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A Checklist To Vet A Deal (& The Sponsor)

Updated: Jun 25, 2019




Checklist for Vetting a Sponsor for a Syndication Deal


The Market - Is the deal in a good Market?

  • Job and population growth - Does the market have steady job growth, and are jobs being created and are people moving to the area?

  • Job diversity – Does the market have several large companies/employers in different industries? You want to be wary of areas that are solely dependent on a few companies and/or industries. If something changes in that industry and impacts jobs, that will impact rental/housing needs.

  • Landlord/tenant laws – Does the market have local government that is business and landlord-friendly? Landlord-friendly states make it much easier and less costly to deal with tenants that aren’t paying rents etc.

  • Taxes – Are the state and income taxes too high? Taxes can make a huge difference in your bottom line as an investor. These should always be included in the operating budget of the deal summary, which are taken into account when investor returns are calculated.

  • Cost of living – Having a low cost of living is very important to workforce renters, in that population growth is dependent on people being able to afford to live in the market as more jobs are produced.

Note: Here is a short list of resources that I’ve used when evaluating a market:

http://www.city-data.com/ - www.city-data.com

https://www.deptofnumbers.com/ - Department of Number

https://www.bls.gov/  - Bureau of Labor Statistics,

https://www.census.gov/ - U.S. Census Bureau

https://www.forbes.com/newsletters/forbes-real-estate-investor/ - Forbes.com


The Deal

  • Is the business plan clear and does it make sense?

  • Is this being a value add opportunity? Meaning is the property in a strong neighborhood with low vacancy, but with the opportunity to improve operational efficiencies and decrease costs, as well as increase value by renovating units, etc.

  • Is the area/neighborhood attracting high quality renters? Is the property close to jobs and employment, and in strong areas of town that are attractive to renters?

  • Do the demographics support the business plan? Basically, does the demographic support job and population growth?

  • Does the exit strategy and financing support market shifts? Wealth preservation is a top goal and the underwriting should take into account multiple exit scenarios with varied vacancy rates and potential economic shifts.

  • Is the underwriting conservative, meaning does it include the basic indicators for positive performance with opportunities to over deliver results?

The Team - Is there a team in place that can execute the business plan? The key to success and investor return is a great team, with a solid track record, running the project

Property Manager

  • Does the property management team have a strong track record?

  • Does the property management team know the area well?

  • Is the property management ready to jump in and take the asset over immediately upon purchase?

Sponsor

  • Does this sponsor/operator have a track record of previous successes in executing their business plan and driving investor returns? Ask for it.

  • Does the sponsor have a professional presence in the industry and can you identify their key, experienced partners?

  • Other ways to check out a sponsor:

  • Google search – Any bankruptcies, felonies, or SEC violations should be a deal breaker. This is a well- regulated industry and compliance is mandatory.

  • Full time syndicator with multiple related businesses i.e. podcast, coaching, etc. which equals a lot to lose if non performant.

  • Professional and clear marketing materials – website, business plans, webinar, videos, investor conference calls

  • Terms like “capital preservation” and “conservative underwriting” should be apparent in all the sponsors materials. Terms and facts to back it up.

  • Active thought leadership platform, podcast, blog, bigger pockets forums, books

  • Search social media presence (check them out on Facebook, LinkedIn, etc.)

  • Reputation: Ask other people in the industry, ask for references of past and current investors

  • Can investors talk to the sponsors and ask any questions? Supporting investors is what we do at New Heights Investment Group, we are here to make sure investors are confident in their investments. Also helpful is when sponsor/operator has an investor webinar where they walk through their plan and take questions as well.

Lastly and most importantly, gut check. I have learned from experience, always, always listen to your gut.



Do sponsor fees make sense? These are fairly standard in the industry and any fees should be transparent in the deal summary. Every realizes the operator/sponsor should get paid for finding the deal, acquiring it and managing the day to day performance of the asset, therefore there is no reason to hide the fees or be sneaky. If the fees are not clear, this could be a red flag.


Once you’ve checked all the boxes, time to jump in and invest.


Next – once you are ready to invest.

  • Market is a check

  • The Deal is a check

  • The Team is a check

  • The Sponsor checks out

Invest

  1. Time to Sign the PPM - Private Placement Memorandum, which the lengthy legal document (kind of like a prospectus in the syndication world). that details everything about the investment opportunity, the risks, and the roles of the general partners and limited partners/investors. It’s very important that investors read it and understand the various components including; risks, subscription agreement, and operating agreement.

  2. Fund the deal – per the PPM funding instructions

  3. Start receiving monthly or quarterly returns

  4. Receive monthly or quarterly updates on asset performance

We love to talk real estate, please reach out as you are evaluating sponsors, we are happy to share what we have learned.

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New Heights Investment Group​​

Stephanie Wankel

Tel: 720-849-4280

Stephanie@NewHeightsInvestmentGroup.com

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