So, you’re wondering if compliance is totally irrelevant if the real estate deal is no good. Well, long story short, not necessarily. For investment firms, this can only be true if there’s an assumption that regulatory paperwork, processing, and reporting is compliant. That being said, compliance is what makes a company sustainably viable as well as trustworthy. There is no discounting it. However, compliance can help protect the investor, to a certain degree, if a deal goes sour.
Product and Market Knowledge can, naturally, give you the confidence and understanding of where to look. Even more so, it can show you what key factors make a good investment from any real estate deal you vet. As long as you know where to look, you can make informed decisions based on whether the investment aligns with your portfolio and retirement goals.
Understanding the Operator’s Purpose is one of the most important elements in knowing if the deal is good or not. What are they planning to do with the investment? Volume, track record, time & quality, and liquidity are amongst the major key points to consider.
As an investor who has a successful track record in investing in real estate, sometimes getting to know the Asset Manager may not be their highest priority when vetting deals. If they plan to overlook the importance of an Asset Manager, their ability to adapt to market fluctuations is this particular investor’s biggest asset.
On the other hand, an investor who lacks product and market knowledge will either need to take time to learn the products or rely on knowledge from the Asset Manager. The only downside to learning on your own, is that you may lose out on opportunities available in the current day’s market. Seeking knowledge from an Asset Manager will allow you to bypass potential market shifts.
Asset Managers expertise and experiences provide real-life examples of how investments are sourced and managed. A vast network of strategic partnerships to get great deals are the x-factor that separates them from the crowd. Firms that show solid deal flow could mean one of two things. First, that they are passing every deal through the pipeline with minimal due diligence. Or that they have strategic partnerships with industry-leading Operators to create a true and strong pipeline.
At the end of the day, any investor strives to yield a return on their investment. Anything shy of a positive return is simply a loss. Whether it be no interest earned or a deal gone sour, compliance is like insurance in that it can only cover you up to a certain point. Seeking an Operator or investment firm that you like and trust is truly the only way to avoid it. Due diligence on the Operator and investment firm is in many cases more important than the deal itself.
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