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Multifamily Passive Investing Questions

Questions about multifamily investing?

Let’s talk about some multifamily passive investing questions that you must ask for EVERY deal. The initial question might be “Why to invest in real estate?” Congratulations, you have decided that real estate is for you! Now, you must begin by asking questions about multifamily passive investing. First, you are investing your hard-earned money and it’s prudent to make sure that the team and the deal meet your criteria. Second, it helps you better understand the team and the deal. Not every deal is a good fit for every investor. It’s up to you to make that decision. Finally, you must get answers to the following questions. Let’s take a look at our sponsor team.

Multifamily Passive Investing Questions: Sponsor Team

  1. What is their track record?
  2. Alongside passive investors, do they invest in their own deals?
  3. How significantly did market conditions play a role in their track record, as opposed
    to operational proficiency?
  4. Does the firm have a significant online profile?
  5. Does the sponsor have the proper resources and team in place to perform?
  6. Do their professional referrals verify the claims that they have made about their
    reputation, experience, track record, and background?
  7. What does your gut tell you about the Sponsor?

Now that we have vetted our sponsor team, it’s time to look at the deal structure. Understanding how the deal is put together is key to understanding how you as an investor get paid.

Multifamily Passive Investing Questions: Deal Structure

  1. How is the deal structured?
  2. Will non-accredited investors participate?
  3. What is the hold strategy and how long can I expect to be in this investment?
  4. How is the profit sharing with the Limited Partners (LPs) and General Partners (GPs) defined?
  5. What are the common fees and how does the Sponsor make money?

All right! Now we understand the deal structure and are comfortable with the sponsor team. Asking tough questions about the financials and potential risks of any deal is critical. Let’s review some of the key questions to ask.

Multifamily Passive Investing Questions: Financials/Risk

  1. What are the projected returns?
  2. What is the required minimum investment?
  3. Should I invest all of the capital I’m looking to put into one deal or spread it across
    multiple?
  4. Are their any tax benefits from a passive investment in commercial apartments?
  5. What are the risks and how is the Sponsor mitigating the risks associated with this
    investment?
  6. What is the Sponsors strategy in the event of a down market?
  7. What’s to stop the Sponsor from selling in a down market?

Process and Timeline

A key area is the timeline for the property acquisition and expected distribution schedule.

  1. How frequently are distributions to investors made?
  2. How often will communications/updates be sent out to investors?
  3. Will I be able to 1030 from one deal to the next?
  4. How involved can I be as a passive investors/limited partner?

General Knowledge

As with any industry, real estate investing has its own jargon. There are many terms that an investor should understand. Just a few of those are:

  1. What is a syndication?
  2. Are you an accredited investor?
  3. What is a private placement memorandum (PPM)?
  4. Can I invest with my LLC or self-directed IRA?
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