How New Apartment Investors Can Vet Multifamily Syndication Opportunities

It goes without saying, apartment investors new to multifamily syndications have a lot of work ahead of them to learn how to suss out the most promising sponsors and deals. My husband Henry invited his colleague Raj over for dinner one night. Raj is an IT engineer and interested in investment opportunities. He’s heard of multifamily syndications, but wasn’t quite sure what they involved, their pros and cons, and the overall complexities. 

He had questions

Fortunately, there was food, and then dessert, to sustain him. If you haven’t guessed already, I can talk at length about multifamily syndications!

From appetizer through main course and then dessert, Raj went from a green syndication newbie to someone who had a good grasp of what multifamily syndications are all about, as well as how to appraise a sponsor and what makes a promising multifamily syndication stick out from a not-so-promising one.

I Invite You, Dear Apartment Investors, to Delphine’s Syndication Diner

I’d like to take you through the process of what I’ve learned over my many years as a limited partner turned sponsor. Let’s start...

Your First Syndication

This is a big deal. Think about it - first-time apartment investors along with more experienced investors are putting up an enormous amount of capital to invest in a deal with a sponsor, a.k.a general manager, whom they may have never met for a property they may never see. Added to that, they’re going in on the deal with potentially 100+ other limited partners.

It’s like you’ve parachuted into multifamily syndication land. The language is different. The culture is different. You feel like an infant (with 50K in your piggy bank), starting from square one. 

Added to this, unlike a brokerage account, you can’t simply sign onto an account to view your investment and how it’s faring. You must rely on communications from the sponsor.

Are you starting to see just how much trust and confidence you’re putting into the sponsor? Ensuring they are trustworthy and experienced is HUGE.

The more you’re in this world of multifamily syndication, doing your research and networking… speaking with potential sponsors, the more confident you’ll feel about investing your hard-earned money.

Here’s how to get from where you’re sitting now to participating in a syndication deal with confidence.

Preamble

For starters, a real estate syndication is formed by a “sponsor” (which may be an individual or an entity). The sponsor identifies the real estate asset (multifamily or apartment property), obtains financing for a portion of the purchase price and then brings in passive investors to contribute the downpayment and closing costs. 

The sponsor is responsible for many things, but the primary ones are: finding the property, pooling the investors together, and managing the asset on their behalf. In return, the sponsor will receive fees or a percentage of the profits after expenses, loan obligations, and limited investors have been paid.

On average, investor returns range from 7-12% each year. As with most investments, the higher the return offered, the greater the risk.

#1 – It Starts with Research

#2 – Don’t be Afraid to Ask Qsssss!

It’s one thing to do your research online and quite another to meet people face-to-face. At the very least, be a contributor and don’t be a lurker on forums… ask those questions and get answers, faster than you could reading a book or listening to a podcast.

But if you can meet people in person - those that are further along in the syndication journey than you, do it. They are a source of invaluable insight. And what they say in the moment may spur even more questions from you - ones you hadn’t considered before. 

And from where you’re sitting right now, questions are good!

Believe me, no sponsor wants to make a deal with a limited partner just starting out who doesn’t ask questions. It suggests they aren’t serious, or worse - that they may end up investing their money only to go in panic-mode when it’s all said and done because they couldn’t admit to themselves that they weren’t ready.

So get yourself ready and ask questions.

#3 – Find Investor Mentors

If you’re interested in a syndication deal, you’ll be pooling your 50K with dozens of other limited partners. Syndications are about people, an investing community. And while you may not ever meet the other investors, most of the limited partners take that spirit of community and common interests to heart.

If you can, find people who have gone through the syndication process, either as limited partners or sponsors. You may be able to connect online or via a local meetup. Again, ask your questions - just like Raj did - and learn from their experiences.

#4 – Analyze Syndication Deals

The first investment summary you come across will read like Greek. This is why it’s imperative that you take time to review many different syndication deals. In this way, you will notice common threads and have more than an intuitive grasp if something doesn’t look quite right.

You by all means don’t want the first investment summary you ever read to represent the first syndication deal you invest in.

Learn the language, the culture, the various deals FIRST before you fork over you moola.

Also, seek out professional advice from your CPA. They can help you assess the risks of a particular offering and help you navigate across this unfamiliar landscape.

#5 – Find Syndicators

A great way to meet local sponsors is to become a member of your local real estate investment clubs. It’s best to attend the meetings regularly as this will build trust and camaraderie. People will be more willing to share if you’re a familiar face.

And One More Thing…

It’s important to remember that this isn’t a race. Don’t ever feel pressured to buy into a deal, no matter what the syndicator may say. True, some deals will fill up fast - within days - but if you’re not prepared, if you haven’t gone through each of these steps then you aren’t ready to put that 50K in and sit it out for five years.

Play it smart and safe, bide your time and the perfect syndication investment will come along when you’re ready. And then? You won’t be in the field of newbie apartment investors anymore, you’ll be on your road to knowledgable passive investor valhalla.