10 steps to vetting an investment partner

Congratulations. You’ve decided to accelerate your wealth by partnering with a deal provider. This can be a wise thing to do but not without risk. Be sure to thoroughly vet your potential partner. If you are providing money (or other benefit) for the deal, here is a list of items to consider.

1. It may seem obvious, but meet with them in person. You could go to their office or current or past real estate site. If they are out of state, arrange a video conference. It’s important to get a sense of who they are, and a visual can be better than emails and phone calls. Though a website and social media channels are not necessary, you may get a sense of who they are through postings and videos. If you have the opportunity to meet up with them several times, do it.
2. Ask for references of past or current business partners. I’m always taken by surprise when, for some reason, they are unable to provide this reference. I’ve heard, “I’m not comfortable giving out investor’s contact info.” Or “don’t call this person as they don’t need to know that I’m doing another investment.” If you can’t talk to a current or past investment partner of theirs, take that as a sign. For me it is an automatic NO.
3. When you do talk to the provided reference, ask in what capacity they are invested with the person and for how long? Are they getting regular distributions? If the deal provider is the Tax Matters Partner, do you get your tax documents in a timely fashion? Did the partner stick to the rehab budget and time frame? Specific questions are better than, “do you like him as a business partner?”
4. Run a background check. You do this for a tenant, why not for someone to whom you are entrusting your money? Look for good credit and payment of all bills. Note that any private note defaults are unlikely to show up on this report. You need to get permission from the investor to obtain this information.
5. Ask for emailed performance reports of past properties. If they have provided you with a past Marketing Brochure or similar document, the financial reports should confirm the intended financial goals of the property. What software do they use and can you easily receive, read and understand the reports? If it’s a multi-family, what does the Rent Roll look like? You are looking to see that they have systems in place. 
6. Review detailed financials of the proposed investment, year 1 through the property stabilization period. If they need 200K in rehab funds, ask to see the itemized estimated rehab budget. Property Due diligence, goes much deeper. Just don’t take for granted any numbers on the pro forma.
7. Who is on their team? Do they have a bookkeeper, CPA, contractor, assistant, etc.? These people need not be their employees, but you want to know that they are not doing it all themselves from a dark disheveled corner of their house.
8. Ask what mistakes they have made before. Everyone has made mistakes. Ideally, they have been in the business long enough to have made several mistakes. There is no school for investors, except the one of “hard knocks”. Each mistake is a learning opportunity that makes the next investment better, and a willingness to share a mistake shows confidence and knowledge gained via experience. In this light, perhaps you can see an unforeseen loss on a property as a good thing.
9. What is their character like? This can be hard to discern in a short period of time, but important nonetheless. Are they respectful to you and others? Will they treat your money like gold? As a female investor, I’m leery of “the dude factor”. Do they speak to you in a swanky salesman like manner or do they seem genuine? If I sense "a schmooze factor" at all, I walk away. You are looking for someone that you can relate to, that seems sincere, kind and “real”. Character is less tangible than a QB report, so trust your instincts. This could end up being a long-term relationship where you see each other at your best, and worst.
10. Know your role. Are you active or passive in this deal? Do you want to gain some sort of experience in the investment? In spite of any verbal agreements, the OA has the final word and you’ll want to make sure that your expectations are to your satisfaction in the OA.