The Top 3 Qualities to Look for in an Apartment Syndicator
Have you ever been to a restaurant where the food was incredible, but the service and management were terrible? No matter how great the product may be, if the establishment is poorly managed, your experience will be tainted.
The same goes for real estate investing.
Finding a good deal is the easy part, but choosing who to invest with is where the real work comes in. Generally, most multifamily investment properties will look similar on paper. It is always important that you research the property and the neighborhood, but it’s even more critical to research the sponsoring syndication team.
In this article, you will learn the three main qualities to look for in an apartment syndicator and why these qualities are so important when it comes to deciding who to invest with.
Experience
Leading an apartment syndication is no small feat. It requires a significant amount of due diligence, knowledge, and experience. When looking for a real estate syndication sponsor, the first thing to ask about is their track record in the market. Do they have experience with the asset type in question? Have they seen similar projects through a full cycle, from purchase to sale or refinance? Do they have experience with the type of business plan and value add projects they are proposing?
Look for consistency in their track record when delivering returns to their investors. A great way to vet a potential syndication sponsor is to ask for investor testimonials, or better yet, to be connected to a past investor so you can hear it from them directly. Ask the team how many of their investors have invested multiple times with them. If there doesn’t seem to be any repeat investors, try to find out why. If a syndicator is unwilling to share any of this information, consider it a red flag.
Remember, it’s ok to invest with someone you may know personally who has less experience in a specific market or overall as long as they are partnering with others who do have the level of experience that makes you feel confident in their ability to deliver. It’s important to look at the experience and expertise of the sponsorship team as a whole, not just the individuals.
Communication
A great real estate syndication sponsor should communicate with their investors clearly and consistently. As an investor, you don’t want to partner with someone who is only looking to complete a transaction, take your money, and run. Rather, you want to look for syndicators interested in building a long-term relationship and that seek to understand your goals. Healthy communication with a sponsor should include respect for your time, helpful education, a willingness to answer your questions, transparency, and honesty. Look for red flags from potential sponsors that seem to be pushing you into investing with them rather than clearly communicating everything you need to make a well-informed investment decision. Trust yourself to know when something does or does not feel right based on your conversations.
Research and Data
When you find a sponsor that has a proven track record and you trust them to communicate effectively, it’s time to look at the data. Finding a good investment opportunity requires a great amount of research and data analysis. The syndicator is responsible for conducting that due diligence and delivering the information to potential investors. This should be presented in depth via an investor presentation such as a live webinar, slide deck, or video recording.
Take notes and ask questions about any data that seems to be inconsistent or illogical. Check that they have referenced verified sources and ask how they calculated certain assumptions that they’ve laid out in their offer. Does the data back up the assumptions made? Did they conduct a worst-case scenario analysis, and what numbers did they use? Are they using realistic inputs to estimate results and returns? There is no such thing as “too many questions” when it comes to choosing a real estate syndication sponsor. Be sure that the “feel good” pitch that the syndicator provides is also backed by facts and numbers.
Summary
Good deals can go astray when led by a bad sponsorship team. It’s about more than what you’re investing in when it comes to multifamily syndications. The biggest decision lies in who you are investing with. Don’t be afraid to ask tons of questions when vetting potential sponsors. Get to know the person or people who will be leading the project and look for green flags that indicate the potential for a lucrative, trusting, and long-lasting business relationship. It is a big commitment to invest in a project of this size. Be sure you feel confident in your decision before putting your money into any project.
If you’re interested in learning more about how syndications may help you progress your financial goals, schedule a free consultation with one of the EZ FI U team members.
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