What Deal Research Can You Do as a Passive Investor?

Updated: Mar 7

Many real estate investors who want to remain 100% passive, invest in multifamily properties with a syndicator. If you’re a passive investor and are new to syndication, here’s a brief explanation of how it works, and why it’s the smart way to invest. First of all, syndication provides the opportunity to access larger and more attractive investment opportunities by pooling resources with other investors.

Benefits of Investing with a Syndicator

For passive investors with limited real estate experience, syndication is ideal because the syndicator, or lead investor, has the knowledge needed to make the deal work successfully. He or she does all of the hard work; including finding and analyzing the right deal, negotiating the price, performing due diligence and developing and implementing the business plan.

That means that the passive investor can continue working in their field, without having to devote time to learn about real estate of manage the property. Another advantage is that you can invest in other properties, or different investments like stocks, business startups and other moneymaking opportunities.

One of the top benefits of investing with a syndicator is that as a passive investor you’ll enjoy many tax benefits. Many passive investors have zero tax exposure thanks to depreciation write offs like interest payments and expenses. Passive investing is basically a wealth-building strategy that provides high returns with low risk.

Do Your Own Due Diligence

While the syndicator is the one who will find the property and negotiate the price, it’s up to individual passive investors to do their own due diligence to make sure that whatever they are told about the deal is accurate. After all, it’s your money that’s being invested, so you should invest your own time as well to ensure that you’re getting involved in a quality project.

Before I suggest some of the various tools available that you can use to perform your own due diligence, I want to point out that I have no ties or financial interest in any of these websites, apps or tools. I’m merely offering you suggestions on what I personally use so you don’t have to spend time hunting for them. I’ve successfully used everything that I’m recommending, and found them accurate and useful in helping to evaluate the deal.

How strong is the Neighborhood?

Not surprisingly, multifamily properties have the same key requirement as any other real estate investment to ensure success: location, location, location. You’ve heard that before with respect to other properties, whether it’s retail, commercial or any other type of property investment. A great location will certainly give an investor an advantage over a location that is not ideal.

You want to be sure that the property you’re investing in is not located in a high crime rate area, has a population that is gainfully employed and has properties that have comparable rents to the one that you’re considering. The best place to find out this type of information is at http://www.city-data.com/.

That’s where you’ll find accurate information on the area’s crime rate, household income, the percentage of residents l