{"id":54291,"date":"2014-02-18T05:30:06","date_gmt":"2014-02-18T12:30:06","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=54291"},"modified":"2021-03-16T10:16:12","modified_gmt":"2021-03-16T16:16:12","slug":"2014-02-18-problems-syndicating","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2014-02-18-problems-syndicating","title":{"rendered":"Syndication: Is It Even Worth The Trouble?"},"content":{"rendered":"

Most of you know by now that I\u2019ve dedicated myself to learning the art of syndication.<\/p>\n

I\u2019ve also committed myself to writing about it so that you don\u2019t have to re-invent the wheel.<\/p>\n

The forthcoming is another installment of Ben is just a dumb landlord, but he is learning\u2026<\/i><\/p>\n

There are many \u201cproblem\u201d areas as part of syndicating a deal.<\/a>\u00a0 Today I want to address 2 of the difficulties that need to be negotiated as part of a successful syndication.\u00a0 And, at the end, I feel compelled to attach a short life lesson.<\/p>\n

Let’s Talk About Money<\/b><\/h2>\n

Relative to all things money, the process of syndication is fraught with difficulties.\u00a0 First thing is first:<\/p>\n

Syndicating costs money<\/strong> \u2013 a lot of money.\u00a0 While I don\u2019t mean to get into legal entity structures and how things work at this time, let me just say that the sponsor (that\u2019s me) could be needing to drop $50,000 – $120,000 out of pocket just to get the ball rolling!<\/p>\n

Anyone having a heart attack yet?\u00a0 I did. There I was thinking \u2013 no problem, I\u2019ll just have the investors pay for everything.\u00a0 And you know, I wasn\u2019t wrong \u2013 all of these up-front costs are reimbursable by the investor capital that comes in.<\/p>\n

But, and it\u2019s a big but, the investor equity won\u2019t come in until legal entities are set up, subject is identified and vetted, due diligence is completed, institutional financing is arranged, etc \u2013 these things cost money; tens of thousands of dollars.<\/p>\n

The SEC attorneys alone run no less than $10,000, and then there are inspectors of all stripes, CPA, a bank loan application<\/a>\u00a0which can be as much as $10,000 for MBS loans, etc., etc., etc.<\/p>\n

Do I Have Capacity to Write $100,000 Worth of Check?<\/b><\/h2>\n

Not exactly\u2026But, I am the king of creative finance.\u00a0 Stay tuned to find out how I roll!<\/p>\n

Who Gets the Bank Loan?<\/b><\/h2>\n

That, my friends, would be me again.\u00a0 Why \u2013 because none of the investors would ever think of personally signing on the note.\u00a0 Understand \u2013 when people put money into a syndicate, they are aware that they can loose all of it.\u00a0 They feel that this should be enough \u2013 and it is.\u00a0 To ask them to personally sign onto the note is impossibility.<\/p>\n

No problem \u2013 I can get a totally non-recourse loan (when hell freezes over, that is).\u00a0 So, most that I can hope for is that the note is recourse to the general partner (that\u2019s me), but non-recourse to the limited partners.\u00a0 Sure, this is easy enough.\u00a0 I am going to hold my head high and walk into the banker’s office and throw down <\/em>my expansive (and fully financed)\u00a0balance sheet on his desk to collateralize that $5,000,000 note.\u00a0 Consider it done…<\/p>\n

If I can\u2019t line this up, there is no deal.\u00a0 Sure, I could do smaller deals for all cash, but this prohibitively drives down the IRR.\u00a0 I need to get the banker to say yes…<\/p>\n

Syndication is Hard<\/b><\/h2>\n

It\u2019s not impossible, but it is certainly difficult.\u00a0 I fully realize by now that success requires total commitment to the cause, action outside of the comfort zone, and pure and simple guts and time!<\/p>\n

As you can imagine, I have doubts.\u00a0 For a guy who has been living on his terms for several years now, without traditional employment, the proposition of willingly putting myself through this \u201cmeat-grinder\u201d is enough to ask \u2013 what the hell am I doing to my life\u2026?<\/i><\/p>\n

Indeed, I have to admit that even though I\u2019ve committed to syndicating, I have been questioning my commitment.\u00a0 I am so comfortable; is it really necessary to do this?\u00a0 And then there is pure and simple FEAR of messing up\u2026<\/p>\n

Providence<\/b> Speaks Through my Patrisha<\/b><\/h2>\n

On Valentine\u2019s Day my wife took kids from The Music Factory (the music school that I set up and she now runs) to a local retirement community as part of our community outreach program \u2013 we do that a lot throughout the school year.\u00a0 Since my daughter was to sing in the show, I came along.<\/p>\n

The performance was great indeed.\u00a0 The kids did an excellent job.\u00a0 Patrisha, whose talents are seemingly endless, sang a few songs, and then it happened\u2026<\/p>\n

She takes the microphone and says \u2013 \u201cand this song I\u2019d like to dedicate to my family\u2026\u201d<\/i><\/p>\n

She went on to sing the most beautiful rendition of Fleetwood Mac\u2019s Songbird.<\/i>\u00a0 I couldn\u2019t take my eyes off of her\u2026I cried!<\/p>\n

The show was over.\u00a0 I went to get the van in the parking lot.\u00a0 I climbed into the driver\u2019s seat, put the key into the ignition, and then and there I knew why I was going to step as far out of my comfort zone as necessary in order to find success in syndication.<\/p>\n

My Family!\u00a0<\/b><\/p>\n

I don\u2019t know how to explain this in a way that will make you believe, but I really don\u2019t care about the money.\u00a0 Performing at the top of my capacity and providing for my family define my actions.<\/p>\n

I don\u2019t know about you, but I work best when success is not simply one of the options, but is the only available option.\u00a0 My wife knows this about me, and she skillfully, artfully, and lovingly creates an environment in which I can shine as a man and as a real estate entrepreneur.\u00a0 Patrisha \u2013 thank you baby!<\/p>\n

Question \u2013 Does your spouse bring out the best in you that you can be?<\/i>
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