If I want to invest passively, how do I find the ideal real estate operator?
Today's Real Estate market is more challenging than ever. There is low inventory of houses or apartments, construction costs are high, interest rates are on the rise, inflation is at the highest level in over 30 years, and there is uncertainty as to whether we will have a recession coming in the next months/years.
I have great news for you. Multifamily Real Estate assets are still considered among the safest vehicles to invest in. The economies of scale, appreciation, cash flows and tax benefits are among the advantages of owning real estate assets. They also lack the volatility of other investments such as stocks, cryptocurrency, etc.
If you have finally decided to give passive Real Estate investing a go, one of the main factors in mitigating risk is to choose the right operators that will find the asset, analyze it to make sure the returns are good, submitting and offer (often requiring a lot of negotiating), putting it under contract, performing due diligence, negotiating loan terms with the bank, raising capital from investors, closing on the property, managing the asset to implement the business plan (usually with the help of a professional property manager), refinancing (if part of the strategy) and finally selling the asset.
Sounds like a lot of work right? This is why it is imperative that as an investor you do your own due diligence to make sure that you vet which operators you feel comfortable with investing as they are the ones that will make sure that the projected returns are met, and will be in charge of making all decisions in the daily operations of the asset. There are several things you can look for to make sure that you are vetting these different groups correctly.
One of the most important things to look for is the track record. Experience is one of the most important factors that could be indicative of future success. How many deals have they done? How many units do they have under management? Have they gone full cycle (buy, operate and sell) on a deal? What are the returns offered to investors against what was projected? These are all valid questions to ask prospect operators when deciding who to work with. If your contact with the group has limited experience, you can find out about their partners and see if the group has enough experience to address all of the situations that can and will come up during a project.
We all enjoy doing business with people that we like and trust. Another very important thing to consider when looking for a group of operators is to see how comfortable you feel investing with them. If you do not know them there are other ways to check if they have enough credibility. Are they active on social media? (not necessarily an indicator of credibility, but the social media exposure can show you how active they are in the business). What is their reputation in the industry and the community? Good news travels fast, but bad news travels faster, so asking people that you know in the industry about a specific group of operators could help you determine if you can trust them with your hard earned money.
Last by not least is the criteria for finding properties and business plan. This includes the location where they are investing (very important as a strong market could be reflective of higher projected returns), type of properties (age, size, price, occupancy, distressed vs turnkey), risk (class A, B, or C), underwriting (what assumptions do they normally use to do their underwriting), and finally business plan (what is the plan behind the project that will lead to the projected returns over the hold time). Knowing how the operators think and make decisions could be crucial in understanding if their values and business profile align with yours.
Multifamily syndication operators are usually very easy to contact. They have blogs, email newsletters, Calendly schedulers, they do webinars, podcasts, and are often active on social media and Real Estate conferences. This makes it easy for you start reaching out to ask them the right questions to make sure that you can find the right fit for you. Investing in multifamily may have several advantages, but getting the know the operators behind the projects can make a big difference for you in making the right choices.