Below is a checklist of questions to ask a general partner when evaluating an investment as a limited partner/passive investor.
- Have you ever lost your own money on a real estate deal?
- How about other people’s money?
- How do you balance risk mitigation with returns?
- What’s the most difficult challenge you’ve overcome?
- What makes you different from other groups?
- Can I speak with some of your past investors who have invested with you MULTIPLE times?
- Have you been through any market cycles?
- How many deals have you gone full cycle?
- What has been your worst syndication deal?
- Have you ever called capital and why?
- How are your current deals performing compared to projections?
- What is your liquid net worth?
- Have you ever oversubscribed a deal?
- How often do you provide property updates to your investors?
- Can I see an example of how do you communicate bad news?
- What gaps do you have on your team that you need to outsource?
DEAL LEVEL QUESTIONS
- Can I see your underwriting?
- Have you conducted stress tests on your analysis?
- Is your “skin in the game” coming from your acquisition fee?
- What type of financing are you securing for this deal and why?
- Why did you choose this market?
- What is your plan for capital reserves for the deal?
- How long until I start seeing distributions and what’s the cadence?
- What happens to my ownership interest on a refinance?
- What’s your promote structure? Fee Structure?
- How detailed of reporting are you willing to share?
- What are your worst case scenarios in this deal?
- What does your management or acquisition fee cover?
- If the property over-performs are the LP’s capped or do they participate in that overage?
- Are you sourcing capital anywhere but from retail investors?
- If so, what control rights do your equity partners have?
- What’s the yield-on-cost at stabilization?
- How do you stay compliant with SEC broker/dealer laws with your capital partners?
- Whats your track record on producing K1’s each tax year at a reasonable time?
- LEGAL/TAX QUESTIONS
ABOUT THE TEAM QUESTIONS
- What is your contingency plan if one of the partners falls ill or passes away?
- What’s your role on your team and who else is involved as a GP?
- Who is the asset manager and what’s their experience?
- Who are your most crucial team members?
- Is your property management in house or outsourced?
- If outsourced how do you manage your PM?
- Have you worked with the PM on past acquisitions?
- Who are the active operating GPs? What is their experience?
To learn more about real estate investing and syndications, reach out to us at https://investwithspark.com/contact/ today!