@Jeffrey Radcliffe
Now that you've expressed interest, you may start getting contacted on BP by people doing these deals. There are various SEC regulations involved in these syndications, but generally you need to either be an accredited investor or have a pre-existing business relationship with the sponsor. The folks who reach out to you via BP may be perfectly legitimate, but it's important to vet them for yourself first before doing business together. Actually, you need to vet the sponsor him/herself, as well as the deal. Good for you for knowing that already.
How did I get into this? I started attending Meetups in my area. Several are dedicated to multi-family investing. That's where you meet sponsors. After getting to know them, and meeting other investors at the same events who can serve as a reference, you can decide which ones you might trust with your money. I think it's a process that should take at least a few months, if not more. In other words, don't invest with someone you just met. So you can vet them by asking how long they've been doing it? How many deals have they done and what were the results? What is their criteria for acquiring properties (e.g. stable cash flowing properties or poorly performing properties that they will improve) What returns do they project (e.g. 8-10% yearly cash flow and sell the property for 50% capital gains in 3-5 years)? Is this a full-time job or a side-job? What is their day job, or what did they do before this became a full-time job? How will the sponsor be compensated (e.g. 20% of profits only, or are they taking upfront acquisition fees)? Is the sponsor putting their own money into the deal? Networking with other investors is just as important as networking with a sponsor. Ask them what sponsors they are happy with, which ones to avoid, and how do they evaluate a potential investment?
Now how do you evaluate a deal? First thing is to make sure you understand the fundamentals of multi-family investing. There are many differences from investing in single family rentals. When you understand all the terms, like NOI, cap rates, DSCR and economic vacancy, then you can look at the sponsor's financial projections and see whether they are believable. How much economic vacancy are they projecting (every property will have some)? What is the debt coverage ratio (this tells you how safe the deal is, since the primary way to lose your money is a bank foreclosure)? What is the exit strategy (individual investors may buy and hold forever, but with a syndication, you need an exit strategy)? What type of financing (long term, fixed interest rate is the safest for weathering a downturn)? Where is the property and are the projected rents realistic? How much are they raising the rents every year and is it realistic? Are the expenses realistic and also being increased with inflation?
That just scratches the surface, but it's a start. I actually joined a mentoring program...you can probably look at some of my other posts on BP for the name. It's based here in Dallas, but students all over the US are members and doing deals all over. I decided it was worth a few thousand bucks to get fully educated...it's less than the money I would have lost on one bad deal. I am investing with students who are also part of the same program - I won't say their names here. The mentor has been doing multi-family for 15 years. I figure anyone who started before 2009 and lived through that downturn knows what he is doing. If joining a program isn't for you, there are many books where you could learn the basic principles, and you could meet sponsors on Meetup. I strongly recommend networking with other multi-family investors in your local area as a start. Send me a PM if you want any more specific information. There are a few active BP posters who seem to be successful and I could point them out you if you haven't found them already.
