“Trust, but verify” — Ronald Reagan
Have you ever stopped yourself short when thinking of investing in real estate?
If so, I can probably guess the reason… you weren’t sure you could trust a sponsor that you have never even met.
How do I know it’s not a scam?
I’ve been there too!
When I first started, I was worried that I would end up with a Bernie Madoff and lose my money. The idea of being the victim of a scam was petrifying.
It made me think, how can I trust someone with this much money if I’ve never met them?
But let me tell you, there is a light at the end of this. It is not all doom and gloom.
There are steps you can take to get comfortable investing with a sponsor you have never met.
Tip 1: Get to Know Them
I know what you’re thinking. How do I get to know someone that I haven’t met?
Sounds like a contradiction, yeah?
But really, there are other ways to get to know a person besides meeting them.
You can do research!
Look into the sponsor’s online presence.
Have they been on a podcast? Have they been interviewed about their investing? Do they have their own videos or articles online that you can read and watch?
Read/listen/watch all of it.
This will allow you to get a sense of the person, as well as how they work on their deals.
When you do this, you want to ask yourself, does this person know what they’re talking about?
If they don’t, then they are a person you can simply write off and move on to another sponsor.
But if they do, then you can feel more comfortable with their expertise. A sponsor’s competence goes a long way in making for a better deal.
Tip 2: Find out their Reputation
The multi-family syndication space is a small industry. People know each other.
So ask around!
You will learn so much about the sponsor from their reputation with other investors and other sponsors.
There are many online resources you can look at too. I really enjoy Biggerpockets.
You can also look at their online reviews and do an online search.
If you do join the sponsor’s investment club, you can ask to speak with other current and former investors.
A good sponsor will be willing to do this.
Ask about the sponsor’s communication and performance. Feel free to ask whatever you need to feel comfortable with them.
If you still want to know more about the sponsor, consider doing a background check on them.
I know people that will do this on every deal for every sponsor of the deal.
No shame! It is your money, so do whatever you need to do to be comfortable.
Another check that you can do is looking to see if the sponsors speak at reputable events. Not just their own!
This will show that they are part of the real estate community. Typically, if a person is accepted by their peers, they will have more credibility than someone who only does their own thing.
Tip 3: Ask Questions
The other thing you can do to trust your sponsor is to ask them questions.
Ask the sponsor whatever you need to know to be comfortable.
The best question to ask is: What was a time that something didn’t go as well as expected in a previous deal?
I love this question!
This tells you so much about the sponsor because there is always something that goes wrong or doesn’t meet expectations.
Nothing can work out perfectly, right?
So, if the sponsors don’t know how to answer this question, it either means they don’t have much experience, or they are being dishonest.
If they do have an answer, on the other hand, it shows you how they handle the pressure. It also reveals how they made the investment succeed despite the challenge.
On top of this, you are going to want to verify their experience.
Look at their website. Look at how they do their deals, and make sure it makes sense.
You want to dig in and be able to understand how they plan to run the deal.
For example, if the company is only a year old and already has 5,000 units, that could be a red flag. That many units often takes over a decade to accumulate. So in order to do your due diligence, you’d want to research and understand their process to make sure it is reputable.
If the plan doesn’t make sense, you can move on to another deal.
Ask the sponsor questions about their experience, and verify it however you can. You want to make sure the story of how they did their work matches up.
As you do this work, you will start to form an opinion. You will start to get a sense of the kind of person the sponsor is from all this information.
With all this at hand, you can trust your gut. You will be able to sense if a person isn’t the right fit for you.
But there is still another step you can take.
Do the minimum investment in the deal.
This allows you to see hands-on how the sponsor works with a deal, and you have lower stakes than if you invested more.
It gives you the experience of seeing how things will go if you want to invest more.
On top of that, sponsors will most often have many deals in the works. So if you do the minimum investment and you like the sponsor, then you can always jump in on the next deal and invest more.
Bonus Tip: Meeting the Sponsor
Sometimes there are opportunities where you can meet the sponsor in person.
This happens most often at live events. For example, The Real Estate Guys host some amazing events.
It is also a great opportunity to meet other investors and find new ways to improve your skills as an investor.
From all this networking, you will see that it is very common to invest with people that you haven’t met.
The key is to do your due diligence and ask a lot of questions. Investment never comes with a guarantee, but doing these things will help you a lot!
If you want to learn other tricks to help you with your real estate investing, then I got you covered.
Check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Great information, thank for sharing!