7 Red Flags to Watch for in Real Estate Syndications

Passive real estate investing can be a great way to grow wealth without the day-to-day responsibilities of property management. But the key word is passive, not careless. One of the most important decisions an investor can make is choosing the right syndicator. Not all of them are experienced, transparent, or aligned with investor interests.

The DeRosa Group has raised over $70 million in investor capital and has seen firsthand what separates great operators from the ones who put capital at risk. Here are seven red flags every investor should know before getting into a real estate syndication.

1. Lack of Track Record

Every operator has to start somewhere, but that doesn't mean an investor should take on unnecessary risk. If a syndicator cannot show proof of past deals, actual returns, or how they performed in different market conditions, it's time to ask serious questions.

What to ask: How many deals have you taken full cycle, and what were the realized returns?

2. Unrealistic Return Projections

Some operators throw out flashy returns to catch attention. If a deal is projecting 25 percent IRR in today’s market, that should raise concerns. Anyone can make numbers look good in a spreadsheet.

What to ask: Are the projections based on realistic rent growth, vacancy rates, and expenses? Were reserves and capital expenses factored in?

3. No Clear Business Plan or Exit Strategy

A vague promise to "add value and sell in five years" isn’t enough. Investors deserve a clearly defined plan for how income will be increased and when they can expect returns.

What to ask: How exactly is value being added? Are they improving units, rebranding, managing operations in-house? Is there a plan to refinance, sell, or hold long term?

4. Hidden or Confusing Fees

Fees are part of any investment. But unclear or excessive fees that benefit the sponsor more than the investor are a problem. Investors should always know who is getting paid, when, and why.

What to ask: Can you explain the fee and waterfall structure in plain terms? How are your interests aligned with mine?

5. Poor Communication

A common complaint from passive investors is that they never hear from the sponsor after wiring funds. This is completely avoidable with the right operator.

What to ask: How often do you provide investor updates? Who can I contact if I have questions? Do you share full financials or just summaries?

6. Weak Due Diligence Process

Every property comes with risk. A good sponsor knows how to find it before closing. That means inspecting the property, reviewing financials, checking legal compliance, and understanding the market.

What to ask: Who handles due diligence? What’s your process? Have you ever walked away from a deal after due diligence? If so, why?

7. Dodging Questions

Strong operators can answer tough questions without hesitation. Weak ones get defensive or dance around the answers.

What to ask: Can you clearly explain how the deal works? What are the biggest risks? How are you managing them? If answers are vague or overly rehearsed, take that as a sign.

Protect Yourself with Better Questions

Knowing what to ask is the first step in protecting your capital. That’s why The DeRosa Group created a free guide called "Top 21 Questions to Ask a Syndicator." It's designed to help investors vet deals with confidence and avoid costly mistakes.

Final Thoughts

Real estate syndications can be a great path to passive income and long-term wealth, but only if the right operator is in place. These red flags give investors a framework for spotting problems before it's too late.

The DeRosa Group is committed to transparency, communication, and delivering results for its investor community. With the right information and the right partner, passive investing can be both safe and rewarding.