How to Evaluate a Great Syndication Deal to Invest In

How to Evaluate a Great Syndication Deal to Invest In

Whether you are joining a real estate syndication or forming one yourself, it’s important that you analyze deals as they come along. There’s always the opportunity to generate passive income, but when it comes to ensuring higher returns, you need to do a bit of research before jumping into a deal.

Part of a real estate syndicator’s job is to look for the right opportunities. The strategic part of this business is crucial to the success of your portfolio, so you need to spend ample time and resources evaluating an offer.

Here’s a guide to help you get started:

Getting essential information

The first thing you will need is to learn everything you can about the offer. You want to know if it is located in a high-opportunity state like Florida or Georgia where there has been a consistent boom in the demand for multifamily housing.

You will need to look at the median property prices in areas like Orlando and Atlanta. Crime rates, job growth, and demographic data are also important factors for finding a good location to invest in. So when someone makes an offer, look out for these metrics before you zero in.

Gather as many deals as you can

There are a lot of commercial real estate opportunities out there, but you need to find that “golden nugget” of an investment deal. As with any other type of investment, a real estate syndication requires a certain level of caution. You don’t want to end up with a property that won’t produce cash flow like it’s supposed to.

As you scout for an asset to invest in, it’s always important to analyze at least 10 properties. You may want to run comps on each one by analyzing median prices in each neighborhood. It’s also important to request the financial history of each of these properties focusing on the net operating income, cap rate, as well as occupancy rate.

Taking these metrics into account, you will have a better understanding of a seller’s asking. You will gain significant leverage at the negotiating table when you have finally accepted an offer.

Calculate your future financials

While looking for property offers, you will also need to look ahead in terms of finances. The goal is to find a property that generates equity for the syndication, so it’s imperative to find if the asset itself can perform in the long term.

In this sense, it’s important to come up with accurate financial projections for each property. Pay attention to maintenance costs and debt.

Calculate these against the projected income from rent and value-add components. You might also check if there will be any impending rate hikes. You don’t want your liabilities to be greater than your income, so run some numbers and check if the offer is worth considering.

When evaluating a syndication offer, it helps to get essential data before jumping in. You just have to be patient and keep yourself from making any hasty decisions.

After all, you can’t have a piece of the pie if it’s still undercooked.

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