10 Investor Questions on Multifamily Syndication

Investors often ask some questions regarding multifamily syndication.

1. What’s the Business Plan for this Deal?
The sponsor must have an investment thesis in mind before buying the multifamily property. You should explain to them why they selected this particular market. Also, ask them to outline the business plan so you can better understand their strategy. That’s how you can evaluate this real estate deal’s potential for success.The Offering Memorandum should have the ins and outs of the business plan and should be able to proactively answer all of the remaining questions.

Pro Tip: Read Golf MF’s blog on deal sourcing to learn why this part is important.

2. What are the Risks Involved in this Deal?
All real estate deals have a certain risk level associated with them. For instance, construction overruns or lease-up challenges may affect the profitability of this deal. That’s why a sponsor must discuss these risks with would-be passive investors frankly.

How does the sponsor plan to mitigate these risks? Sponsors may use contingency reserves or conservative underwriting to deal with these threats, keeping the real estate deal profitable.

3. What’s Your Track Record?
Ask about the sponsor’s track record and experience. If they have a history of real estate deals, how did their previous multifamily properties perform? What sort of challenges did they face and how did they overcome them?

It’s vital to better understand their specific roles and relevant experiences.

4. How Much Will You Invest in this Deal?
Unless the sponsor has meaningful “skin in the game,” you should avoid closing this deal. Often times this can come in a variety of shapes and sizes. Examples include: guaranteeing the loan, investing cash in the deal, investing sponsor fees back into the deal, etc. It will be a sign of the sponsor’s honesty and confidence in this multifamily property.

5. What are the Key Terms?
You need to review the offering memorandum as well as the partnership agreement before closing the deal. Moreover, you should understand the deal structure. What does the waterfall distribution of cash flow look like? What’s the deal with sale proceeds? Don’t forget to identify all fees paid to the sponsor as well.

6. What’s Your Exit Strategy?
You should also ask for detailed financial projects, such as these:

• Preferred Return
• Cash flow
• Equity multiples
• IRRs

Don’t forget to take into account the assumptions behind these projects. Also, test them for downside scenarios as well. Ask the sponsor to clearly articulate the exit strategy in case something goes awry. For instance, refinancing the property or selling to another party are two exit strategies used in multifamily syndication.

7. What’s the Capital Stack?
Don’t forget about the debt and equity components of this deal’s capital stack. This is how it will work:

• For Debt: You should be familiar with the lender, loan amount, duration, interest rest, and resource provisions for the debt component.
• For Equity: When it comes to the equity component, you must be aware of the total raise amount and the minimum investment.

All in all, you should make sure that this business plan has appropriate financing.

8. What are the Tax Implications?
Even though multifamily properties present ample tax benefits, you should still be the sponsor of the tax obligations of this deal.

Will passive investors get depreciation benefits or deferrals on capital gain? How will these benefits flow through the pipeline and ultimately reach basic investors?

You should also get in touch with your tax advisor before closing the deal.

9. How Often Will You Distribute the Profits?
How often will you get financial updates from the sponsor? Every month or four thrice a year? Also, make sure that the sponsor gives you the distribution schedule. That’s how you’ll know how often you’ll your share of the profits. Also, find out if there are any restrictions on accessing your capital before the planned exit.

10. How Will the Sponsor Manage the Property?
The sponsor should also have a detailed plan for managing the property, including the property management company, their track record, and their fee structure. You have to understand the sponsor's oversight role and how they will ensure the property is well-maintained and operated efficiently.

What Lies Ahead

When it comes to multifamily syndication, it lets investors enter the real estate market without having to manage larger properties themselves. Instead, investors in this investment type will pool resources with other investors to access larger, more lucrative real estate deals. It’s a great way to spread your risk across various properties and eventually lower tax obligations. That’s why you should definitely consider multifamily properties.

As with any investment, thorough due diligence and understanding of the syndication process are essential for maximizing returns and minimizing risks. Always talk to multifamily investment experts, such as the ones at Gold MF, who can explain this entire process to you, even guiding you in your investment journey via processes like deal sourcing.

Who is Gold MF?

Gold Multifamily is a Leading Real Estate Syndication & Investment firm that invests in premium and value-added multifamily properties. We offer expert syndication and lucrative real estate investment opportunities.

Come explore our comprehensive services in real estate syndication and property management, designed to maximize your investment returns.

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