Deciding on a syndication can be overwhelming. There are many crucial factors to consider.
What do you need to know before deciding on a syndication?
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What every real estate investor needs to know when deciding on a syndication
The number one thing that precedes everything else in deciding on a syndication is your trust level with the syndicator.
You're placing your resources, time, and effectively your dreams in that person's hands. Before you know whether they have the skills to do it, you need to know whether or not you trust them. This can be achieved in a couple of different ways.
First, read through their website.
Second, book a phone call to get to know them.
You'll want to ask detailed questions about their business plans and how they've been implemented in the past. Get to know how they operate; what kind of projections they have.
You need to ask them about their track record.
- How long have they been doing this?
- Have they gone full cycle on a deal before?
- What do their private placement memorandums look like?
- Can you go look at the legal documents before you sign?
- Can you follow up and ask more questions?
These are things that you need to do to build trust with that operator.
Understanding the operator and their track record is a great way to start, but how can you ensure that you're evaluating the right things within those materials?
Well, you need to ask yourself, what is their underwriting style? Is their analysis of deals sensible and conservative?
Ask yourself what underlying assumptions are being made when they put together the returns. I can get spreadsheets to say anything, but I need to have them say what I really believe is going to happen based on core solid underwriting standards.
Two quick things to ask:
What are your exit cap rates? It's a bit of a fancy term, but it basically means, what do you think this thing's going to sell that off into the future? And it needs to be sound.
The second thing is, how much do you expect rents to increase year over year? We've been in a period recently where rents have gone up a lot, but that's not historically accurate. If you just take the rates from the last two years and extrapolate them forward, five, six years, every deal is going to look amazing, but you don't want to do that. You want to underwrite deals conservatively.
So by having conservative exit cap rates and conservative rent growth numbers, I think you can have high confidence in the syndicator.
Another important aspect of this is to look at yourself and really evaluate what your personal goals are.
You need to figure out if you want to go into active investing. In other words, do you want to do it all on your own, or do you want to be a passive investor and let someone else with experience in the field do this work for you?
If you don't have much free time, and you're looking for an easy way for your money to work for you, then passive investing is going to be the right way to go.
If you're a self-starter and you're looking to put a ton of sweat equity into your business and you have lots of time on your hands, then, maybe you can do it on your own.
When most people take an honest self-analysis, passive investing is the right way to go. They can spend their time and their money on things that they're already good at and let someone else, who does this full time and has lots of experience, do the investing on their behalf.
