101 Questions to Ask Before Investing in a Real Estate Syndication with hands singing papers

101 Questions To Ask Before Investing In A Real Estate Syndication

When you invest in a new real estate syndication, you’re putting your trust in the sponsor team and asset manager. These people will be responsible for the day-to-day operations, executing the business plan, and guarding your investment capital.

Once you’ve signed the PPM (private placement memorandum) and sent in your funds, you, as a passive investor investing in a real estate syndication, have very little control over the direction and performance of the asset, including what’s being done to generate cash flow. For this reason, it’s crucial to ask the sponsor your questions before moving forward.

Your upfront due diligence plays a crucial role, as its thoroughness will determine your experience in the real estate syndication for the entire hold period. This can affect your cash flow, of course. However, it could also affect your overall perspective about the information included in a private placement memorandum and how a real estate syndication is run.

Take the time to ask your questions, do your research, and read between the lines. Squash all your doubts before investing in the deal, and only invest if you feel entirely confident that the sponsor team will help you generate passive income.

To get you started, we’ve compiled a list of 101 questions to ask before investing with a new real estate syndication sponsor. Of course, you might not want to ask every single question directly, but this list will give you an idea of what you should be thinking about and seeking answers.

Some answers, like the investment strategy and sponsor fees, can be found inside the investment summary or through independent research. For other solutions, you will need to ask the sponsor directly.

To download a PDF version of this list, click here.

101 Questions To Ask Before Investing In A Syndication

  1. Why did you choose this market?
  2. How long have you been in this market?
  3. What’s the biggest employer in the area?
  4. What can you tell me about this submarket?
  5. What other projects or developments are going on in this area?
  6. Have you done other projects in this submarket?
  7. When was this asset built?
  8. What do you like about this asset class?
  9. What don’t you like about this asset class?
  10. How many units are there?
  11. What’s the unit mix?
  12. What is the cost per unit, and how does that compare to the average for this area?
  13. What’s the current occupancy?
  14. What do you project the stabilized occupancy to be?
  15. What’s the median income for current tenants?
  16. What’s the business plan?
  17. What are the projected premiums for renovated units?
  18. How did you come up with the projected premiums?
  19. How much money are you raising for this project?
  20. How much of that is for the down payment?
  21. How much of that is for cap ex (capital expenditures)?
  22. What are the projected returns?
  23. What is the overall equity multiple?
  24. How is the deal structured?
  25. What are the equity splits?
  26. Is there a preferred return? Why or why not?
  27. How often do you pay out passive investor distributions – monthly, quarterly?
  28. What’s the projected hold time for this project?
  29. How did you come up with that timeline?
  30. What if the market is soft when the projected hold time ends?
  31. How are investors kept up with the progress?
  32. Are you taking an acquisition fee?
  33. Are you taking an asset management fee?
  34. Is there a refinance fee?
  35. Is there a disposition fee?
  36. What would happen if I had an emergency and needed access to my funds?
  37. Who is the property manager?
  38. How many deals have they managed like this?
  39. Have you worked with this property manager before?
  40. How did you find this property manager?
  41. Why is the owner selling?
  42. How did you find this deal?
  43. How much experience do you have with this asset class?
  44. What is the total loan amount?
  45. What kind of loan are you getting?
  46. Is the debt recourse or non-recourse?
  47. What are the terms of the loan?
  48. What is the LTV (loan-to-value) ratio?
  49. What is the debt coverage ratio in year 1?
  50. Did you walk the property?
  51. Who is on the team?
  52. What are their roles and responsibilities?
  53. Have you done real estate investing deals together as a team before?
  54. What happens if you get hit by a bus?
  55. Who is your securities attorney?
  56. Is this offering open to non-accredited investors or accredited investors only?
  57. Is this a 506(b) offering? 506(c)? Other?
  58. What will I find when I run your background check?
  59. Have you ever been a passive investor?
  60. What’s your ultimate goal with syndications?
  61. How would you feel about giving me a few references?
  62. Are you raising enough for cap ex?
  63. What are the chances of a capital call (i.e., the sponsors requesting more money from the investors)?
  64. What’s the purchase cap rate?
  65. What’s the projected reversion cap rate (i.e., exit cap rate)?
  66. What did you do to stress test this deal?
  67. Have you visited, toured, and secret-shopped the comps in the area?
  68. May I visit the property?
  69. Do you need a loan guarantor? If so, who is your loan guarantor?
  70. What’s the worst-case scenario?
  71. How do you do your due diligence?
  72. How much deferred maintenance is there on this property?
  73. Are you doing this full-time?
  74. What did you do before this?
  75. Why did you get into commercial real estate syndications?
  76. Are you part of a syndication coaching or mentorship program?
  77. Tell me about a time during a project when things didn’t go according to plan.
  78. Do you need anyone for the earnest money deposit (EMD)?
  79. What do we get for helping with EMD?
  80. When does EMD go hard?
  81. What happens if you have my EMD, it goes hard, and you can’t perform?
  82. May I invest with retirement funds?
  83. What’s the minimum investment?
  84. What’s the maximum investment?
  85. Who’s your asset manager or property management team?
  86. Who does your accounting?
  87. When do you send out Schedule K-1s?
  88. Will you be doing a cost segregation study?
  89. What’s the plan if the economy changes and you can’t sell?
  90. Does your lender offer loan extensions? How much do the extensions cost?
  91. Are you bringing your own money into the deal?
  92. How do I send in my funds – wire, check, other?
  93. What is the deadline for getting my funds in?
  94. Will you be offering an investor webinar for this particular investment?
  95. What percentage of the units will be renovated, and why?
  96. Once the deal closes, what are the first three things you plan to do?
  97. Are you rebranding the property?
  98. What would it be if you could wave a magic wand and change one thing about this property?
  99. What are the most significant risks of investing in this commercial real estate syndication deal?
  100. What do you like about the deal?
  101. What DON’T you like about the deal?

Hopefully, some of these questions to ask have sparked new ideas or ways of thinking about potential commercial real estate syndication deals and deal sponsors.

When you’re looking at prospective investments, no question is off-limits. Do your due diligence and ask what you need to ask the real estate syndication sponsor before you invest your own money. You should feel comfortable and confident in the real estate investment deal and the sponsor before ever signing the confidential private offering memorandum. If the deal sponsor brushes you off or doesn’t have clear answers, take that as an indication of how the relationship will be throughout the lifecycle of the real estate syndication deal.

There will always be other real estate deals, so don’t rush into it. It’s likely that the equity multiple or projected cash flow initially attracted you to the deal, so before you jump in, take your time to properly vet the real estate syndication opportunity and the deal sponsor. Focus on the things that may not be so clearly written on paper, like relationships, personalities, and integrity, so that you can feel fully confident throughout the commercial real estate investing project.

P.S. Here’s the link again to download the PDF version of the list.

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