How to Vet a Real Estate Syndicator

Updated: Mar 7

If you’re a passive investor looking to get in on multifamily property investments, the best way to go is with a syndicator. There are many reasons to go with a syndicator, but one of the top reasons includes having access to large investment opportunities. Another good reason to invest with a syndicator is access to constant deal flows of multifamily properties that you might not otherwise have access to.

You’ll also be able to invest completely passively. The syndicator will do all the hard work, including finding the right deal in the right market, analyzing the deal, signing on the loan, managing the property, finding other investors, and selling the property at the end of the business plan. All you have to do is put up your money.

There are other reasons to go down this path, including the ability to diversify your real estate investments. Using syndication, you can choose different properties, regions and syndicators, so you’re not locked into only one investment, which helps to minimize your risk.

There are many real estate syndicators available to work with, so the question comes up as to how to vet a syndicator so you feel comfortable letting someone else manage your investments. In this article, I will lay out the key questions every passive investor should ask a syndicator before they start investing with them.

Question #1: Can you tell me about one of your investments that failed or didn’t go as you originally planned?

Syndicators are always happy to talk about their successes, but unless they are asked, they don’t usually volunteer information about an investment that either failed or didn’t go as anticipated. So, that’s a good question to ask!

You’ll learn more about the syndicator by asking about what went south on a particular deal. You’ll also learn about the syndicator’s honesty and integrity through their answer. By sharing a story with you about an investment that wasn’t successful, they’re showing you they’re not only honest, but humble as well.

By probing the deal’s failure, you’ll also gather what they learned from their mistakes and what they’re doing to prevent them from happening again. That’s the key: acknowledging a mistake and admitting what they learned shows growth, both professional and personal. Those are the type of syndicators you want to work with.

If they’re not willing to answer the question, a red flag should immediately emerge. The reason is that not every single deal a syndicator is involved with goes exactly as planned. So, if they’re not willing to share the information, they either are not giving you the whole story, or they’re too inexperienced to work with. The bottom line is if they haven’t had a deal that didn’t go as planned, then they haven’t had enough deals or opportunities in their past, which shows a lack of experience.

As a potential investor, you really need to not only hear what they have to say, but how they say it. How did they react and respond to your question? Were they defensive, upset or angry, or were they open to talk about the trouble they’ve encountered? Did they accept responsibility for the problems that happened, or were they simply blaming others? How they answer you is just as important as what they have to tell you about the deal.

Question #2: What is your investment goal?