Frequently Asked Questions
+ Why did we choose to invest passively in real estate?
- In an effort to diversify our investments, we wanted to have some of our savings outside of the stock market.
- Real estate investing is a tax advantaged way to grow your net worth.
- We are busy. Passive real estate investments, like syndications, allows us to earn money through real estate without having to actively manage the property on a day to day basis.
+ What is a syndication and how does it work?
- A syndication is a group of investors who come together to raise capital for the purchase of a large real estate property. The leaders of the syndication are called general partners (GP’s).
- The passive investors in a syndication are called limited partners (LP’s).
- The GP’s are also referred to as syndicators or operators. It is the GP’s who are responsible for creating the business plan, securing the financing, and actually managing the property.
+ What factors do we consider when evaluating a Syndication?
- Who are the Operators? The single greatest variable in the success of a real estate project is the operators.
- What is their track record? Have they exited deals already?
- Do they have experience in this sub-market and with this size of property?
- Are they personally invested in the deal?
- What is the structure of the deal?
- Are the interests of the syndicators and the LP’s aligned?
- What is the goal of the project? What is the business plan?
- What type of financing is being secured?
- What are typical returns and how frequently are distributions made?
- What is the expected hold time of the capital?
+ What questions should you ask the operators?
- What is their past experience and performance running a syndication?
- What are their current assets under management?
- How many operators are there? How long have they worked together?
- What role does each operator play?
- Walk you through the underwriting
- What is the back-up plan should unexpected events occur
- Are they personally investing in the deal?
- How are the GP’s compensated?What are the GP fees?
- Is there a preferred return structure (investors are paid before the operators)?
- Is a refinance built into the modeling?
- What happens if there is a call for capital?
- What is the current cap rate and the proposed exit cap rate?
- What is the CapEx budget for capital improvements? Will these add revenue or is it deferred maintenance?
- Describe the current operations of the asset
- Vacancy rates
- Delinquencies/bad debt
- Average turn-over of units
- Rent concessions
- What is the population of the area?
- Rent growth
- Population growth
- Job growth
- What are the communication expectations?