How do you start any great relationship? We think a good conversation can kick off a great relationship.

Think about picking a stranger to summit Mt. Rainier or even Everest with and not actually knowing much about them. Sounds like a recipe for disaster, right? Well, why would you treat your hard-earned money any differently than your safety?

Once you find a potential partner or syndicator that can help you get into Note Investing, sign the partnership paperwork (the Operating Agreement or PPM – private placement memorandum), and transfer your funds, you’ll want to have a solid understanding of the future of your money.

If you are a member of an active partnership, as many of our capital partners at Flow State Investing are, you will have the opportunity to provide input at key decision points in the management of the asset. However, we at Flow State have a specific business strategy and want our capital partners to understand our priorities. If we don’t agree on that, then we’ll need to invoke the clause that allows us all to exit the partnership.

If you are a passive investor in a fund, you have almost no control over the management and performance of any asset. You are truly passive, and with that comes the release of any input you may want to provide. 

In both cases, you want to fully trust your partner or sponsorship team to manage daily tasks and operations effectively, execute on the plan, and grow your money as best as possible.

Take time to do your own due diligence up front. When you find a stellar team that aligns with your goals, it can be magic. Imagine having partners who work their butts off to help you grow your retirement savings, passive income, and nest egg. 

Ask the Tough Questions to Find The Best Real Estate Investing Opportunities

Ask these questions BEFORE placing any funds with a new real estate partner or syndicator sponsor. 

This list is meant to give you new ideas for topics you may not have thought to ask. You likely won’t be able to go through all 92 on your call. Look at the questions that concern you the most and start with those. Some of these answers will likely be provided in documents the team will provide for further reading. You can also do some of your own independent research.

Of course, questions are only the ingredients to a good conversation. Here are some other insights to structuring an interview with a potential real estate partner to prioritize the right questions and promote hearty dialogue.

How to Structure the Interview

Ask open ended questions. 

Get operator talking and see what they talk about. Write down everything you ask and what the responses are. 

Keep a detailed operator interview log.

This log will be highly valuable for looking back and comparing different operators and their deals. You’ll be able to add to this as you go, but the bulk of the work will be in the beginning. You’ll thank yourself later for this. 

What are they asking YOU?

Pay attention to see if they are interested in what you have to say. They should be interviewing you to see if you are a good fit for them, even as you are identifying them. Good operators will be able to tell an investor that their offerings won’t fit an investor’s goals. No one wants to be disappointed later – at least no good operator wants a disappointed investor later.

Past Projects

Get a sense of what an operator or syndicator is actively doing now, as well as what assets their team has managed in the past. You may want to know how those went and if they changed anything along the way to actively enhance management.

Referrals

Good operators will know other good operators in the same asset class or different asset classes. You could even go into who NOT to work with, although you’ll find that most reputable operators won’t want to throw anyone under the bus.

95 Questions To Ask The Sponsor Before You Invest In A New Real Estate Syndication

Getting to Know the Operator and First Questions

1. What is a note?
2. Why did you choose this asset class?
3. How long have you been in this asset class?
4. What don’t you like about this asset class?
5. What do you like about this asset class?
6. What’s the business plan for Non-Performing Notes?
7. How did you find your deals?
8. Are you an operator (working the deals) or are you syndicating (raising capital) for someone else’s deal?
9. What is your core business model? 
10. Do you work another job?
11. Tell me about a deal gone bad. (If they all went well – this may be a red flag.)
12. What did you do before this?
13. Why did you get into syndications?
14. Are you part of a syndication coaching or mentorship program?
15. How can investing in Notes help homeowners from losing their homes?

Capital Details

16. What’s the minimum investment?
17. What’s the maximum investment?
18. Why should I put my money in Notes?
19. May I invest with retirement funds?
20. How do I send in my funds – wire, check, other?
21. What is the deadline for getting my funds in?
22. What are the biggest risks of investing in Non-Performing Notes?
23. Will you be offering an investor webinar?

Markets for Non-Performing Notes

24. Do you buy Notes in every state?
25. Where do you avoid buying notes?
26. What can you tell me about the markets where you purchase (and don’t purchase) Non-Performing Notes?
27. What type of jobs are dominant in the area where you purchase non-performing notes?
28. Do you try to buy Notes in areas where you have had Notes in the past?
29. What’s the median income for current borrowers?

