December 29, 2021

JF2675: How to Catch Red Flags in Deals as a Passive Investor with Sam Giordano

When Sam Giordano first set out to invest in real estate, he wanted to find a way to minimize risk in any deal he joined as a limited partner. After creating a spreadsheet that helped him perform this risk-analysis, Sam quickly realized this was information other passive investors could use. In this episode, Sam discusses the syndication deal analyzer he created, along with the main red flags passive investors should look out for before closing on a deal.

Sam Giordano | Real Estate Background

  • Co-founder of Passive Advantage, which is a website designed to help passive investors vet real estate syndication deals on the path to financial freedom. They’ve created an LP Deal Analyzer tool that uses specific metrics and questions that limited partner investors can use when analyzing a real estate syndication deal.
  • Portfolio: 10 syndication deals as LP.
  • Full-time job is as a practicing gastroenterologist
  • Based in: New Jersey
  • Say hi to him at:

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any fluffy stuff. With us today, Sam Giordano. How are you doing, Sam?

Sam Giordano: I’m doing excellent, Joe. Thank you for having me. I appreciate it.

Joe Fairless: It’s my pleasure. I’m looking forward to our conversation. A little bit about Sam – he’s co-founder of Passive Advantage, which is a website designed to help passive investors vet real estate syndication deals. He and his team have created an LP deal analyzer tool that uses specific metrics and questions that limited partner investors can use when analyzing real estate syndications. I’m very interested in learning more about that during this conversation.

He’s a limited partner so he knows from experience how to vet deals, and he’s in 10 deals right now as a limited partner. He is a full-time gastroenterologist based in New Jersey. With that being said, Sam, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Sam Giordano: Absolutely, Joe. I just wanted to take the time to thank you and your team, Theo and Travis, over the last couple of years for helping me to edify some of my knowledge points. Some of the variables that we use in vetting, some of the syndication deals we came across, we were introduced to those concepts on your show. I just wanted to thank you and your team. You put out a quality product and you’re sort of one of the leaders in the field. Thank you in advance for that.

My name is Sam Giordano, I’m a physician in New Jersey; my wife is also a physician. I’ve been practicing for about 10 years now, she’s been practicing for about eight years. I started from humble beginnings, my father only finished eighth grade, wound up joining the Police Academy, and then working for the Department of Treasury. He sort of self-made himself and had several different businesses along the way. My mom only graduated 10th grade in a business school. So I’m the first physician in my family, one of the first few people to graduate college. So I came from humble beginnings in New Jersey, went up through college, met my wife in residency, and somehow convinced a California girl to stay here on the East Coast. We now have my beautiful young family. I have a six-year-old, a three-year-old, and a one-year-old here in New Jersey that we’re doing our best to try to keep the sanity in the house.

Basically, when I first graduated from medicine, the first couple years out, we were doing the traditional personal finance things that we’re taught to do, in terms of maxing out our retirement accounts, paying off our student loans, and contributing to our children’s 529 plans… And then several years in, we started contributing to a post-tax or taxable brokerage account. I would say once the loans got paid off, we had a little more disposable income, then I started to try to figure out ways that I could improve the tax situation being someone that lives in New Jersey. In particular, when we lost the ability to state and local income taxes back in 2017, even if I can’t do much about our current tax situation since both my wife and I are W2 employees, but I wanted to try to figure out ways to diversify my taxable income. That’s where I kind of came across real estate.

Joe Fairless: You’re currently in 10 deals as a limited partner. Most people would passively invest in the deals, but not choose to create a website that helps other passive investors look at deals and let alone have that be a focus of theirs in addition to a full-time job, which I imagine is very demanding. I’m grateful for you and your wife and what you do, and the other physicians out there. I think you all put up a lot of stuff from insurance companies and other places. Whatever your compensation, in my opinion, you’re not compensated enough for everything that you do.

Sam Giordano: I appreciate that, Joe. Thank you.

Joe Fairless: …he’s a hospitalist. He just got sued for some frivolous thing and it’s just ridiculous the type of stuff you guys and gals have to go through. But passive advantage…

Sam Giordano: Thank you, Joe. I appreciate that.

Joe Fairless: Yeah, I mean it. Passive advantage – why create that? I’d like to get into some specifics about the metrics and questions that passive investors should look for and ask.

