Red flags for projects looking for investors
I've got some experience doing residential flips and buy and holds but I'm considering my first foray into commercial investment as a cash only partner in a storage facility.

I like to think I'm not a total rube, and I know how to do basic analysis of contracts and financial statements (as well as having accountants and attorneys who I work with to do the same) but the truth is I don't have a lot of experience in the space and  I may be susceptible to entering situations / deals which are designed to benefit the other party at my expense.

So I wanted to ask, past the normal kinds of financial analysis you would do on a deal where you are a passive cash investor, how do you vet deals and what are some red flags you look out for?
[{"id": "f097u0c", "text": "General partner not putting in a any money or signing personally on loans. Lack of experience in the type of venture.   Gross revenue numbers at or above comparables.", "replies": [{"id": "f098fnc", "text": "Yeah the first point was something I'd definitely thought about. \n\nWhen you so revenue numbers above comps, are you saying future projected revenues(ie they are painting an overly rosey picture) or what they have on the books in the past(ie they are cooking their books)?", "replies": [{"id": "f0adgwa", "text": "I was referring to more overly rosey pictures. Especially in this stage of the economic cycle.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f0b0odu", "text": "There are a few books on this on Amazon and a decent quick write up at https://www.whitecoatinvestor.com/evaluate-real-estate-syndication/   my quick ones are to make sure it is something that I want to be in in an area that makes sense.  Then to evaluate the sponsor.  Have they been through a cycle?  Have they lost any investors money?  If you Google their name and fraud or bankruptcy, does anything come up?  Are the putting any equity in?  What sorts of fees are they charging?\n\nThen look at the deal.  In your case, is this development or a value add play?  If the former, so they have any experience in development and in storage development, have they had a feasibility study done?  If the latter, is the area over developed, are the proposed rents in line with the market, etc.\n\nAs an aside, I would be curious in hearing a bit more about what terms you have been offered.", "replies": [{"id": "f0pq9p6", "text": "Things I look for are a feasibility study, a GC with experience in storage, and a professional manager.  \n\nAnyone who tries to get investors without a feasibility study doesn\u2019t even pass the smell test for me.  Also, make sure it\u2019s a full study where the investigator walks the property and travels to the nearby facilities and looks at the neighborhood first hand.  A desk study is an overnight affair that isn\u2019t enough to plunk down your hard earned money on.  Make sure you read the full study.  I\u2019ve read several studies where the conclusions were based on questionable numbers provided by the guy commissioning the study.  A good study will have these things featured... \u201cthis feasibility is based on preferred pricing on construction costs provided by Amy Pond\u201d... for instance.  Lowball construction costs throw the whole study off.  A good study will not only come up with a rentable sqft per person in a 3 and 5 mile radius but will contrast it with local standards.  5 sqft might be good in 1 location but not in another.  it\u2019ll include all the other usual things... traffic, frontage, permits, zoning, financial projections, etc.\n\nBanks don\u2019t lend to projects where the general contractor doesn\u2019t have experience with self storage and neither should you.  You don\u2019t want 2 guys and a pickup truck building your facility because time is money.  The GC should also be independent.  The partner\u2019s cousin doesn\u2019t qualify for the same reason he can\u2019t be the manager.\n\nProfessional managers are also preferred because of the arms length principal.  You want people with skin in the game but you don\u2019t want them to be in a position where they can screw everyone else with creative record keeping or cheap crappy shortcuts on construction.  3rd party professionals make this requirement happen.\n\nOh and adequate reserves... things happen.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f0bjdn7", "text": "So the investors I know who lost money were those who gave it to someone else.", "replies": [], "depth": 1}, {"id": "f0bt7o4", "text": "If there are new construction permits issued in a 5 mile radius. The total supply in the area. Who\u2019s going to manage? They have experience?", "replies": [], "depth": 1}]