Communication Throughout The Partnership Or Investment

30. How are investors kept up with the progress?
31. When can I expect to receive communications from your team about our assets?

The Team

32. Who is on the team?
33. What are their roles and responsibilities?
34. What are MY roles and responsibilities?
35. Do you hire any outside consultants or entities?
36. Did someone on the team visit the property?
37. What happens if you get hit by a bus?
38. Who is your attorney?
39. What will I find when I run your background check?

Note Workout Costs

40. What is included in the workout costs?
41. What goes into the cost of the servicer?
42. Are you taking any fees?
43. Are there any other fees or costs for purchasing a non-performing note instead of a performing note?
44. What would happen if I had an emergency and needed access to my funds?
45. Do unexpected costs ever arise after the initial capital contribution? (i.e. What are the chances of a capital call?)
46. How are you compensated and how are you aligned with the deal?
47. Can you negotiate the cost of the Note with the seller?
48. Are you aligned with the success of the project (are you motivated to do well at the exit?)

Returns and Timeline

49. What historical returns have you seen?
50. How are the returns structured in your deals?
51. Do you offer any preferred return structure? Why or why not?
52. What are the equity splits?
53. How often do you pay out investor distributions – monthly, quarterly, or at the exit?
54. What is the projected hold time for your notes?
55. What are the exit strategies used?
56. How do you know which exit strategy to pursue?
57. What is the timeline for each exit strategy?
58. How did you come up with that timeline?
59. What are some risks associated with each exit strategy?

Where We Find Our Note Deals

60. How do you find Notes to buy?
61. Who is selling Notes?
62. Why would banks or hedge funds want to sell Notes at a discount?

Note Investing Due Diligence

63. What is in your due diligence checklist?
64. Do you visit the property?
65. May I visit the property?
66. How do you know how much the house (securing collateral) would sell for?
67. How do you learn about the borrower?
68. What is an Owners & Encumbrances (O&E) Report?
69. Do you call about unpaid property taxes?
70. What if there is deferred maintenance on the property?

Asset Management and Note Exit Strategies

71. What happens after you buy an asset?
72. What if a borrower says that they want to pay, but then they don’t pay?
73. Do you talk to the borrower directly?
74. How do you mitigate a foreclosure?
75. What happens if a borrower files bankruptcy while we own the Note?
76. How long do we hold a note that is re-performing?
77. How do we know when we can sell a re-performing note?
78. What’s the worst-case scenario when investing in Non-Performing Notes?
79. What’s the plan if the economy changes and you can’t sell a house that you got through foreclosure?

Track Record

80. How much experience do you have with this asset class?
81. How many assets are you currently managing?
82. Is this a new strategy for investing in Notes?

Re-performing Notes

83. Why would a borrower want to start making payments again if they’ve already decided not to pay?
84. How do you motivate buyers to make regular payments?
85. What are the terms on the loan?
86. What is the LTV (loan-to-value) ratio?

Securities Laws

87. Who is your securities lawyer?
88. Am I a limited partner (LP), general partner (GP), or Manager-Member?
89. Am I a passive investor or an active investor?
90. Is this offering open to non-accredited investors?
91. Is this a 506(b) offering? 506(c)? Other?
92. Have you ever been a passive investor?
93. How am I protected from other Note deals you are doing?

Wrapping it Up and Getting References

94. What are your values as an investor?
95. Do you have any referrals for other operators who offer Non-Performing Note partnerships or funds?

Finding Your Perfect Real Estate Investing Partner Is The Ultimate Goal

Ideally, you found some questions in here that you didn’t think to ask. They are all meant to spark a broader and deeper conversation. No question is off-limits. The tough questions will help you vet an operator or partner and understand if they hold your capital with the highest integrity.

Better yet, if you don’t feel great after asking any of these questions, then keep talking to sponsors or operators. You should get clear answers without being brushed off. Remember, you’ll be interacting with this team through the life of your investment. There will always be other opportunities, so there’s no rush to jump into any partnership opportunity if you have any doubts. 

Let’s Talk

Ready to ask some of these questions and move closer to finding great partnerships to build your wealth and get more time back? Sign up for our Investor Circle and you’ll get a link to schedule a call with us right away.

We love talking to individuals, learning about their specific goals, and sharing more about our favorite real estate business strategy (Note Investing – if that wasn’t already obvious).