Where to look for Syndication Investments?
Investing in syndications can yield returns, which may potentially meet or beat the historic average of the stock market, while also offering certain tax advantages. If you’ve decided this form of passive real estate investment is right for you, the next step is to select a sponsor of a syndication with whom to invest. This article discusses how to best find syndicators, and what questions to ask to guide your selection process.
-
Personal Connections
One of the best ways to find a syndicator is through a friend or family member who has had prior success investing with them. A personal recommendation from someone you trust is valuable information, and you are lucky to have it.
-
Networking Events
If you do not have any personal connections with syndicators, the real estate industry offers many opportunities to connect with like-minded investors. These events range from small local meet-ups and real estate clubs that meet regularly throughout the year to large annual conferences like the Bigger Pockets Conference or the National Multi-Family Housing Council’s annual meeting. Successful syndicators are considered experts in the field and often speak at these types of events. Whether you attend a local or a larger national event (try to do several), you will hear approaches that resonate with you.
Even if you cannot attend, the list of speakers is typically published online and you should reach out to them.
You will be surprised just how approachable and open to sharing most syndicators are.
-
Podcasts
Listening to real estate podcasts where hosts interview syndicators is a terrific way to hear about their background, work, and accomplishments in great detail. Depending on the interviewer, the dialog may also reveal a deeper understanding of the syndicator’s personality, as well as their focus and priorities, which may not come through as clearly at a live networking event or on the sponsors’ websites.
-
Brokers
Brokers of large multifamily properties will often provide a high-level list of their prior deals online. This list will typically include the most prolific buyers and sellers, some of which will be syndicators.
-
Sponsors Websites
Visit a sponsor’s website as a first step in getting to understand their business. You can use the names you’ve gathered by following the above steps, or do a general web search for “real estate syndicators” or similar search terms to find others with a strong web presence.
Once you’ve developed a short list of sponsors for a potential partnership, the next step is to contact them with some questions to get a better sense of how they conduct business. Below are a range of questions to use as a starting point:
General Questions
1. What is the sponsor’s historical track record?
-
- Ask for documentation of a sponsor’s performance of their completed deals. Compare what they projected to their actual performance to determine if they have a track record of achieving their forecasted results.
- Ask whether the sponsor has gone through a full cycle with economic peaks and valleys. Inquire about how the sponsor managed business in 2008-2010, and what they plan to do during the current economic downturn. This will provide insight into their strategy for maintaining profitability during a recession. A sponsor who has survived market cycles knows how to get the best outcome in the face of adverse circumstances. An inexperienced sponsor, however, may fail despite a good real estate deal.
- Ask whether their company has ever been sued or is being sued now?
2. How long have they been in business?
-
-
- Ask about their team. Is this a one-person shop? Longevity of the deal could be at stake if the only person managing the project becomes unable to work. An understanding of the depth of their team and staff, and succession plan is important in the event that something unfortunate happens.
- Visit their office if you can. This will reveal how the sponsor treats their own work-space and give an indication of how much time the sponsor is willing to make for you.
-
3. What percentage of investors have reinvested multiple times with this sponsor?
-
- Repeat business speaks volumes.
Deal-Specific Questions
- Who manages the property? Do they use a third-party property management company or is the business vertically integrated?
- Is a sponsor also a loan guarantor or do they use someone else instead?
- What type of reporting do the investors receive?
- How often do investors get paid?
- How long must you keep your money in the deal? Can you pull out funds early?
- What type of reserves are established to shield investors from potential capital expenses?
- What are the major challenges / risk factors for this project? What happens if the project fails? How are such risks mitigated?
While the selection process may sound daunting at first, doing the upfront research of finding the right sponsor to invest with will ultimately free you up to sit back and let your money work for you.
Note that this is only one of the steps in the overall investment selection process. We will write about other steps such evaluating the market and reviewing the deal itself in one of our future articles.
