@Mike Gehard, when I started investing passively in multifamily syndications, the first thing I did was identify the markets I wanted to invest in. This was most important to me. I can find sponsors in any market, but I don't want to bet my money that Cleveland is turning around any time soon. I wanted markets with the highest population growth, highest job growth, highest rent growth, lowest unemployment, etc. You could argue that these aren't that important for a 2-3 year hold on a value add play, but they're insurance in case something goes wrong. If I have to hold for 10 years instead of 3, I want to be in an appreciating market. Next, I looked at the sponsors doing deals in those markets. You can find transaction summaries from the big advisors/brokerages, and that will tell you who is active in that market. I then researched those sponsors' investment strategy, usually through their website. I knew I wanted someone doing value-add, likely with a cash out refinance after repositioning. Lastly, hop on a call with the sponsor to make sure you're comfortable with them. And yes, past performance is important. I think that's more important that doors under management or assets under management.
My thought process for this route is that since those sponsors are the most active in that market, they're getting the best deals. They have a relationship with all of the brokers in that market. They have a pretty established team in that market, from property manager to construction crew.
Sure, you could go with a sponsor that hops around the country with their deals, but they're likely seeing the deal second or third in line (still off-market, but after the more active players in that market). They also might not know the intricacies of that market. Where is development happening, which areas are turning around, which areas are getting worse, etc. Many developments take years to break ground, so you might not know just by driving the neighborhood that there will soon be new development next door.
Notice I've only talked about location and sponsor so far. Those give you a foundation for good deals. You still have to inspect every deal you want to invest in, but it's likely not worth your time if the foundation isn't very strong.
Deal level inspection: Look at who the property manager is for the deal. How many doors do they have under management (this is an area where # of doors definitely does matter)? Do they have experience with repositions?
Also, when looking at a deal, you want to know every assumption the sponsor made in calculating their returns. You need to know how those assumptions affect your return. The easiest way is through a sensitivity analysis. A lot of sponsors have started providing this with their investment summary, but there's no way to provide one for every assumption (they'll usually pick 1-3 assumptions to provide this for). What happens if rents are $50/mo lower than what they projected? This can have a huge affect on your return. You also need to ask the sponsor to support their assumptions. Why are they using 3% rent growth instead of 2%? Why are they using 1% higher cap rate on the exit, instead of keeping it the same? (this is a good thing, but you should still know why, and how this assumption could change your return).
Limited partners still need to be educated enough to understand all of these risks. The SEC actually requires it for non-accredited investors. Sophisticated investor means sophisticated.