Sam Giordano: I appreciate that. So to be honest with you, I didn’t intend to form a website come up with the tool either. I think all physicians, in a sense, are sort of OCD or have a detail-oriented personality. And as you know, when you get involved in these private placement syndications, generally, they have a pretty significant minimum, outside of sort of the crowdfunding platforms. You can be talking $25,000, $50,000 minimums. When you get into that type of money, the significance of it, I wanted to be sure that before I jumped into this, I had some education and baseline foundation to where at least I kind of had an idea of what to look at, what to look for. I spent the whole first year before I wind up jumping into any syndication deals back at the end of 2016, 2017, sort of learning all I could. That’s where your podcast and a couple other podcasts came in. I read your book and other books, I was active on the BiggerPockets forums and other real estate forums that are geared towards passive investors or limited partners.

I used that first year to come up with an Excel sheet where I was making it for myself, just kind of looking at the metrics that I wanted to look at in a deal, like what did I want to see in terms of the sponsor… It’s not novel, the main categories that we all look at as passive investors in terms of the sponsor, the market, and the deal. But then within those categories, what are things that kind of I wanted to see, what are some standard ranges? These can vary from deal to deal and the type of deal, but I just wanted to make sure there weren’t any obvious red flags that I was going to go into my first deal and make an obvious mistake.

So that’s sort of how it happened. Then I was sharing that information, either on the forum or with other investors that I personally know that are looking into real estate syndications, I saw that there was a demand for having access to this type of tool. And to me, it is really a tool. There are components of it in terms of direct feedback, where it sort of changes cells, red, yellow, and green, depending on where those numbers are. But in my opinion, it’s really a tool for education, so that a limited partner going into the deals and learning about deals at least has an idea of knowing what they don’t know, or some of the things that may be obvious to kind of pay attention to. And once I saw that demand for this type of thing, that’s when I was like I want to make sure that I’m not off base on my metrics, and that’s when I looked to partner in forming an actual commercialized product that we have, the LP deal analyzer, and then subsequently forming the website, and trying to be able to help limited partners that are learning the process, whether they’re early on or further long, maybe avoid some of the mistakes. I don’t like to say it’s used to tell you which deals to invest in; that’s all personal choice. But it’s really just to kind of help people assess risk points and deals, and if there are obvious red flags. That wasn’t there for me, and I kind of created it on my own, and I didn’t realize the demand for it. But then once I did, like maybe I can affect people at a bigger scale as opposed to just the 700 physicians that work in my hospital, that were approaching me. Then I also have a place to refer them to when they come to me and say, “How do I learn about this?” Then instead of having to have the same conversation multiple times, I could just have them go to the website, look up some of the resources, some of the books I recommend, and some of the tools. So that’s sort of how it evolved. But it was by no means intentional, Joe; it was more serendipitous by nature.

Break: [00:08:26][00:10:04]

Joe Fairless: What are some examples of risk points that your analyzer would identify?

Sam Giordano: To me, by far, the most important point is related to the sponsor. There are objective categories that aren’t as amenable to the sponsors. I mean, there are some, like in terms of I look at how many full-cycle deals a sponsor has… It used to be the main criteria when I first started looking into this was, has the sponsor been around prior to 2008 or one of their team members? Because that was the last recession. Now things over the last couple of years have kind of been turned on their head in terms of the number of sponsors out there. There’s really not a ton of groups that were around prior to 2008. There are some, but a lot of them sort of transitioned into the private [unintelligible [00:10:48].13] space or deal with only family offices and stuff like that. So some of the sponsors that are around now, not a lot of them were around prior to 2008. So full-cycle deals, how long have they been around for, how long have they been involved in real estate syndication? Some people say they’ve been involved in real estate for 10 years, but they may have been an agent, or they may have owned their own properties; it’s not like direct dealing with syndications and executing plans. What is the succession plan in relation to the sponsor? God forbid – not to be morbid, but God forbid if something happened to one of the other sponsors, will the deal still be able to be executed? So those are some of the general numbers in particular in relation to the sponsor itself, or some of the metrics that we look at, or that the tool that we use looks at in relation to the sponsor. I can go into more detail if you’d like me to, and some of the other subcategories.

Joe Fairless: Yes, please.

