estate syndications.

Did you know this before reading this post? Let me know what you think about this in the comments 👇

Sometimes I can’t tell if we are in the commercial multifamily industry or the commercial coaching industry 😅

 Wow! Amazing points. Thanks for mentioning this. 
I totally agree that GPs should make the complete financial statements available to view. I would think only sophisticated LPs would be able to make their way through these. But not a bad idea at all to ask. 

First, let's define what this is:

A capital call (aka cash call) is the process when the general partner(s) attempts to collect additional funds from their investors to supplement the financing for a real estate project or transaction. This is done when a multifamily property needs more capital than originally anticipated to sustain operations.

Capital calls can indicate the investment is not as sound as investors originally thought, and is potentially at risk of falling apart. As such, capital calls can have a negative connotation among real estate investors.

 -- 

Due to the fact that capital calls usually require real estate investors to provide additional funds within a short time period, they can be seen as a source of financial burden and stress since investors may not have the necessary funds available.

Unexpected capital calls also indicate their investment is not as sound as they first thought and is potentially at risk of falling apart. As such, capital calls can have a negative connotation among real estate investors.

// So what should you do if a sponsor performs a capital call on a deal you are invested in?

Step 1: Read The Operating Agreement

If you invested in the offering, you read (or should have read) and signed the operating agreement. The operating agreement explains exactly how capital calls work for the deal you invested in. 

Step 2: Seek Professional Advice

Passive investors should seek professional advice from their attorney. Most likely, your attorney will ask what the operating agreement specifies (step 1). Comment below the name of your favorite attorney!

Step 3: Ask Questions

This is the time to ask the general partner(s) any and all questions. At this point, the general partner(s) should be over communicating with the investors and keeping them up-to-date with what is going on. Either monthly, weekly, or even daily.

The general partner(s) should have communicated the reason for the capital call, exactly what the money will be spent on, and outlined their proposed plan to success.

I found this deal from a cold email.  

 DM me where I can email it.