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  • Writer's pictureSujata Shyam

101 Questions to Ask Before Investing in a Real Estate Syndication




Once you choose a real estate syndication deal, sign the PPM (private placement memorandum), and send in your funds, you have very little control over the performance of the asset. You’re truly a passive investor at that point and must fully trust the sponsor team to manage the daily operations effectively, execute the business plan, and guard (and grow!) your investment. 

This is exactly why you should be absolutely confident in the deal and the sponsor team upfront. Do your research, squash any doubts you may have, and ask questions BEFORE investing with a new real estate syndication sponsor. 

This list of questions provides some great ideas and may guide you toward subjects and concerns that should be on your mind as a new investor. It will also give you some ideas of things that other investors are asking that you might not have thought about.


Some of these can be found on your own in the investment summary or through independent research, but for others you may need to ask the sponsor directly.


101 Questions to Ask the Sponsor Before You Invest in a New Real Estate Syndication


Market

  1. Why did you choose this market?

  2. How long have you been in this market?

  3. What’s the biggest employer in the area?

  4. What can you tell me about this submarket?

  5. What other projects or developments are going on in this area?

  6. Have you done other projects in this submarket?


General

  1. What don’t you like about this asset class?

  2. Why is the owner selling?

  3. How did you find this deal?

  4. Is this offering open to non-accredited investors?

  5. Is this a 506(b) offering? 506(c)? Other?

  6. May I invest in retirement funds?

  7. What’s the minimum investment?

  8. What’s the maximum investment?

  9.  How do I send in my funds – wire, check, other?

  10. What is the deadline for getting my funds in?

  11. Will you be offering an investor webinar?


Property

  1. When was this asset built?

  2. What do you like about this asset class?

  3. How many units are there?

  4. What’s the unit mix?

  5. What is the cost per unit, and how does that compare to the average for this area?

  6. What’s the current occupancy?

  7. What do you project the stabilized occupancy to be?

  8. What’s the median income for current tenants?

  9. How much deferred maintenance is there on this property?


Business Plan

  1. What’s the business plan?

  2. What are the projected premiums for renovated units?

  3. How did you come up with the projected premiums?

  4. How much money are you raising for this project?

  5. How much of that is for the down payment?

  6. How much of that is for cap-ex (capital expenditures)?

  7. What’s the projected hold time for this project?

  8. How did you come up with that timeline?

  9. Who is the property manager?

  10. What percentage of the units will be renovated, and why?

  11. Once the deal closes, what are the first three things you plan to do?

  12. Are you rebranding the property?

  13. If you could wave a magic wand and change one thing about this property, what would it be?


Deal Structure

  1. How is the deal structured?

  2. What are equity splits?

  3. Is there a preferred return? Why or why not?

  4. Are you taking an acquisition fee?

  5. Are you taking an asset management fee?

  6. Is there a refinance fee?

  7. Is there a disposition fee?

  8. Do you need anyone for the earnest money deposit (EMD)?

  9. What do we get for helping with EMD?

  10. When does EMD go hard?

  11. What happens if you have my EMD, it goes hard, and you can’t perform?

  12.  Are you bringing your own money into the deal?


Financial Projections

  1. What are the projected returns?

  2. What is the overall equity multiple?

  3. How is the deal structured?

  4. How often do you pay out investor distributions – monthly, quarterly?


Risks

  1. What if the market is soft when the projected hold time ends?

  2. Are you raising enough for cap-ex?

  3. What are the chances of a capital call (i.e., the sponsors requesting more money from the investors)?

  4. What’s the worst-case scenario?

  5. What’s the plan if the economy changes and you can’t sell?

  6. What are the biggest risks of investing in this deal?

  7. What do you like about the deal?

  8. What DON’T you like about the deal?


Investor Experience/Communications

  1. How will investors be updated on progress the progress?

  2. What would happen if I had an emergency and needed access to my funds?

  3. When do you send out Schedule K-1s?

Track Record

  1. How many deals have they managed like this?

  2. Have you worked with this property manager before?

  3. How did you find this property manager?

  4. How much experience do you have with this asset class?

  5. Have you done deals together as a team before?


Debt

  1. What is the total loan amount?

  2. What kind of loan are you getting?

  3. Is debt recourse or non-recourse?

  4. What are the terms on the loan?

  5. What is the LTV (loan-to-value) ratio?

  6. What is the debt coverage ratio in year 1?

  7. Did you walk on the property?

  8. Does your lender offer loan extensions? How much do the extensions cost?


Sponsor

  1. Who is on the team?

  2. What are their roles and responsibilities?

  3. What happens if you get hit by a bus?

  4. Who is your securities attorney?

  5. What will I find when I run your background check?

  6. Have you ever been a passive investor?

  7. What’s your ultimate goal with syndications?

  8. How would you feel about giving me a few references?

  9. Are you doing this full-time?

  10. What did you do before this?

  11. Why did you get into syndications?

  12. Are you part of a syndication coaching or mentorship program?

  13. Tell me about a time during a project when things didn’t go according to plan.

  14. Who’s your asset manager?

  15. Who does your accounting?

  16. How do you do your due diligence?


Financial Analysis

  1. What’s the purchase cap rate?

  2. What’s the projected reversion cap rate (i.e., exit cap rate)?

  3. What did you do to stress test this deal?

  4. Have you visited, toured, and secret-shopped the comps in the area?

  5. May I visit the property?

  6. Do you need a loan guarantor?

  7. Will you be doing a cost segregation study?

Hopefully, some questions in this list sparked new ideas and helped you realize that no question is off-limits. Asking tough questions is a great way to vet potential real estate syndication deals and sponsors. 

If you feel as if you aren’t getting clear answers or are getting brushed off, take that as an indication of how you’ll be treated throughout the project. Remember, there will always be another deal, so there’s no reason to rush into anything. 



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