Sam Giordano: Okay. So in terms of the market – and these are sort of readily available data on the internet. There are some more comprehensive sites like CoStar and things like that that you can pay for to get access to the data, but we look at such things as to what markets are in the path of progress. It’s the main hot markets that everyone is looking at these days, across the Sunbelt, whether it’s Phoenix, some of the Texas markets, Denver, Atlanta, some of the Florida markets – these are areas where jobs are growing, people are moving, there’s population growth. There’s hard data that you can look at in terms of what is the population growth in those areas? What is the unemployment rate in those areas? Some of those metrics with working from home have become a little more difficult to analyze because some people are working in places that they don’t live, in terms of unemployment and things like that. But whether or not what’s the standard income in those areas, or the average income, what is the delta between the average income to what you would have to sort of pay for a mortgage on a home in that area, versus what the rent is, and whether it’s desirable… Because these days, if there’s not much delta between buying a home and renting a nice apartment, a lot of people are going to buy a home. But you want to look in a market where people, where there’s a delta between that.

Those are some of the general market metrics that we look at. There are some other ones as well, what is the average rent growth in the area? Some of these things are a little bit tougher to come by. But a lot of the metrics I talked about in relation to the market are readily available on websites like, or, or things like that, that you can kind of look this stuff up.

Joe Fairless: What about the deal?

Sam Giordano: Yeah, so the deal is where you get a little more objective. The deal in our analyzer is sort of broken down until the income and rent projections. “What is the rent growth projections?” is a big one. It was during the heat of COVID, I wanted to see deals that weren’t [unintelligible [00:13:33].25] a lot, weren’t projecting rent growth year one. But obviously now looking back, we realize that that was completely unfounded. The rent growth has been crazy through this market.

But just from a safety or risk standpoint, coming back to that general theme, just because of the uncertainty, I kind of wanted to see deals where they were looking at less rent growth, especially year one. I don’t like to see any particular year that’s projecting over a 5% rent growth. If anything, later on in the deal, I usually like to see that inch up somewhere in the one to 3% range to what the rent growth projections are. What is the breakeven occupancy? What is the current vacancy rate versus the projections?

Then you also look back to if you can get access to the T12 to see sort of what the comparisons are in terms of both the vacancy rate, the expense ratio of the property, how is the sponsor looking at what the expenses will be, versus what they were… So these are some of the metrics in relation to the deal; not speaking about the return, or the fees, or the debt which is also important, but in the subcategory of the deal, that’s one of the things, we look at in terms of what the rent growth is, and what the current dynamics are of the property itself.

Joe Fairless: When putting deals through this analyzer, where have been the most red flags when looking at specific opportunities?

Sam Giordano: I think the biggest thing these days, Joe, is in three categories. One is what the entry versus exit cap rate is. It’s difficult right now because the cap rates are so low. In order to try to make money in these deals, the delta between the interest rate and the cap rate is getting smaller and smaller. There are some groups that are not uncommon. They project the same entry cap versus exit cap. Now, that may be true and it’s the kind of market that’s not unheard of for that to happen. But I just don’t like those projections in the deal. I think, these days, I don’t have to tell you, but there’s so much capital out there that are just chasing yield and it’s a tricky time. The difficulty is that right now – I think people need this kind of deal analyzer more than they need it in a bad market. Because I think in a bad market, it flushes out some of these sponsors and it sort of shows some of the shortcomings that they may be doing in their projections. Whereas right now, everybody’s making money, there’s so much capital, and everybody’s deals are filling up within a couple of days… It’s just a risky time.

So this kind of feel analyzer metric evaluator is important because of the fact that there’s just so much capital that sponsors are able to get away with a lot of things. Even back to 2017, I’m sure you’ve seen it evolve as well. I know you invest in deals as limited partners. The metrics I’m looking at now are very different than what they were.

Now, things that haven’t changed that much – like, the fee structure really hasn’t changed that much. I don’t see people changing that — maybe like a half a point or something like that. But the basic acquisition fees, asset management fees, things like that haven’t changed that much. The return structure hasn’t changed a ton. Maybe you see a little bit lighter preferred return now than what you did in the past, but they’re very similar. But I think, in my opinion, the metrics that are different that you have to really keep an eye on now are some of the exit cap or entry cap, the rent growth projections, the debt evaluation I think is a huge risk point right now. A lot of people are doing bridge debt, which a lot of times makes sense these days. There’s not a lot of people doing traditional debt like they were a couple of years ago, where they were doing like 10-year fixed rate. But you’ve just kind of make sure if they do a bridge that, there are caps, there are ways to kind of mitigate some of the risks of the bridge loan.

