Investor · CO · Member since 2017 · 60 posts · 44 votes
If you were interviewing investors for your syndication deal, what would your top questions be to ensure they are a good fit? if you would consider unaccredited, sophisticated investors, what would be your top questions for them?
@Adam Lendi, this is a great post, and I hope many syndicators respond. Here is an abbreviated version of what I like to cover: 1. Liquidity Continuum (real estate illiquid vs. stocks very liquid). Clear?
2. Can’t get sell your shares like stocks, etc. Clear?
3. You could lose all your $. Clear?
4. Tax laws could be downgraded.
5. IRA... you may have UBIT? Clear?
6. Married... Spouse onboard?
7. Can’t 1031 out of this at the end. Clear?
8. Do your moral compass and values align with ours?
9. We want to be sure the investor doesn't use gambling language. This is a serious long-term investment, not a wager.
10. Do you really understand the preferred return (it's actually a hurdle rate!)?
11. You understand the returns are not guaranteed at all... just projections?
@Adam Lendi, this is a great post, and I hope many syndicators respond. Here is an abbreviated version of what I like to cover: 1. Liquidity Continuum (real estate illiquid vs. stocks very liquid). Clear?
2. Can’t get sell your shares like stocks, etc. Clear?
3. You could lose all your $. Clear?
4. Tax laws could be downgraded.
5. IRA... you may have UBIT? Clear?
6. Married... Spouse onboard?
7. Can’t 1031 out of this at the end. Clear?
8. Do your moral compass and values align with ours?
9. We want to be sure the investor doesn't use gambling language. This is a serious long-term investment, not a wager.
10. Do you really understand the preferred return (it's actually a hurdle rate!)?
11. You understand the returns are not guaranteed at all... just projections?
@Adam Lendi, Paul brings up some great ones, and since most of his questions are "clear?" it sounds he approaches it similarly to me.
In reality I approach it less as me asking questions, but making sure the investor understands there are very limited rights afforded them as a passive investor.
From compliance perspective: what do you do? what is your past investing experience? Do you qualify as an accredited investor and can be verified as such? Do you understand that there is a chance of total loss of your investment?
Probably a bit off topic, but I think GPs oversell two ways. 1. Using an IRA on a MF has issues; @Paul Moore Thank-you for mentioning the UDFI (UBIT's cousin). The tax can get non-trivial in a successful MF deal. 2. Cost-Seg & Bonus Depreciation is rarely beneficial for the first time MF passive investor.
I meet a lot of folks kicking the MF tires: 1. I like to tell them the distributions are not "eatin" money, you'll occasionally go hungry. 2. The deals are non-liquid, there is no easy, cheap way out. 3. As a passive you get to say Yes or No to a deal, but you do not get to renegotiate it. 4. Study and learn how it works, don't just claim you're Sophisticated. And if you are Accredited, also be Sophisticated.
As a Passive, I don't want to work with a GP that doesn't screen his investors; It isn't good for the investor or the deal!