Top 62 Questions to Ask about A Real Estate Syndication Deal
by Christopher Levarek
“The way that you become world-class is…by asking good questions.”
-Tim Ferriss
When investing into a deal, it’s important to ask the right questions. For real estate syndication this means speaking with a sponsor or group before paperwork is signed and money wired. Investing in the opportunity or deal should bring a feeling of confidence and excitement. Properly vetting and performing due diligence on the deal and sponsor by asking the right questions is the way to get there.
Ok, but what questions should be asked?
Well, each investor will have items that are important to discuss relative to their goals. That’s a good place to start. Ask those questions that you feel most apply to you and your investing goals.
With this being said however, we’ve compiled the top 62 questions we feel are important to ask about a deal or group as well as the most common questions we get on any investment. This list should be something that you can reference or even help spark some ideas on topics to discuss as you speak with a sponsor of an investment opportunity. Without further delay…
THE Top 62 Questions to Ask About A Real Estate Syndication Deal
Why is this market a good market?
What is the business plan?
How long will my capital be held in the investment?
What is the funding deadline?
Are the general partners investing in the deal?
What is the compensation structure for how the general partners are paid?
What is the distribution schedule for limited partners or investors?
What happens if you can’t pay distributions?
What happens if there is a natural disaster?
When was the property built?
How much are you spending in renovations?
What type of renovations are you doing?
What are the market rents?
How do the market rents compare to the property rents?
Is this a non-recourse loan?
What is the minimum investment?
If I need to exit the deal, can I sell my shares early?
How often do I receive updates or communication after the deal has closed?
How do you renovate the property with people living there?
How early do distributions start after closing?
What are the tax benefits associated with this deal?
Are you performing a cost segregation study?
What is the vacancy rate?
What is the purchase price?
What is the exit sale price?
What is the entry cap rate?
What is the exit cap rate?
How much capital is being raised for the deal?
What kind of risks are associated with this deal?
What is the biggest risk or hurdle on this deal?
What happens if the market tanks during the timeline?
What happens if you can’t make projected cash flow or returns?
Have you done other projects in this market?
What is the unit mix on the deal? 1 bedroom/1 bath. 2 bedroom/2bath, etc
Is there a preferred return?
What types of fees are associated with this deal? Acquisitions, refinance, disposition, etc?
Who is the property manager or property management team?
How did you find this deal?
What kind of financing is being used?
What is the total loan amount?
What is the LTV (loan-to-value)?
What is the DCR (debt-coverage-ratio) for the first year?
Is this is a 506c or 506b offering?
Who is the team?
How many deals have you done with this team?
Who is the securities attorney?
When do you send out Schedule K-1’s?
How do I send my funds? Wire, Check, etc?
Have you visited the property?
Why does this type of asset class make a good investment?
What do you really like about the deal?
What do you hate about the deal?
What are the most common questions you get asked about the deal?
Who are some of the major employers in the area?
How many units will be renovated in total?
Can I visit the property?
How conservative are your projections?
Why should I invest in this deal and not another deal?
Can I use a SDIRA (Self-Directed IRA)?
Can I invest with an LLC?
How risky is this type of investment?
What questions do you have for me?
In Final
Whew, that’s a lot to ask over a phone call with a sponsor. Remember, you don’t have to ask all these questions, but if you need to, have multiple calls. Let the information provided from the investment summary, the webinar and discussions with the sponsor soak in before making a decision. Often times questions will pop up right after you hang up the phone, so it’s ok to have multiple calls.
Don’t be afraid to walk away from a deal or group if you can’t get your questions asked or the answer is unclear. This is perfectly fine.
Remember you are investing into a partnership and you should feel good about the team, the deal and the future. Every deal will get easier as you know exactly what questions you need to ask to feel comfortable.
Hopefully the above triggered some possible questions to ask on your next investment opportunity and you are prepared for your next call with the sponsor team. Happy investing!