How Should I Vet a RE Syndication?

Question

My good friend has already had a lot of success in real estate and is an ultra high income earner. To keep it short, just from knowing him as a friend and knowing the level of success he has, I already trust him enough to put money into his projects, but I know I should be responsible and do my due dilligence.

Essentially, a big project right now is a cabin in a very busy vacation spot that is going to be about $2m. Its going to be used as an Airbnb and no bank financing will be used. Hes already put $500k of his own cash  into it. The plan is to sell it in 4 years once appreciation has occured. He says he expects 10-15% a year cashflow while they own it and once it sells, it should be 35-45% total ROI. I would be an actual owner of the property as well if I invest in it. I make good money, but Im not a pro with REI at all.

All and any advice is welcome. Thank you.

Chris Seveney · Answer

@Zach Simpson

Here are questions that pop immediately in my head:

1. What market study have they done to confirm the net returns of 10-15%

2. What is sensitivity analysis if project cost is 10% higher, it takes 6 more months to build ?

3. What if the property has no appreciation at the end of 4 years?

4. Who is managing the Airbnb ?

5. Is there a ppm? Operating agreement, subscription agreement? What are you signing and what are those terms?

6. Have they ever done anything like this?