As a new investor you may hesitate to invest in Real Estate syndications because you may be wondering if there is anything you should know about a specific deal and you simply don’t know what it should be or what questions to ask.
I want you to be confident when investing, so I put together a list of 10 questions to ask a syndicator.
1. What is the business plan?
This is what the syndicators will do with the property. Look through the business plan and the CapEx budget and see if it makes sense. Is it a newer property and only plan on doing cosmetic upgrades? Or is it a much older property that requires full electrical and plumbing work?
I know you may not be experienced in construction work but most syndicators will have the costs broken down per unit and you can ask a friend if those prices are reasonable.
2. How long am I going to keep my money in this deal?
Most value-add Real Estate syndications are 5 years. Many syndicators will give a hold range of 3 – 5 years. And although the hope is to exit sooner rather than later, you should plan to stay in the deal for the full 5 years.
3. How many exits have you had throughout the years?
There is no rule of thumb here on what’s “right.” It simply comes down to what you feel comfortable with. I typically work with operators that have had at least 3 exits. I just want to make sure that they have been through the entire process from start to finish 3 times and resolved any kinks they experienced the first few times.
4. Have you worked with this property management company before?
The property management company and the asset manager on the General Partner side work hand in hand to execute on the business plan. This is why the expertise of the property management company is really important and seeing that the syndicators have worked with the same property management company in the past may be a good sign that things will run smoothly on this deal as well.
5. Are you investing your own money in the deal?
There is no right or wrong answer here, I personally work with operators that are also investing their own money in the deal. No less than 10% of the total equity required.
6. What does the worst case-scenario look like and what are we doing to mitigate it?
Of course the worst case scenario in any investment is losing your investment. But aside from that, what’s the next worst case scenario? Make sure the syndicator has a good plan.
For example: What if you can’t achieve the projected rents after renovating? What will that do to investor’s returns?
7. Will you be doing a cost-segregation study?
One of the many benefits of investing in Real Estate is the tax advantages. If you are looking for tax depreciation make sure you ask your syndicator if they will be conducting a cost segregation study.
8. When do you guys send out K-1’s?
If this is your first time investing you may want to give your accountant a heads up. Sometimes K-1’s get delayed and you may need to request an extension to file your taxes. Don’t worry, your accountant knows how to handle it.
9. How many units will be renovated? How many units per month?
Just get an idea of what percentage of the total units will be renovated and why. How many units will be renovated per month? Do they have the capacity to handle that many renovations? Are the vacancy numbers accounting for the number of units being projected to be down?
10. Is this what you do full time?
This is whatever makes you feel comfortable. I personally like to see that the operators I’m working with are dedicated to Real Estate syndications 100%. I don’t want this to be their “side gig.”
Many of these questions don’t have an answer that’s right or wrong. That’s why I gave you my point of view. Just make sure you feel comfortable before investing in any deal. I know it doesn’t feel like it, but there will always be another deal.
Crush the week!
CEO | V1 Capital
Psst! We still have a few open spots in our latest investment opportunity “Verdir at Hermann Park”
Some of the highlights include:
✅ Assuming a 2.5% interest rate loan with 28 years left on it.
✅ Class A location (Hermann Park in Houston, TX)
✅ 67% Break-even occupancy
✅ 61% Loan-To-Value / low leverage
✅ Median income for the area $100K. Mostly medical field related tenants.
✅ As of last month 94% occupied, and 100% collected.
✅ Underwriting analyst said worst case scenario even if we were to put the $4MM CapEx into the property and obtained a $0 rent bump, we will still achieve a 5% return for investors.
– If this sounds like a good deal to you, join our Investor Club so you can see the full details on this investment opportunity.
– If you want to hop on a call with me Click Here