If you're a high earner, you get pitched a lot about "opportunities" to invest in. Choosing the right person or group to invest with can be challenging, and some people pitching can be very convincing or their family or a friend, and you don't want them to feel like you're not supporting them. I'll be going over five things to look for in a real estate syndication to help you choose the right people or group to invest with.

Track Record:

You should always look at the Sponsors track record first and make sure it's strong. This is so important because you're a Passive Investor (Limited Partner) in the syndication they're presenting to you, which means you have very little input in how the syndication is operated. The Sponsor should be very knowledgeable in the areas and industries they invest in. They should also be able to explain clearly why they like a deal and the plan to keep the risk as low as possible for you, the investor.

Reporting Periods:

The Sponsor you choose should offer monthly or quarterly reports on how the property is performing so that you're always in the know. At the very least, the Sponsor should provide a Cash Flow and Overview report of the syndication. My team offers more info, and it's very detailed to make sure our investors have as much knowledge as possible about how the property is performing.

Profit Split:

This is common in syndications; the passive investors (Limited Partners) receive 70-80% of the net profits, and the Sponsors receive what is left. The profit split varies on a deal-by-deal basis; you don't want to try to take as much as you can on this though otherwise, the Sponsor could become unmotivated to put the work in to ensure the property performs the way it should.

Exit Plan:

A good Sponsor will have an exit plan telling you when they plan on selling the property, possible refinances to pull cash out, and different scenarios based on the potential market conditions during the time they plan on exiting the syndication. Investing in Syndications is illiquid, so knowing how long your money will be tied up is imperative.

Qualifications:

This one may seem obvious, but you should know if you qualify for the syndication or fund you're being pitched to invest in. For example, if you're investing in a 506 (c) syndication or fund, you must be accredited, but if you're investing in a 506 (b), you do not have to be accredited because up to 35 "sophisticated" or non-accredited investors can be invested.

Summary:

As a passive investor, you should do extensive research on the syndication or fund you decide to invest with. Make sure you know the Sponsors' track record and that the person you're speaking with is knowledgeable in the industries and areas in which they are investing.

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