Six Criteria To Ensure You Are Investing Your Money With The Right Partner

With so many options for real estate inventors to invest in today, how does one identify the right partner or company to invest in? The purpose of this article is to provide you with a set of criteria to evaluate any investment opportunities you may be considering and the people operating them.

Real estate investors can be grouped into two broad categories:

1. Active Investors: These are companies or individuals that are managing the day-to-day operations of real estate investment opportunities or businesses.

2. Passive Investors: There are companies or individuals that invest capital in real estate investment opportunities, but are not responsible for managing the day-to-day operations of the investment. 

This article is geared towards passive investors that are searching for active investors or companies to invest in within a specific asset class or strategy.  

Six Criteria You Should Use To Assess Which Real Estate Investment Firm or Person To Invest With
1. Core business - Is it their primary business and area of expertise?

In order to mitigate your investment risk, you will want to ensure the person or company you are investing with is primarily focused on the investment strategy being evaluated. If this is not the case, you may want to consider another partner or operator to invest your capital with.  

Ideally, you want the person or company that you are entrusting your capital with to thinking and acting in the business daily. 

2. Track record - Do they have a track record?

In addition to making it a primary focus of the business, ensure the active investing entity has successfully executed on the strategy before. As more active real estate investors continue to appear as options for passive investors, it is in your best interest to work with those that have the required experience to ensure your capital is safe and will generate your desired return.

Here are few questions you can ask active investors you are considering investing with:

  • How many projects have you successfully exited?
  • What problems or issues have you experienced in previous projects that you have learned from?
    • Be weary of “perfection”; it doesn’t exist.  The purpose of this question is to assess how they have handled problems in the past but also to ascertain honesty and trustworthiness.
  • How many years of experience do you and your team have?
    • See the next point for the importance of having a team.
3. Support systems and team - Do they have support systems and a strong team in place?

No one has achieved success without the help of others. No matter what social media and the rise of celebrity entrepreneurs may have you think, successful businesses are always the culmination of strong collaboration and teamwork—real estate investing is no different.

To ensure you are investing in an experienced team of investors, ask the following:

  • How do you plan on managing the investment through the duration of the investment period?
    • Run away from operators that say they are doing it all themselves.  This is not the sign of a well-run investment business, but more likely to be a side-hustle or hobby of the operator.
    • The active investor should be able to detail who is responsible for each part of the execution strategy. Your job will be to assess how experienced you believe they are in executing the plan.
  • How do you plan on managing the property?
    • You will want to work with a company that is working with an experienced property manager or has an experienced team of property managers in-house.
4. Approach to underwriting/risk assessment - Are you comfortable with their underwriting?

Underwriting is the process by which an investor assesses the risk of an investment and therefore its projected returns. Some active investors may have an aggressive approach to underwriting—making projections that may suggest strong returns that are driven by scenarios that are less likely to happen—while others may have a conservative approach—projecting lower returns based on scenarios that are very likely to occur.

As a passive investor, you will need to decide which approach you are most comfortable with, what percentage of your portfolio you want to allocate to riskier investments and what percentage towards more conservative, less risky ventures. Once you are clear on what level of risk you are willing to take, you will need to understand the underlying assumptions being made by the active investor to ensure you are in alignment with their approach.

5. Values alignment

This measure may be a little more subjective than the previous criteria and perhaps a little more difficult to assess, but important nonetheless. This boils down to agreeing with their principles as people and business operators:

  • Do you agree with how they manage tenants?
  • Do you align with their value systems?
  • Do they support charities or organizations that you also support or believe in?
6. Authority in the industry

This criterion may be a culmination of the above, but an important one nonetheless. To ensure you are investing with a person or firm that is an expert in the area, they should be in a position of authority:

  • Do they actively contribute to the investment community in any way? Examples include:
    • Authored a book or regular articles on the investment strategy
    • Have they helped others succeed in the space through coaching or teaching?
    • Are they a regular contributor or speaker at industry events?
    • Are they members of relevant industry or investment associations?
  • Have they earned any industry awards or accolades pertaining to their work?
    • If they are claiming awards, ensure they are earned and not bought.

With these criteria in mind, you will be able to select your next investment partner and ensure it lines up with your investment objectives.

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About the Author:

Mark Baltazar, Co-Founder of Peak Multifamily Investments

With 18 years of experience in business strategy and corporate consulting on the global stage, Mark brings a wealth of business management and operational expertise to real estate investing. Winner of the Real Estate Investment Network’s Top Player Award in 2017, Mark continues to build strong momentum in growing his real estate portfolio.

His strong analytical background enables him to bring a strategic rigour to portfolio expansion and the assessment of investment opportunities.

With five years of real estate investing experience across various strategies, Mark oversees Peak’s capital raising, client acquisition, partner relations, educational content development while ensuring the company delivers on its promise of helping others build generational wealth through apartment building investing.