If you have seen my previous videos, you may already know that I got my start in real estate with single-family and small multifamily. When I wanted to kick it up to larger multifamily, I called up an attorney friend of mine who was very much into real estate and asked him how I would get started buying larger multifamily deals. He didn’t have much time on the phone and just told me “you syndicate the deal” and then he left. I didn’t exactly know what he meant at the time, but I got to work, studied how to do multifamily syndication, and have done many deals since. Today, I will give you a high-level view of what syndication is and give you an opportunity to perform your own research.
Syndicating multifamily real estate is an evolution in income generating real estate for passive investors. Basically, you are partnering up with investors to buy an apartment building and cash flowing them afterwards via the tenant rents. While multifamily syndication has been around for a while, it has become more popular recently as a way for business professionals, doctors, and other W2 income earners to produce passive income while protecting their income from taxes. But before you begin syndicating your own deals or investing in them, you need to do the research and understand how it works and how it will make you and your investors money.
So, let’s define what a basic Multifamily Syndication looks like, but keep in mind that. there are many ways of structuring a deal. So this is a very high-level overview.
A deal syndicator puts together deals by first underwriting the property and then seeking out investors for the down payment capital needed to purchase the building. The General Partnership consists of the syndicator and any operating partners. The investors have a stake in the deal, like investing in shares, bonds or mutual funds, but are not involved in the day-to-day operations of the business. Returns are distributed first to the investors, and then to the General Partnership. Investors will have their risk tolerances and returns expectations. If you are the syndicator, you have to be sure to structure all this ahead of talking to your investors.
Risk tolerances vary on the building and what the plan is. If it is an older, class C property, there are primarily two types of projects the syndicator will be doing:
1. Distressed property: These properties have a low occupancy, 85% or less. A distressed property is an apartment building that is unstable, the maintenance is poor, and the operations are inefficient. There could be many problems with the building itself, such as a bad boiler or electrical problems. Typically, the tenants base is not very good as screening is poor.
2. Value-add property: These properties are more stable than the distressed ones. With occupancy greater than 85%, perhaps they have inefficient operations or poor maintenance and there is an opportunity to increase the value of the property. The main point about this kind of syndications is that it’s generally economically viable due to the high occupancy rate. Banks typically like these deals.
In any case, the General Partnership should maintain transparent throughout the venture of any deal. Risks should be clear to all the investors; every deal has its own risks, no matter how good the offer looks. All this should be covered in the syndicators’ subscription agreement that is prepared by an SEC attorney.
I will be working on more training programs that will further explain the finer details of syndication. There is much more to it. The point is that for you guys and girls out there, there is indeed a way to buy larger multifamily. I have done it. You can do it too.
Are you wondering how to do or how to invest in your first deal? What would you like to see in a syndication training program? Let me know in comments.
If you learned something from this video, give it a thumbs up and check out our podcast Bulletproof Cashflow on iTunes or Stitcher, and subscribe to the new YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily.
We are ramping up our 2019 and I hope you guys are getting after your goals. One of the things I’ve been thinking about is the amazing interviews I’ve had on the Bulletproof Cashflow podcast. I’ve been fortunate enough to meet so many successful syndicators, authors, and masters in the field of real estate and share some of their biggest lessons with you.
There are some commonalities with all the people I spoke with so far – from mindset to taking massive action. There are still many lessons to be learned from their journey. I’ve narrowed it down to 5:
1) You Must Have a Focused Plan: Without fail, every real estate entrepreneur I’ve interviewed has a detailed and very focused strategic and tactical business plan. They are experts in the asset class they are working and very rarely deviate from their asset class. Whether it’s multifamily, retail, storage, or land, they stick to what they know and only expand if their team can expand with their plan. They know their market inside and out. They are focused on chasing one rabbit versus chasing many rabbits all over the country.
