50 Essential Questions to Ask Before Investing in Real Estate Syndication

Passively investing in real estate through syndication is similar to actively investing, but differences do matter. Like any investment, do your homework. Engage the sponsor team and learn the details of the opportunity. The sponsor team is a group of experienced operators that strategize and execute an investment plan that individual investors, like you, can be part of. This is a tremendous way to leverage into a deal that would not be available to you as the primary investor.

How do you know if the opportunity is right for you?

Does it fit with your investment profile?

Are you comfortable with the qualifications and experience of the sponsor team?

This is your hard-earned money and you should ask lots of questions to help you make an informed choice.  The answers won’t all be found in the same place. Many will be in the investment summary or through your own independent research. Some questions can only be answered by the sponsor. To help get you started, we are sharing with you the 50 essential questions we ask before committing to a real estate syndication.

1. How much experience does the sponsor team have with this asset class?
2. How are investors notified of progress and performance?
3. What type of reporting do investors receive?
4. What is the payment schedule for investor distributions – monthly, quarterly?
5. Why did you choose this market?
6. What other projects or developments are happening in this area?
7. What was done to stress test the deal?
8. What happens if projected cash flow isn’t obtained?
9. What are the biggest risks of investing in this deal?
10. What do you like about the deal?
11. What DON’T you like about the deal?
12. What is the time commitment to keep money in the deal?
13. What would happen if I had an emergency and needed access to my funds?
14. What if the market is soft when the projected hold time ends?
15. Who is the property manager?
16. How many deals have they managed like this?
17. Have you worked with this property manager before?
18. Why is the owner selling?
19. How did you find this deal?
20. Who is on the team?
21. What are their roles and responsibilities?
22. Have you done deals together as a team before?
23. What will I find when I run a background check?
24. How would you feel about providing references?
25. Are you raising enough for cap ex?
26. What are the chances of a capital call?
27. What is the purchase cap rate?
28. What is the projected reversion (exit) cap rate?
29. What annual income growth factor is being used?
30. What annual expense growth factor is being used?
31. What is the debt structure and LTV?
32. How do taxes work with this investment?
33. What are the projected returns?
34. How do you perform due diligence?
35. Are there any crime issues?
36. What are the projected premiums for renovated units?
37. How did you arrive at the projected premiums?
38. How much deferred maintenance is there?
39. What is the condition of major systems like roof, HVAC, plumbing and windows?
40. Tell me about a time during a project when things didn’t go according to plan and what you did resolve it.
41. When do you send out Schedule K-1s?
42. Will you be doing a cost segregation study?
43. What is the plan if the economy changes and you can’t immediately sell?
44. Who owns the property?
45. Have you ever taken a deal full cycle?
46. Why should an investor invest with you?
47. Are you bringing your own money into the deal?
48. Do you have family and/or friends that invest in these deals?
49. What percentage of your investors have invested in multiple deals?
50. May I visit the property?

When investing in real estate syndication, all questions are valid. You should go into a deal informed and confident. If you are feeling resistance from a sponsor, imagine what that relationship will be like throughout the project lifecycle. Be persistent. Ask enough of the right questions. Remember, an informed investor is a good investor.

Written by:

Agnes Wong

-San Francisco Chapter Leader