20 Questions to Ask an Apartment Sponsor Before You Invest
Before you invest, ask the sponsor about their track record, where your money goes, the loan, the fees, how they report and what happens if things go badly. A good sponsor answers plainly and in writing. If answers are vague, rushed or change from one call to the next, that tells you something too.
New to this? Start with our guide to how to invest in apartment buildings as a beginner.
About the sponsor
These five questions test the sponsor's track record and alignment.
- How many apartment deals have you completed, and can I see closing statements?
- Which deals lost money or paused distributions, and what happened?
- Who are your co-sponsors, and what are their roles? Real duties, not just titles.
- How much of your own money is in this deal?
- Can I speak to past investors?
Then check the answers yourself. See how to vet a syndication.
About my money
- Where does my wire go, and who controls that account?
- Is it held in escrow until closing, and what happens if the deal doesn't close?
- Has a Form D notice been filed? It's a notice, not SEC approval, and it should be filed within 15 days after the first sale. See Form D filing.
- Can the sponsor call for more money later?
About the property and the plan
- What's the business plan? Renovations, rent targets, timeline.
- What assumptions drive the projected returns, and what if rents stay flat?
- How does the purchase price compare with recent sales nearby?
About the loan
- Is the loan fixed or floating?
- If floating, what's the rate cap and when does it expire?
- When does the loan mature, and what's the plan if refinancing isn't possible?
About fees and payouts
- What are all the fees, in dollars? See syndication fees.
- Is the preferred return cumulative, and what's the waterfall? See how investors get paid.
About reporting and the exit
- How often will I get updates, and what will they include? See investor updates.
- When do K-1s usually arrive?
- What's the planned hold, and what are the exit options?
Red flags in the answers
Five answers should make you pause.
- Promised or guaranteed returns.
- Pressure to wire quickly or to a personal account.
- No Form D, no documents or "we'll send those later."
- No answer about past losses.
- A track record without closing statements.
Who this isn't for
Good answers don't guarantee a good deal. They help you screen out sponsors, and you still need to read the documents and judge the property.
How DoorRaise helps
On a DoorRaise deal page you'll find the sponsor's track record, checked against closing statements, the fee card in dollars, the documents and a live call sign-up to ask your own questions.
DoorRaise is for apartment buildings with 5 or more units. See how investing works or see pricing.
Related guides
These guides cover the next questions most readers have.
- How to Vet a Real Estate Syndication Before You Invest
- How Much Money Do You Need to Invest in an Apartment Syndication?
- Can You Invest in Apartment Deals If You're Not an Accredited Investor?
FAQ
Is it rude to ask for closing statements?
No. A sponsor who's proud of a track record should be glad to show it.
What if the sponsor won't answer?
Don't invest. You can't evaluate what you can't see.
Do I need a lawyer?
For a large investment, a lawyer or advisor can review the documents. This post isn't legal advice.
Should I talk to other investors?
Yes. Ask what updates and distributions were like, especially in a bad year.
Sources
- Investor.gov, investor bulletin on private placements
- Investor.gov, 10 red flags of unregistered offerings
- FINRA, behaviors to watch for in a financial professional
- SEC, filing a Form D notice
- DoorRaise, how it works
This post is general information, not legal, tax or investment advice. Private real estate investments are illiquid and risky, and you can lose all of your money. DoorRaise is not a broker-dealer, investment adviser or funding portal.