10 Key Questions to ASK any Sponsor on a Real Estate Syndication
By Christopher Levarek
Successful people ask BETTER questions, and as a result, they get BETTER answers.”
- Anthony Robbins
When investing into any investment as a passive investor, it is crucial to not only understand the investment opportunity but more importantly to get to know the sponsor team. These individuals will be executing an investment plan with hard-earned investment capital from investors and asking the right questions ensures investment alignment or team credibility is clear up front. Today we look at some great questions to ask any sponsor or syndicator when looking at investing passively in an apartment or multifamily syndication. Lets dive in with a great starting question…
What is your Experience?
Asking questions on the sponsor’s track record and background in real estate is paramount to ensuring what is presented is delivered. What does the team look like and do they have knowledge/experience in this investment class?
2. How many of your investors are repeat investors with your team?
Knowing investors are returning to invest on additional deals with the sponsor usually means they have performed adequately on previous opportunities.
3. Why should I invest with your company or team?
There are a number of investment opportunities and sponsor teams. Ensure you are aligned with the team that fits your needs and investment goals.
4. Why should I invest in this asset class or apartments?
Knowing the benefits of the asset class you are investing in and ensuring these align with your investment goals can be a deciding factor.
5. How long do I keep my money in the deal?
Being fully aware of the investment timeline is important to understand what you are committing to as an investor.
6. Have you ever taken a deal full cycle?
If the investment is a 5 year buy and hold with a sale in year 5, has the investor ever completed the cycle or executed this plan to a sale on another deal?
7. What does a worst-case scenario look like for this investment and how are you prepared for this possibility?
Not everything will go right in real estate and not every projection will be 100% accurate. Its important the operator/syndicator has reviewed and projected best and worst case scenarios as well as prepared for them.
8. How do taxes work with this investment?
How will the investment depreciate over the hold and how does that translate to the investor in year 1, 2, 3, etc? Knowing when you will get your K-1 for your personal tax return and what tax benefits are available are important in any investment.
9. What happens if I want to use my invested capital for another deal during the hold? How and when can I pull out of the deal?
Understanding how you can exit the deal if needed is important. Life happens and you as the passive investor need to know when and if you could sell your shares if something comes up.
10. What happens if you can’t make the projected cash flow or returns?
Optimistic projections always look good in a presentation but similar to the worst-case scenario question, discover if the sponsor included verbiage in the operating agreement or PPM(private placement memorandum) regarding if the projected cash flows are not met? Will the preferred return be accrued and paid out prior to any split at sale? Will the sponsor guarantee a return if the preferred return is not possible due to a loss?
In Final
These are just a few of the questions to ask a sponsor or syndicator. We would argue that when you are investing in a passive investor, one does not need to be an expert in the investment or asset class as that’s why you are investing with a sponsor team(expert) in the first place. However, having a good basic knowledge on some of the right questions to ask and clarifying the integrity and credibility of the sponsor or syndicator is essential to aligning with the property investment/team. Connect with us on Facebook / Instagram @valkereinvestmentgroup for more helpful real estate syndication tips. Invest Smart!