Investing with a trustworthy, competent, and scrupulous sponsor is paramount.
I put together this blueprint because I watched my father get taken by sponsors that were not experienced! The last one was something simple; a background check. This time, it was investing because of trust. Investing because of relationships built. He trusted good people; they weren’t bad people!
The only thing that they lacked was experience. So, what do we do now, right? I created a blueprint because I want to help other people avoid the struggles that he did. Now, I help him, and he’s learned a lot over 30 years of investing.
So, what do we look for in experience? It doesn’t need to be followed to the exact methods that we use, but we’re very careful. We don’t need to take a tremendous amount of risk. Can you invest with someone that’s less experienced and try to capture a higher yield? Absolutely. But, we’re not looking to chase these grand slam returns with someone less experienced. That’s not what we’re looking for. But hey, if you want to do that, you can.
The first thing we look for is time experience. We look for a sponsor where the principles have a minimum of at least 10 years. I like to see more than that. 15 years would be even better.
There are a few things to look for when you’re analyzing. How do you know if they’re experienced? They should be able to show you some kind of track record of deals that they’ve done. You should be able to see it done from 10 years ago.
You want to see a consistent pattern of them doing deals. You want to see that they’ve been involved, not just investing. Oftentimes, you’ll see someone that has only invested as a limited partner with someone else. If you’re a sponsor that’s completely different because now you’re actually the operator. There are certain things you really want to dive in deeper with on that. Just be careful, because you’ve gotta be able to read between the lines of the story that they’re telling you.
Another fact that I want to touch on is buying experience. How long have they been around and how many deals have they been doing? You want to make sure that if they’ve been around 10, 15, or 20 years, someone can say to you, “Oh, I’m a real estate investor!”, but they’ve only done one deal over 20 years. You want to see that they’ve been doing multiple deals!
There are a lot of syndicators that are coming into the market. It’s very popular. There’s a lot of promotional content. Teaching people how to raise money, how to become a syndicator, how they can build financial freedom, and quit their 9-5 job by raising money to buy apartment buildings. It’s a very popular topic, and naturally, they’re trained to go after people like my father.
Retired dentists, doctors, and high-income earners have money to invest. They’re trained to go after them. My goal is to help people like my father, who have money, to avoid the mistakes of investing with people that have less experience.
So let’s talk about buying experience. You want to make sure that they’ve been doing deals. Someone that’s trying to buy an apartment building- is that the first 100 unit apartment that they’ve bought? I hope, for the sake of investing, they’ve done more than that. How many have they done? That’s really important. You want to make sure that’s not their first deal. You want to see a consistent track record of deals being done.
You also want to see how they’ve performed as well, but we’ll stick to experience for now. You want to see that. What’s the volume that they’ve done? If they’re trying to buy a 10 million dollar building, have they done that type of deal before? How long have they been doing it? All of these considerations factor in.
Crisis experience. One of the sponsors that we invest with has been around since the 90s. They’ve seen what happened in the late 90s. They’ve been around since 2008. These are two different market corrections and major turns in the market. In these times, an inexperienced sponsor could end up out of business. And, their investors could end up going down with them.
Someone with experience that’s been around through multiple cycles, they know. They’ve seen what’s happening. In today’s environment with Covid, this is the time where you’re going to see who’s going to survive. Unfortunately, they’re going to be a lot of sponsors that aren’t going to make it. It’s a reality. If you can survive this event, that’s amazing.
That is someone you’d possibly want to invest with. You can’t buy experience, but if you can survive something like this event, that’s incredible. These are the main things we’re looking for.
If you have any questions, reach out to me at Adam@Levinecapital.com or Tei@Levinecapital.com. To recap, the three things that we look for: time experience, volume experience, and crisis experience.
Time: Minimum 10-15 years
Volume: How many deals have they done. If they’ve done one apartment building in 10 years, something doesn’t add up. If they’ve done 20-30 deals in that 10 years, now you can start looking at the track record and performance. That tells a better story, and now you want to dive in deeper.
Crisis: If they’ve been around 10 or more years, they’ve probably seen a cycle. Cycles are usually 10 years, and this is the longest cycle that we’ve been through since 2008. Now, we’re going through a different scenario that we’ve never seen before.
Someone that’s an experienced manager that’s been around since 2008, and has come through that, should have a better grip on today’s environment. Someone less experienced coming up since 2008, they look like a genius because everything going up. You throw a dart at stock, and everything’s gone up, so they think they’re a genius!
If you’d like to learn more, check out our free blueprint! This is a valuable tool for investing and we hope that you use it! This is the beginning of an ebook I’m putting together and this blueprint is just a little piece of the added value that’s coming!
