5 Things Every Passive Investor Should Do Before Investing in a Real Estate Syndication

Real estate syndications are increasingly becoming more mainstream. But for good reason! When done correctly, real estate syndications are a powerful strategy to create passive income and build generational wealth.

By pooling capital together, passive investors have the opportunity to own a piece of a larger, more profitable real estate deal than they might be able to afford on their own. However, investing in a real estate syndication requires careful consideration and due diligence.

Here are five things passive investors should do before investing in a real estate syndication.

1. Research the Sponsor

The sponsor of a real estate syndication is responsible for sourcing and managing the investment. The sponsor team is the active investor in the deal.

Before investing in a syndication, it’s essential to research the sponsor’s track record and experience in the industry. Look for sponsors who have a proven track record of success and experience managing similar real estate investments.

A few examples for how to do this:

• Look for deals they have successfully exited in the past.
• Run a background check on the sponsor.
• Ask for references from past investors.

2. Understand the Investment Strategy

Real estate syndications can have a variety of investment strategies. Some syndications focus on value-add properties, while others invest in stabilized assets. At Goodin Development, we focus solely on multifamily ground up development projects and we invest alongside our investors in these projects.

Passive investors should carefully review the syndication’s investment strategy and make sure it aligns with their investment goals and risk tolerance.

Ask yourself questions like this:

• How much risk am I willing to take?
• Do I want to invest in short or longer term holds?
• Is cash flow or upside potential more important to me?

3. Review the Deal

Passive investors should review the details of a real estate syndication to understand the projected returns, fees, and the sponsor’s proforma of the deal itself.

It’s important to ask questions and seek clarification if any aspect of the offering is unclear.

Ask the sponsor questions like this:

• What fees are being charged on this deal?
• How are you determining the projected rents?
• How many months will construction of the property take?
• How confident are you that we will achieve these projected returns?
• What stress tests did you run on the deal?

When you are investing your hard earned capital, there are no dumb questions!

4. Evaluate the Risks

All investments carry some level of risk, and real estate syndications are no exception.

Passive investors should review the syndication’s offering documents to understand the risks involved in the investment. Some common risks include changes in market conditions, property management issues, and construction delays.

Ask yourself questions like this:

• Would I be financially secure if I lost my investment amount?
• Do I trust the sponsor team to run this investment?
• Do I think this market will continue to grow in the future?

5. Seek Professional Advice

Real estate syndications can be complex investments, and passive investors should seek professional advice before investing.

A financial advisor, attorney, or real estate professional can provide valuable guidance and help investors understand the investment’s potential risks and rewards.

Talk to other people that have invested in real estate syndications. Post on social media asking for advice from other passive investors.

Talking to professionals and asking around will help you make the most educated decisions.