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May 23, 2024 | read

85. What to Consider When Doing Due Diligence on Syndications for Passive Investors

Ben Isley

In this episode, we’re joined by Alina Trigub, former tax accountant and passive real estate investor turned real estate syndicator who now helps her investors navigate the world of passive real estate investing.

Alina has helped her investors participate in offerings of over 1,200 apartment units, a $10MM storage fund, and a $10MM mobile home park fund.

Today we will discuss the benefits of real estate syndication for passive investors, important factors to consider when doing due diligence on a sponsor, market, and property, plus much more.

Why Syndication?

Over her professional career, Alina began to look into real estate as a wealth preservation tool that is tax advantaged. Through studying the investing process and learning about some markets, Alina came across the world of syndication. She realized syndicates are a viable option, and, as an equity partner, saw benefits of residual income and tax benefit through accelerated depreciation and passive losses. Syndication allows you to become an investor with very little to no involvement. The investment will have limited interaction with your day to day life.

Due Diligence

As a passive investor, there are three things you need to be concerned with: the operator, the market, and the deal itself.

The Operator

Alina recommends beginning with the operator. Hypothetically, it’s better to have a good operator and a bad asset than to have a bad operator and a great asset. Speak with the operator, ask them questions relevant to themselves and their business and figure out if their strategy aligns with your approach and values as an investor. This can involve questions about markets, tax strategies, exit strategies, and asset management, to name a few. Concentration in one area is great to look for. An operator could focus on one geographic region or one asset class, but ultimately, the team should be a well-functioning machine that is proven to work.

The Market

It’s important to look for established markets with modern, accessible infrastructure, population growth, and job growth. Job growth and diversification of industries can be a huge tool. Large employers or universities, highway systems, and proximity to other large cities and airports can also be signs of a solid market.

The Deal

You can’t look at the numbers of a deal in silos, you must look at the picture overall. For example, a high IRR can mean multiple things – cash at the beginning or at the end? In fact, many metrics can be driven to the same point by different scenarios. Vacancy projections, for example, could be influenced be a renovation or value-add project. Studying the recent history of rents and expenses is also a good idea and it will allow you to better understand some projections, such as the impact of a projected rent increase.

Growing a brand and working on growing relationships is very important. If you get to know people in the industry and learn about how they operate, you’ll be exposed to important information. Find ways to add value to others and they will add value to you.

Learn more about Alina and her work: samofinancial.com