I know it’s a long-winded answer, Joe, but that’s kind of some of the big things that I look at these days and the deals that I’m looking at, in particular in relation to the multifamily space.

Joe Fairless: I heard two specific things, and correct me if there’s something else specific. I heard entry versus exit cap, and I heard the type of debt that they have on the property, which might not be a red flag, because there’s certainly, at least in my opinion, a place for bridge loans versus agency debt.

Sam Giordano: I agree with you.

Joe Fairless: What are some other red flags? Sorry if I missed it during your answer.

Sam Giordano: The other one was the rent growth projections. There are some deals right now that are over a 5% rent growth projection year one. Like I said, it’s been that way for a year or so, so it’s not out of the question that that couldn’t happen. But depending on the severity of the value-add, maybe it makes sense in a class A where they’re really not doing anything. But if they’re doing some value-add and you’re going to need some vacancy in there to make these improvements, to project that kind of rank growth year one or income growth is difficult to do. So that’s the other one, the rent growth projections, entry versus exit cap, and nailing down the specifics in the debt.

ANd I agree with you, Joe. I’ve invested in two deals this year that are bridge debt, but they make sense with the business plan. Like, if they’re looking to execute the plan and turnover property in a short period of time, and it seems like they’ve got a track record to do that, then in some cases bridge debt makes more sense than to lock yourself into this huge prepayment penalty where you’re less nimble a year down the road. But if you have the proper caps on that and you mitigate some of the risks that are involved with the bridge debt, then there’s a lot of situations right now that it does make sense. I’m with you.

Joe Fairless: Taking a step back, what’s your best real estate investing advice ever for passive investors?

Sam Giordano: I think the best advice ever would be don’t be afraid to spend time on your education. When you learn about these syndications – and I know when I first learned about it, I’m like, “Man, there’s got to be a catch. Why didn’t I know about this? It seems like some Ponzi scheme or there’s something weird going on with it.” And your initial inclination is to just invest money and sort of start things up. But I think for passive investors in particular, don’t be afraid to take the time, take a step back, educate yourself so that when you do make that move, there’s a lot less risk of having a problem down the road.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Sam Giordano: Absolutely.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:19:45][00:22:37]

Joe Fairless: What deal, if any, have you lost the most amount of money on?

Sam Giordano: Thankfully, Joe, right now I haven’t. Of the 10 deals I’m in, I haven’t lost any money on those deals. Some of that is probably a function of the time… But I think it’s been a learning experience. It’s not that I lost money, and I know you recently switched the fund model, but initially, I invested in several funds, and it’s just more difficult to predict when the capital calls are going to be and when the distributions are going to be, when things are going to start to roll out in terms of the properties, and then you can’t really vet the deal at all. You’re really relying completely on the sponsor… Which is not the end of the world. But at this juncture of my limited partner investments and things like that, I think right now, I’m mostly focusing on single-asset deals. But I wouldn’t be opposed, down the road, say, 7 to 10 years from now, once I’m at my financial independence number, that I would be more likely to invest in fund deals. So it’s not that I lost money, but it was just a learning experience in terms of figuring out the difference between the single asset versus the fund model.

Joe Fairless: What’s the best way you like to give back to the community?

Sam Giordano: My wife and I have a donor-advised fund that we’re able to financially support causes that mean the most to us. The second way is I like to get back through education, through coming up with the website, the deal analyzer tool, having countless conversations with my physician colleagues via the Internet, as well as at my personal hospital that I work at, to try to get people involved and to learn more about this type of investing, so that they can put themselves on the path to financial independence.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Sam Giordano: They can reach me at There’s a free eBook to download to get some more information about some of the metrics that we look at, as well as access to the deal analyzer tool that we previously mentioned. If you want to reach me personally, you can reach me at I’d be happy to help in any way I can.

Joe Fairless: What an enlightening and educational conversation, especially for limited partners, but also for general partners to understand how limited partners should be looking at your deals in the lens that they look through to evaluate if it’s a good opportunity or not. Thank you so much, Sam, for being on the show sharing your insight and what research you’ve done over the years to get to the spot where you’re at now. Much appreciated, I hope you have a Best Ever day, and talk to you again soon.

Sam Giordano: Thank you, Joe, I appreciate it.

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