2) You Must Have Good Relationships: Building strong relationships with everyone in your circle is important for you and your business. These relationships will not only propel your business to new heights in the way of investors, vendors, and deal flow, but it will also allow you to help others with their needs. In any business, it’s about giving first to get back and building good, strong relationships. In real estate, some of the best deals are found off-market and the only way to find these deals is from your strong relationships. In the end, it all comes down to deals and dollars and the relationships you have developed.
3) It Takes a Little Patience: It sounds simple, but the best deals are taken down by those that are patient. I have looked at many deals where the price and terms just didn’t make sense. In those cases, I wait it out. I never take down deals outside of the set parameters because I have an obligation to my investors. In several cases, we waited over a year before the deal made sense for us to pursue and close. In any case, I always part ways on good terms with the broker and leave the door open for that seller to reach out. We make it easy to deal with us and those on the team.
4) Take Massive Action: The people I interviewed did one thing extremely well – they continually executed their business plan relentlessly. They also continually refine and improve their business model so that it becomes more efficient and profitable. They push through barriers and do whatever it takes to deliver.
5) They Invest Heavily in Personal Development: Aside from investing in buildings, they spend a lot of time investing in themselves. Without fail, every successful entrepreneur invests in improving themselves. Whether it’s reading a book a week to improve their mind, hitting the gym to improve their body, or going to conferences to build their network, they are committed to improving themselves. They are not complacent with the status quo and work to be at their best.
Anyway, make 2019 your breakout year by checking out the Bulletproof Cashflow podcast on your favorite media channel.
There, I interview some of the most successful real estate syndicators. You will hear about their experiences first hand and you can implement some of these great lessons into your business.
I received a message yesterday night after my last video. They person asked what it takes to become a multifamily syndicator.
Here are the five qualities I rely on every day:
1) You Must Be Determined
Like any business, there are days when things don’t go your way. Sometimes, you are disappointed because someone let you down. When things go hard, you go harder. I will work to make things happen. I will reach out to people and travel in person if needed to meet face to face to hash something out. Having that “whatever it takes” attitude is a core principle for me. When you are making the leap either from single family or from zero, you need to be determined to get past all the no’s you will encounter.
As a syndicator, we have processes that take us from start to finish, but there are always challenges and there is no clear map to get to the end sometimes. So clear determination is a must to see your deals and your dreams through.
2) You Must Be Trustworthy Another core principle is that you need to be trustworthy. People need to be able to recognize you are a trustworthy person. If you cannot trust yourself with handling your money, forget about raising money from others. If you are looking for investors to put up thousands of their hard-earned money into your deal but you have a hard time managing your own, you may need to revisit your options.
3) You Must Have a Track Record
When I say track record, it doesn’t need to be in real estate syndication, but it does help. For some of you, it could be that you have experience doing fix-n-flips or wholesaling and you consistently earned profits from money borrowed from lenders and investors.
For others, you may have a proven track record in the corporate world. I started out in single family more than 15 years ago but also built a career as a Chief Information Officer in the financial services industry. I can point to my operational and budget management experience.
If you are just getting out of college with no experience in the real estate world it will be tough to start out on your own. However, you can partner up with others that are in the syndication game either in cash or sweat equity.
Ultimately, investors need comfort that their money and the asset itself are in good hands. You need to demonstrate you have the business acumen to execute on the plan you outlined.
4) You Must Know Your Numbers Knowing how to analyze and put a deal together is crucial. You don’t need to have 15 years of experience analyzing deals. Rather, you can partner with someone who has the knowledge and experience. Regardless, you need to have an understanding of how the numbers work, know how to read a given market, and know the verbiage used by brokers, lenders and sellers. You don’t want the lender asking you if you would like to do an “IO Loan” and you have no idea what they are talking about.
5) You Must Appreciate Your Team Many great leaders talk about gratitude and with a good reason. When you are positive and appreciate the work that your partners, property managers and vendors are doing for you – and you tell them – it will make all the difference in the world. People like to know that you recognize their efforts. And when you do recognize, they will work that much harder for you. It will help you make each day a positive experience and help you on your path towards everyday greatness.
Tell me what you think. What qualities have made you successful? Leave a comment and let me know.