I have been presented an opportunity to be part of a turnkey project where promoter is seeking minimum 100K (planning to raise 600k for $1.7 M) property in Memphis area. The property is part of student housing for a university and is going to be leased back to university for couple of years. The promoter is offering 8% cash on cash and projects atleast 20-25% IRR in 3-5 years. This is going to be my first deal and I am trying to evaluate if it is too good to be true. Any pointers, cautions, word of advice to evaluate this ?
Hello @Bhanik Shah , With the small amount of information you are providing it is difficult to comment in any meaningful detail. However, the 8% cash payment and the 20-25% IRR are not very different than many deals I have seen. I am bothered by the words "at least" 20-25% IRR. Although this type of IRR is quite possible on new construction, most reputable promoters are more careful with there wording so as not to promise a minimum IRR of 20%. New construction is the most risky of all RE investments and a lot could go wrong to affect returns. The lease back to the university sounds very interesting. You should get those terms to understand the income stream. Also, if it is a 3-5 year deal, what is/are the exit strategy(s). A $100K is a pretty big investment for a first deal. How well do you know the promoter? The sponsor's reputation and track record are of utmost importance.
Agree entirely with @Ed Matson . Until you get into the nitty gritty of who and what is behind those numbers it is too good to be true. Know you syndicators, and look for deep and positive experience among at least one of the partners, and how they have delivered over the years.