{"id":53049,"date":"2014-01-15T13:53:27","date_gmt":"2014-01-15T20:53:27","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=53049"},"modified":"2021-03-16T10:15:13","modified_gmt":"2021-03-16T16:15:13","slug":"2014-01-15-syndicate-question","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2014-01-15-syndicate-question","title":{"rendered":"To Syndicate or Not \u2013 This is The Question (What Would You Do?)"},"content":{"rendered":"

Indeed \u2013 this is the question I need answered.\u00a0 As you can imagine, I am leaning in one direction in this matter, but I need you to check my thorough process and offer an opinion.<\/p>\n

My answer \u2013 an emphatic YES.<\/strong>The next deal that I do is going to be a syndicate.\u00a0 My feeling on this stems from the success I\u2019ve had creating equity and cash flow with small multiplex, and now I am ready to add a \u201c0\u201d or two to every number in the deal.<\/p>\n

To clearly define the moving parts, allow me to update you as to the status of the Symphony 10-Unit.\u00a0 I wrote about it in an article entitled How I Bought a 10-plex With 1.5% Down \u2013 Case Study<\/a>.<\/p>\n

Acquisition Numbers<\/b><\/h2>\n

Purchase Price:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $373,500<\/p>\n

1st<\/sup> Mortgage (commercial portfolio note):\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 70%<\/p>\n

2nd<\/sup> Mortgage (private note):\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 25%<\/p>\n

Required Down-payment:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5% *<\/p>\n

Monthly Gross Income:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $5,800<\/p>\n

Monthly Operating Costs:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $2,400<\/span><\/p>\n

Monthly NOI:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $3,400<\/p>\n

Cost of Money:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $2,400<\/span><\/p>\n

CASH FLOW:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $1,000<\/b><\/p>\n

CAPITALIZED VALUE\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $408,000 <\/b>**<\/p>\n

EQUITY POSITION\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $54,000 <\/b>***<\/p>\n

Several points here:<\/h3>\n
    \n
  1. While the down-payment requirement was 5% ($18,675), after prorations and credits I ended up closing with about $5,300 out of pocket, and this was the first ever deal that I brought money to \u2013 bummer\u2026I couldn\u2019t sleep over it for days!<\/li>\n
  2. A building such as what this is in the location it is in commands a 10 CAP.\u00a0 Therefore, annual NOI of $40,800 ($3,400 x 12) justified a value for this building of $408,000 at 10 CAP.\u00a0 Having paid $373,500 I received a bit of a discount against the capitalized value.<\/li>\n
  3. The total outstanding debt on this building was, and still basically is about $354,000.\u00a0 Juxtaposed against capitalized value of $408,000, my equity position at the outset was about $54,000.<\/li>\n<\/ol>\n

    Improved Numbers<\/b><\/h2>\n

    I evicted bums, hiked rents, and lowered expenses<\/a>.\u00a0 Due to my efforts, the current monthly NOI is about $3,870.\u00a0 My current Cash Flow on this building is roughly $1,500\/month, and the annual NOI $46,500 justifies a value of a bit under $465,000 at the same 10 CAP.<\/p>\n

    Thus \u2013 I\u2019ve managed to drive the Cash Flow up by 50%, and my current equity position is $111,000:<\/p>\n

    Equity Position = Capitalized Valuation \u2013 Outstanding Debt<\/em><\/p>\n

    Equity Position = $465,000 \u2013 $354,000 = $111,000<\/strong><\/p>\n

    A Bit Of Perspective On Syndication<\/b><\/h2>\n

    My desire and pretty much decision at this point, to syndicate comes from a simple mental exercise of adding a \u201c0\u201d to every number in this transaction.\u00a0 Of course, in this case I\u2019d be talking about buying 100-unit apartment community for $3,735,000 with initial Cash Flow of $10,000\/month and improving that to $15,000\/month, and in the process putting a million bucks on my balance sheet.<\/p>\n

    I am aware that the process, though more involved and expensive, is basically the same.\u00a0 So, in lieu of playing with tens of thousands as we do in SFR, or hundreds of thousands as we do in small multi, I would much rather syndicate and play with millions \u2013 the game is the same\u2026<\/p>\n

    What am I missing? Thoughts?
    \nPhoto Credit:     Racineur<\/a><\/font><\/p>\n","protected":false},"excerpt":{"rendered":"

    Indeed \u2013 this is the question I need answered.\u00a0 As you can imagine, I am leaning in one direction in this matter, but I need you to check my thorough […]<\/p>\n","protected":false},"author":810,"featured_media":53098,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5528],"tags":[],"class_list":["post-53049","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-news"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/53049","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/810"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=53049"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/53049\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/53098"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=53049"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=53049"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=53049"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}