After years of preparing tax returns for many high net worth clients, I realized one of the common denominators across their portfolios was real estate investments.  I realized this was something I wanted to include in my portfolio, and once I built up liquidity, I started investing across different properties and asset classes.   What I didn’t appreciate at the time, however, was how to properly evaluate real estate investment offerings.  I learned after a few investments how to better analyze offerings and perform due diligence prior to funding an investment.  

In order to help you avoid some of our mistakes, we compiled a list of 50 questions to ask before investing in a new real estate investment opportunity.  We created this list based on our years of experience as passive investors on multiple properties across various asset classes to create this list, and we hope it helps you along your investment journey!


How to Evaluate a Real Estate Investment Deal

Understand the Real Estate Market

Let’s pretend you are looking for real estate property in a growth-oriented market with a history of appreciation, low property taxes, and a growing economy.

Because the team has done thorough research, they should be able to tell you why they are investing in a particular property in a particular market (and present real numbers to support their choice).

You also should ask about other projects happening nearby and how those projects could affect the returns they are pursuing.

Understand the deal

Investment opportunities vary widely, and you should clarify as many details as possible before signing the paperwork. The most obvious questions should be answered upfront: how much capital must you invest, what’s the potential cash flow and returns, and how long will you need to keep your money in the deal?

You want to move beyond the outline of the deal and ask how the sponsors determined the timeline, how often payouts are distributed, and what the sponsors will do if the market softens near the end of the deal or if interest rates rise or flatten dramatically.

You can’t control the variables after you’ve signed, but the right questions will help you decide if you should accept the real estate deals being offered.

Know the Team

Generally, the management team’s credentials are the most overlooked aspect of real estate investment offerings. The personalities tend to get lost in the paperwork and research but make no mistake – the team is the most important part of commercial real estate investing.

Find out the experience your sponsors have had in real estate and how they’ve dealt with adversity. Ensure they have the proper attorneys, brokers, CPAs, and a reputable investment manager with an understanding of commercial real estate.

Don’t be afraid to ask for investor references or even do a background check.

The bottom line – real estate is like any other business; the best teams usually create the best outcomes; therefore, you want to make sure you are investing with a management team with experience and prepared for any changes to the market.


What to Ask a Real Estate Investment Sponsor

When you invest in a property, you’re putting your trust in the sponsor team and asset manager. These people are responsible for the day-to-day operations of the commercial real estate investments, executing the business plan, and guarding your investment capital from loss.

Your upfront due diligence plays a crucial role, as its thoroughness will determine your experience in the syndication for the hold period. Your interactions with the sponsor team will influence your perspective about the information included in a private placement memorandum and how a syndication is run.

Take the time to ask your questions and do your research. This will allow you to feel more comfortable the team can assist you in your goals to create passive income.


Questions All Real Estate Investors Should Ask Before Investing

To keep you on track, we’ve compiled a list of 50 questions all real estate investors should ask before investing with a new syndication sponsor. Of course, you might not want to ask every single question directly, but this list will give you an idea of what you should be thinking about and seeking answers.

Some answers, like the number of units, projected returns and sponsor fees, can be found inside the investment summary or through independent research. For other solutions, you will need to ask the sponsor directly.

50 Questions to Ask When Investing in A Real Estate Syndication

  1. Why did you choose this real estate market?
  2. What’s the biggest employer in the area?
  3. What can you tell me about this submarket?
  4. What other projects or developments are going on in this area?
  5. Have you done other projects in this submarket?
  6. What do you like and NOT like about the deal?
  7. How many units are there in this investment property?
  8. What’s the unit mix?
  9. What is the cost per unit, and how does that compare to the average for this area?
  10. What’s the current occupancy?
  11. What do you project the stabilized occupancy to be?
  12. What’s the median income for current tenants?
  13. What’s the business plan?
  14. What are the projected premiums for renovated units and how did you come up with this premium?
  15. How much money are you raising for the down payment versus capital expenditures?
  16. What are the projected returns?
  17. How is the real estate investment deal structured?
  18. Is there a preferred return? Why or why not?
  19. How often do you pay out passive investor distributions – monthly, or quarterly?
  20. What’s the projected hold time for this project?
  21. How did you come up with that timeline?
  22. What if the commercial real estate market is soft when the projected hold time ends?
  23. How are investors kept up with the progress?
  24. What are the respective fees being taken with this project?
  25. What would happen if I had an emergency and needed access to my funds?
  26. Who is the property management company and how many deals have they managed like this?
  27. Have you worked with these property managers before?
  28. Why is the owner selling?
  29. How much experience do you have with this asset class?
  30. What is the total loan amount?
  31. What kind of loan are you getting?
  32. What are the terms of the loan?
  33. What is the LTV (loan-to-value) ratio?
  34. Who is on the team and what are their roles and responsibilities?
  35. What happens to the real estate investment if you get hit by a bus?
  36. Have you ever been a passive real estate investor?
  37. Would you be able to provide me with a reference from one of your existing investors?
  38. Are you raising enough for cap ex?
  39. What’s the projected reversion cap rate (i.e., exit cap rate)?
  40. What did you do to stress test this real estate investment deal?
  41. Have you visited, toured, and secret-shopped the comps in the area around the investment property?
  42. How much deferred maintenance is there on this property?
  43. Why did you get into commercial real estate investing, specifically syndications?
  44. Tell me about a time during a project when things didn’t go according to plan.
  45. When do you send out Schedule K-1s?
  46. Will you be doing a cost segregation study?
  47. Are you bringing your own money into the deal?
  48. What percentage of the units will be renovated, and why?
  49. Once the deal closes, what are the first three steps you will take to execute your real estate investment strategy?
  50. What are the most significant risks of investing in this property?

THE Bottom Line

Hopefully, some of these questions have sparked new ideas or ways of thinking about potential investment opportunities and deal sponsors.  When you’re looking at prospective investments, no question is off-limits. Do your due diligence and ask what you need to ask the syndication sponsor before you invest. You should feel comfortable with the private real estate investment deal and the sponsor before ever signing the offering memorandum. If the deal sponsor brushes you off, take that as an indication of how the relationship will be throughout the lifecycle of the syndication deal.

It’s likely that the financial returns are what initially attracted you to the deal, so before you jump in, take your time to properly vet the opportunity and the deal sponsor properly. Focus on the things that may not be so clearly written on paper, like relationships, personalities, and integrity, so you can feel fully confident throughout the commercial real estate syndication investing project.