You’re investing in real estate – but will the team actually hit the target?
The most important step before investing is vetting the team managing the deal (aka the sponsor). By performing your due diligence and vetting the sponsor, you can be sure that your investment is in good hands.
Sponsors are not all created equal – some are more experienced and qualified than others. If you do your homework up front, you can avoid potential problems down the road. You don’t want to be the one who puts their hard earned money at risk and loses it all because you didn’t do the due diligence.
Here are a few tips to help you vet the sponsors:
1. Ask for references from past investors. If the sponsor(s) can’t provide any, that’s not a good sign. You can also do a background check on them.
2. Check their track record. How long have they been doing syndication? How many properties do they currently manage? Have they sold any of their properties and what were the results for passive investors?
3. Take a look at the business model. Are they focused on completely renovating all the units or taking a property from low occupancy to high occupancy? Or do they achieve returns using more simple value-add techniques? Have they executed that type of business plan before, and if so how did it go?
4. Ask lots of questions. Are the sponsor(s) taking the time to walk you through the plan and numbers in detail? Can they answer your questions concisely, clearly and quickly? Remember before you invest is when you have the most leverage – if you don’t like the way they are treating you before you invest, then it is likely to only get worse afterwards!
By following these tips, you’ll be on your way to feeling confident that you’re working with a qualified and trustworthy sponsor.
Real estate investing is all about working with a team you know, like and trust.
If any of those don’t line up for you, keep asking questions or find a new team.
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