Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes
5y
As an active investor who also invests passively, I like to find someone who's invested with the sponsor already and ask them about their experience. Making sure they follow-through with what they say they will - do they pay distributions on time, K-1s in a timely manner, good communication, what type of deals have they done, have they taken any deals full cycle, have they been through economic cycles, are they investing in their own deals, what was their background before real estate (did they manage a P&L), do their fees align with the performance of the asset, background check, etc. Let's face it, passive investing in syndications has unique risks for the LP.
The sponsor is the most important factor. Closely followed by the deal. The deal has to align with my modeling, but even a good deal can be blown up by a bad sponsor.
Realtor · Denver, CO · Member since 2020 · 259 posts · 153 votes
5y
Hey @William Costello, my vote would be clear and concise terms/structure of the deals, casting a wider net instead of losing investors to overcomplicated structures. If they don't understand their return, they won't invest!
Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
5y
Great question @William Costello. If you mean what the most important factor is for a potential passive investor looking to invest, I'd say the credibility of the general partnership team is the most important factor. A general rule of investing is that you don't invest in a deal or idea, you invest in a person. Prospective investors should vet the general partners on a deal by asking the right questions. Start by looking the general partners up. If they have been sued in the past, or any bad press, make sure to look into it and ask questions about it.
Questions can include (but are not limited to):
1. How many deals like this one have you and/or your partners done in the past?
2. How much experience do you and/or your partners have in apartment syndication?
3. Who is part of your team?
A great list of questions to ask a general partner can be found on Joe Fairless' website:
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@William Costello, I can't say there is any one aspect. At the end of the day it is really the returns, since we are investors, but it all boils down to risk:reward. Some people value the operator more than all else. Some value the deal more than the operator.
Things I have heard over the years that are the first layer of diligence, and reasons someone may not consider an investment: first year return projections, waterfall structure, lack of track record of sponsor, only offering a Fund and not one off deals... to name a few.
But to boil it down, I would agree with Jeffrey: credibility of sponsor
Indianapolis, IN · Member since 2021 · 193 posts · 150 votes
5y
@Evan Polaski good point, returns are important but I think it is also about building relationships with clients and making sure that you build that report with them so they feel more comfortable and confident in future deals whether that is with your syndicator or another firm in the near future. Important to have diversity in the portfolio
Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
5y
@William Costello When you say clients do you mean what is the most important thing passive investors are looking at when evaluating a syndication opportunity?
I would say the most important thing they should look at is the sponsor.
Who are they? What is their experience? Who is on their team? What is unique about them? What are their values? What are their charitable contributions?
Everyone has a deal. It’s really important to make sure you trust and have the same values with somebody you are doing business with.
Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes
5y
As an active investor who also invests passively, I like to find someone who's invested with the sponsor already and ask them about their experience. Making sure they follow-through with what they say they will - do they pay distributions on time, K-1s in a timely manner, good communication, what type of deals have they done, have they taken any deals full cycle, have they been through economic cycles, are they investing in their own deals, what was their background before real estate (did they manage a P&L), do their fees align with the performance of the asset, background check, etc. Let's face it, passive investing in syndications has unique risks for the LP.
The sponsor is the most important factor. Closely followed by the deal. The deal has to align with my modeling, but even a good deal can be blown up by a bad sponsor.
Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
5y
@Paul Shannon I totally agree! The most important factor is the sponsor. Everyone has a deal but what are they doing to be unique? Who is on their team? How involved are they in their community?
These are all great points you made. Glad to see another local Hoosier here! I work in Carmel. Let me know if we can connect one day.
@Paul Shannon I totally agree! The most important factor is the sponsor. Everyone has a deal but what are they doing to be unique? Who is on their team? How involved are they in their community?
These are all great points you made. Glad to connect with another Hoosier!
I was just typing you a Linkedin message as you were responding on BP! Lol. Check you inbox.