Vetting A GP

"Even my barista is a GP now. I can get a coffee and passive income"

Credit to my friend, Blake, for the above quote and the inspiration for this post. If you're an investor looking for real estate investment opportunities then you know it's true that there are a lot of people raising capital right now for deals.

So how do you respond when you’re asked to invest? You’re building a relationship with the deal sponsor that requires a great deal of trust. Here are six things you should be looking at when evaluating partnering with a deal sponsor/GP:

1. Deal - Does the deal make sense? Are the sponsor's numbers realistic and accurate?
2. Term - How does the sponsor get paid? Before the passive investors (LPs) or after?
3. Experience - Does the operating team have experience in the area they are raising for? Evaluate the entire team. It's possible the person bringing you the deal doesn't have the operational experience but has someone on their team that does.
4. Rights - What are your rights as a passive investor? How do you remove a manager who isn’t performing? Are you obligated to put in more cash than you committed to?
5. Exit Strategy - When will your investment be returned to you? How is that decision to sell made and by whom?
6. References - Who has partnered/invested with this sponsor previously? How was their experience?

I hope this list helps you in your own due diligence. Are there any areas I missed on my list?