One Quick Way to Check the Performance of Your Syndication Investment
So you've invested in a syndication as a passive investor. Great! If you've read my articles, you know I'm a big fan of passive investments and I think syndications are a GREAT way to build passive income over time. But how do you monitor these investments? Here is one quick and fast way to verify whether your syndicator is hitting the mark on their projections or not.
Comparing Projections in the Deal Deck with Actuals
We want to know that our deal sponsors are underwriting conservatively. There is no better way to monitor this than by comparing the Quarterly Statements with the projections in the Deal Deck (or Investment Summary). One thing I do with all of my new investments is to look at the actual net operating income and compare those with the projections in the Deal Summary. If it doesn't look like the NOI is on target to hit the first year projections, that is a red flag. It's especially a red flag if it's more than 20% off. That signifies a substantial material difference from actual performance and projection performance.
What to Do When Projections Vary From Actuals in a Deal
Don't Panic! Rather than send scathing emails to your syndicator-partner, I think it's best to wait for a full year worth of data to get too concerned. That is of course unless the variance is in excess of 20%. The most important year for a nice solid ROI number is always in the year of sale, so don't freak out too much about year one not stacking up if it's 5-10% off. Vacancies can be higher than expected during the stabilization process and there are always a number of other factors at play.
The Principle To Remember
At the end of the day, we need to monitor our investments. If you're seeing a large variance between projected number and actuals, AND if that's a pattern that continues, then you may need to re-evaluate that particular syndicator/partner. Syndicators can make significant profits closing mediocre deals. You need to do your diligence to make sure you're not enriching a syndicator by participating in their mediocre deal.