How to Evaluate a Deal in 10 Minutes

Updated: Mar 7

As a passive investor, you probably receive many different investment offerings from syndicators. Going over the deals takes time and effort, especially since an average offering is 50 pages long. What if there was a way to review a deal and evaluate it in just 10-minutes time? There is, and I’m happy to share it with you. To make it easy, I’ve outlined several steps you can take to make the process go quickly.

First Things First: Invest with a Syndicator You Like and Trust

One of the best pieces of advice I provide to prospective investors is to only invest with a syndicator they like and trust. I’ve found that doing business only with people that I like, and more importantly trust, has been a golden rule for me, and it’s one that has proven itself over and over again.

Even if the deal presented is exceptional, you have to remember that you’re entering into a long-term working partnership with the syndicator and you have to be cautious as to whom you do business with. In this case, listening to your gut and letting your instincts guide you is the best course of action.

The question is, how do you determine if a syndicator is trustworthy? You can certainly tell if you like someone, or if their personality doesn’t mesh with yours. However, trust is a completely separate issue. The best course of action is to ask questions.

You can start by reviewing the syndicator’s past deals, and question whether they met the projections that had been established. Another key question to ask is have him or her talk about an investment that didn’t go as planned. The answers will be enlightening. If the answer is honest and an open discussion about what actually happened, rather than something he or she thinks you want to hear, then the syndicator is trustworthy.

This leads us into another question, which is what if the deal you’re considering doesn’t go as planned? Is there a “Plan B?” For example, suppose the deal you’re considering is a value-add plan, where there will be upgrades and renovations to the existing units in order to raise rents. What happens if you can’t raise rents? Was the deal written with the rent increase included? In my own value-add deals, I never underwrite with the exact premiums that I plan to receive. (A “premium” is the additional revenue you expect to receive after the upgrades are completed). I always use a lower number than what I anticipate I can get, because if the deal works with that number, it’s a good deal. In this case, ask the syndicator if he or she can show you the returns using lower premiums.

Step #1: Is the Deal Open to Accredited Investors Only?

There are two types of investors, accredited and non-accredited. Accredited investors meet certain requirements that relate to income, net worth, professional experience and other factors. This status is required by the SEC to ensure that investors are financially sophisticated and have a limited need for protection from investments that may be considered risky.

If you’re a sophisticated investor, you don’t want to waste your time going through the deal documents, only to find out it’s only offered to accredited investors.

To be considered accredited, an investor must have an annual income that exceeds $200,000, or $300,000 for joint income for the previous two years, with the expectation that the investor will meet the same or higher income in the current year. An individual can also be considered an accredited investor if they have a net worth exceeding $1million, excluding the primary residence, whether it’s individually or jointly with his or her spouse.

There is an advantage to being an accredited investor, as they have the opportunity to hea