Updated: Mar 7
As a passive investor, you rely on your syndicator to find the right property, in the right market, and at the right price. However, in order to have trust and confidence in the syndicator, there are some key questions to ask that will help determine rather or not the syndicator is a proper fit for you. After all, everyone has their own ideas about how to define a “good” investment, and you want to be sure that your views on multifamily investments and the syndicator’s are in alignment.
Some industry experts say that finding the right syndicator is just as important as finding the right property to invest in. I believe that a deal is as good as the syndicator who manages it; you can buy the best deal in the best market in the world, but if the syndicator doesn’t do a good job – then it won’t be a good deal. I’m not saying that a strong syndicator can make any deal work, but that a syndicator is as – if not more – important than the deal itself.
In order to help you determine whether a syndicator is a good fit, I’ve put together a series of key questions that you should ask your real estate syndicator before investing in any deal. I’m asked these questions by passive investors who are considering working with me, and I think the answers will help guide you as you choose the syndicator who is right for you. I’m also investing with other syndicators as a passive investor and always make sure to ask these questions of them myself.
Question #1: What is your investment approach?
Each syndicator has his or her own unique investment philosophy; just as each investor has one. Some investors look for high returns and are not concerned with the risks involved, as do some syndicators. Others are more conservative in their approach and would rather have a lower return in exchange for lower risk. When someone told me they wanted to double their investment in 18 months, I told them we were not a good fit, because I am pretty conservative and look at a 5-yr horizon. That’s why it’s smart to start by asking the syndicator what their appetite for risk is and see if it matches your own.
Another aspect of exploring a syndicator’s investment approach is to ask what markets they prefer to invest in, and more importantly, why they chose those markets. I look for markets with high employment, strong population growth, and a high rent growth. I also search for markets that are in states with “landlord friendly” laws regarding evictions and rent control.
Ask whether they prefer value-add deals or turnkey deals. I always look for value-add deals, because the opportunity to improve the property and increase rents, and ultimately the building’s value, exists. By renovating the property’s exterior or updating individual units, syndicators are able to increase the monthly rent. There is always a risk, however, that after renovating the building or apartments the syndicator won’t be able to charge higher rents. Value add deals usually provide higher returns than turnkey ones, and even though it takes time and money to improve the property, the rewards are worth it.
Question #2: What is your and your team’s background?
Syndicators rarely work alone. With the amount of knowledge and work involved, a syndicator puts a team together to manage all of the aspects of the syndication. The team might include a CPA, lawyer, real estate broker, and a lender. However the team is configured, it includes many different people.
One of the key questions to ask the syndicator is for details on their experience and their background. This question applies to the team members as well. What are their education credentials, how many years have they been syndicating, and how many deals have they put together with passive investors is another good question to ask. The more experience, the better. Something else to consider: do