11 Questions to Ask Someone With a Trillion Dollars to Invest

“Hey Joe. My cousin’s friend’s grandfather’s former college roommate is a Russian Oil Tycoon with a trillion dollars to invest. Do you want me to make an introduction?”

Okay, maybe not that extreme…

While I do receive the majority of my potential inquiries through my Invest With Joe landing page, I also receive inquiries from people I meet who say they or someone they know has a whole bunch of money and either want to buy a piece of real estate or passively invest in one of my future deals.

If you have had some level of success in apartment investing, you do or will run into similar scenarios – even if you aren’t currently raising capital.

Many high net-worth people know the wealth conservation and wealth building benefits of multifamily real estate. However, just because someone has enough capital to invest in your deals doesn’t mean they can, will, or even should invest. In order to determine if a high net worth individual is serious about investing in one of my deals, here are the 11 questions I ask:

1. Do you want to invest in multifamily, value-add projects?

Our business plan is to purchase stabilized multifamily deals that have the opportunity to add value. That is, either increase the income or decrease the expenses by improving the physical property or improving the operations.

Value-add multifamily projects are just one of many syndication business plans. Maybe they invest in value-add deals that aren’t multifamily. Or maybe they invest in multifamily deals that aren’t value-add. If the high net worth individual doesn’t invest in value-add deals and multifamily deals, then my business may not be the ideal fit.

Obviously, if you’re business model isn’t value-add multifamily, then replace “multifamily, value-add projects” with your investment strategy.

Keep in mind that just because they haven’t invested in your investment type in the past doesn’t automatically disqualify them. Instead, you should provide them with a resource that educates them on your business plan (like my Passive Investor Resources Page).

2. What are your return expectations?

Most passive real estate investors’ base their return goals on the cash-on-cash return and the internal rate of return. Therefore, those are the two main return factors we analyze when underwriting and presenting new deals to our passive investors.

When speaking with a prospective investor, I want to know what their return expectations are. Most high net-worth individuals will be familiar with these two return factors. If their cash-on-cash return and internal rate of return expectations differ greatly from the returns we offer to our limited partners (LPs), our deals may not be an ideal fit.

Of course, you may run into high net-worth individuals who care more about another return factor or care more about capital preservation than the ongoing returns. The purpose of this question is to determine if the returns you offer to LPs are aligned with their return expectations. If they aren’t, this individual likely won’t invest in one of your deals.

3. What is your investment minimum and maximum hold time?

Another important question I ask prospective investors is when they need to receive their initial equity investment back. Generally, our exit strategy is to sell our deals within 5 to 7 years. On some deals, we are able to return a portion of the LP’s initial equity upon a refinance or supplemental loan. However, this question is focused on the investors’ entire equity investment.

If I ask a potential investor this question and they say “I would like all of my capital back within 2 years” or “I don’t want my capital back for 10 years”, then our deals may not an ideal fit.

4. Can you show proof of funds?

I may speak with an individual who claims to be an accredited investor, but doesn’t actually met the liquidity and net worth requirements. Asking for proof of funds is a simple way to confirm their accredited investor status.

If you are doing a 506(b) and are accepting non-accredited investor money, you may still want to ask for a proof of funds. If you have a minimum investment of $50,000 and they send you a screenshot of their bank statement that shows a balance of $15,000, they likely won’t be able to invest in your deals (or at least not in your next deal).

5. Have you invested as a limited partner on a syndication deal?

I ask this question to gauge the experience of the high net-worth individual. From my experience, if I receive an inquiry from someone who hasn’t invested in a syndication deal before, the chances of them investing in one of my deals is very low. Apartment syndication is a complex investment strategy. Heck, the PPM is usually over 100 pages long. It takes time for someone to not only become educated on the syndication investment strategy but to become comfortable with it as well.

I don’t recommend that you reject someone who has never invested as an LP before. However, while it is definitely possible, don’t expect them to invest right away.

6. Are you comfortable investing with other LP’s or would you require to be the only LP in this investment?

The majority of my investors are comfortable investing alongside other LPs or they don’t have enough capital to cover the entire LP equity investment themselves. However, I do have a handful of investors who want to be the only non-general partner (i.e., my business partner and I) LP on the deal.

When speaking with a prospective investor, I like to know if they are comfortable investing alongside 10, 20, 50, or more other investors or if they would like to be the only LP. If it is the former, great. If it is the latter or if they are investing a substantial portion of the equity, I will ask them if they are willing to commit non-refundable equity (we will do the same) to create an alignment of interest to close. Our reasoning is simple – if they are investing all or most of the capital and back out last minute, we have to scramble to find other investors on very short notice.

7. What is the amount you are looking to invest should we both find this to be a good fit to move forward?

I also like to get an estimate on the amount of capital they are able and willing to invest. First, we have a minimum investment amount for all of our deals, so I need to confirm that they will exceed that threshold.

Second, if someone invests more than 20% of the equity required to close, the lender will perform additional due diligence on that person, which includes looking at bank statements and tax returns.

Third, see question 6.

And lastly, and this is more important for investors who are just starting out, the size of deals you look at is dictated by the amount of money you can raise. For example, if you are capable of raising $1 million, your maximum purchase price is around $3 million (generally, you are required to raise 30% to 35% of the total project costs). Additionally, a good rule of thumb is to have verbal commitments equal to 150% of the project costs, because not every single one of your investors is going to invest in every single deal. If you need to raise $1 million, you want verbal commitments of at least $1.5 million. By understanding the maximum amount of money someone is able and willing to invest will allow you to calculate your maximum purchase price.

8. What is your timeframe for investing that equity?

Assuming this high net-worth individual is a good fit, I want to know when they are able to invest their equity. Some people are ready to invest right away. Others may need to liquidate other investments before investing. The individual’s answer to this question isn’t a disqualifier, but if they account for 50% of your verbal commitments and cannot invest in a deal for 12 months, then that will affect your maximum purchase price for those 12 months.

9. (If out of the country) Have you invested in the US real estate market before?

If you are speaking with an international investor, the first thing you need to determine is if your offering type (i.e., 506(b), 506(c), etc.) allows you to accept international money.

If you are able to accept international money, you want to know if this international individual has invested in the US real estate market before. There are extra steps required on the part of the international investor to place capital in US real estate. If they haven’t completed those steps, their capital might be delayed to the point where they cannot invest in one of your deals. If they committed a substantial portion of the equity, that is a huge issue.

10. Should we both think this is a good fit, who is/are the decision maker/s when deciding to invest or not invest?

The answer to this question also isn’t a disqualifier. It just lets me know how to approach this individual. If they are the sole decision-maker, great. But if I know that they have a partner, significant other, or someone else that needs to sign-off on the investment, I want to also speak with that person as well.

They may have different passive investing expectations or concerns than the person I’m speaking with that I would like to know and address upfront, rather than in the middle of the capital raise.

11. Is there anything else we should know about you?

This final question is to obtain information about the potential investor that wasn’t provided in the answer to one of the previous ten questions on this list.

The entire purpose of asking these questions is to gauge the seriousness of the investor. Whenever you send out a new offering to your list of investors or present the deal on a conference call, expect to receive a lot of questions from investors. When you understand each investors’ specific situation, you will have a clear picture on who will and who won’t ultimately invest, which can save you a lot of time and headaches while raising capital for a specific deal.