It goes without saying that choosing to invest with someone requires a strong level of trust and confidence in that individual and their team. Some investors miss the opportunity to passively invest outside of their own personally owned real estate holdings due to a lack of understanding of how to vet a multifamily syndicator. Here are a few things the passive investor should be looking for when trying to determine if they have found a great multifamily syndicator with whom to invest.
One of the reasons people choose to invest in multifamily instead of their own single-family rental is because the transaction and management is handled by a team of professionals as opposed to one individual. Although this path can remove work, stress, and risk from the individual investor it does not mean that they should be unaware of how a multifamily investment works. A responsible syndicator will take the time to provide each of his investors with a basic understanding of how this type of investment works, what their investment options are and the associated risk with investing in multifamily.
One of the things we have learned regarding communication in our professional careers is that when leaders fail to communicate with those they are leading, people will assume the worst. It is simply human nature to allow fear to dominate our thoughts and drive us to believe that something bad has happened in the absence of any news. It is for this reason that consistent and appropriately timed communication is crucial in the syndicator investor relationship. While a stabilized property may only require an overview of the property status and financials once a month, a more dynamic time period such as the transaction closing, a major rehab or crisis like COVID calls for more frequent and detailed communication. The investor should ensure that the syndicator they are investing with understands why this is important and is disciplined to following through with their communication plan.
This may seem obvious, but the primary reason to invest is to get a strong return for the money you are placing on a given asset. Many variables affect the investment return. Some of these are controllable through proper planning and execution of the business plan while others are outside of the syndicators control. It is to these variables that careful consideration must be given along with conservative underwriting assumptions. Variations on cap rate, rent and expenses can provide a tailwind to the investment in the scenario where they have been carefully underwritten and then play out in the investors favor. However, these variables can also be the cause of poor returns when more aggressive underwriting is used and the syndication team fails to meet the set assumptions. For this reason, a high integrity syndication team will underwrite the deal based on feasible market trends and properly execute the business plan to drive for results in order to provide their investors with the most competitive returns possible.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please check out our free ebook "Achieving Financial Freedom Through Multifamily Investing."