I have developed a relationship with a company that buys apartment complexes of 100+ units. The properties are high quality, high performing or distressed properties priced significantly below replacement value. They acquire, rehab and maximize the operational efficiencies to increase the market value of the properties by no less than 30% and typically within 5 years. Then they resell the property for a healthy return. They have been able to produce a return of 24% per year in the past and this project is scheduled to produce a ROI of no less than 102% in 4 years, upon the sale of the property.
One of the great parts for me is that they will make preferred payments to me of no less that 10% return per month on my investment. I will have an ownership in the LLC which will allow me to do a 1031 exchange and or use my IRA account.
My question is if anyone has any suggestions on how I should do more due diligence on this investment. I have done a background check on the principals, they have over 800 units under their management and the property is in a good location. All suggestions will be appreciated.
Are you asking how to perform the due diligence because it’s a group investment or how to perform due diligence on the property itself?
Group investments are more work up front for you because you have to evaluate the property as if you were buying it yourself, and you also have to evaluate the principals.
Is this a large company with a good reputation and many investors, or a small group of syndicators? If small and you don’t know them, I would do a skip trace to see who you are dealing with. It’s cheap and you won’t believe what you might find. I would also ask for references and call each one. You’ll find the story’s start to become consistent – both good and bad. In the end, even a good person can make a bad decision and cost you money, so you have to see a track record.
Obviously, you want to see a top level accounting of their past results and roughly confirm these with their references.
The property itself should be evaluated like any other apartment building. When buying underperforming properties (which I do), it’s important to thoroughly understand the extenuating circumstances causing it to under perform. If they are not extenuating, I ask myself “Why could I turn the property around if the current owner couldn’t?”
Lastly, you note “they will make preferred payments to me of no less that 10% return per month on my investment.” If this is true, run. I suspect you meant to say “…per year…”