Which to Obtain First: A Deal or the Syndication

Question

Hello there!

I'm still a relative "rookie" when it comes to real estate investing.  I have about 60 doors is all, but looking to grow that exponentially.  I'm curious about the Syndication model....but wondering about how to go about it.  At this moment, all my deals have been done by myself (funded through the local bank and/or creative financing....so no partners).  To do some larger unit transactions, I know I will need partners.  But what should "come first"?  The deal or creating the Syndication?  If Syndication should come first....what do I tell the potential members?  Let me hold onto your money until a deal comes?  Sorry...maybe that's a stupid question!

Any insight would be appreciated!

Kyle

Account Closed · Answer

It's about $15,000 for an attorney to draw up the proper paperwork. You don't get that money back if the project doesn't happen. You need someone on the team with a net worth of the amount you are going to borrow. They don't have to invest that amount, they just need to be worth that amount. I know, it's weird, but that's what the bank wants and it's their rules. So, if your project is $10,000,000 and you are putting 20% down you need someone worth $8,000,000 as a cosigner. Build relationships and look for projects at the same time. It isn't as easy to find a good project as you may think, but they are out there. Most leads (syndicators) invest at least $100,000 to assure the other investors that they have skin in the game.

Keep in mind, accredited investors are sophisticated and they want to see details of why it's a safe and profitable project for them to participate in. It's very competitive right now. Most projects you are talking about are to be found by talking to commercial brokers. Guess what, the people with money and experience already are working with these brokers, so you need to build a credible relationship with the brokers too.

AJ Shepard · Answer

Kyle,

As others have stated, it will take time to build relationships with potential partners. The best time to start is now and while you're at it, I recommend that you mock up a deal, all the paperwork, and pieces to the puzzle that are needed. It also gives you the material to talk to potential investors and you can say "If I had something like this today, would you be interested?" That way, even if you are a "rookie",  somehow it assures them that you know what you are doing. Hope this helps!

Evan Polaski · Answer

@Kyle Davis, as the others mentioned: deals are "easy" building trust with investors is hard.  And as Taylor alluded to, you will technically need the deal first, because very few people will trust you enough to fund their investment prior to seeing the deal.  But the relationships need to be developed.

I saw a post on here a while ago that a sponsor sent out their "sample" deal package and started building their list, along with anticipated investment amount.  But when the deal actually came around that "anticipated investment amount" only made up about 10% actual investments.  It was a while ago, so maybe it was slightly higher, but the point being: if you think you will need $5mm in equity, you need a list of potential investors that "anticipate" investing $50ish million.

Secondly, as you are getting started with other people's money, having that strong list will help brokers feel more confident in awarding you deals without a track record of deals that size.

Brock Mogensen · Answer

The actual syndication "structure" will be created through legal entities and legal documents. You don't have to worry about creating the actual structure until you have the deal.  I would recommend getting in touch with an attorney that can this for you before you find the deal though.  That way you are ready to get everything created right away when you get the deal.  You will want to begin building investor relationships right away.  Meanwhile you can begin searching for deals.  Building your investor list is an ongoing process.  Then as soon as you get a deal under contract, you can hit your list of potential investors to invest.

Taylor L. · Answer

Find potential partners first, then go find the deal. Dig that well before you're thirsty. The actual process of creating the entity, getting the legal docs, and actually raising the money happens after you're under contract on a deal. Before you have a deal you should be building relationships with potential investors so that when the time comes to raise the money you're ready to go.

You can take time now to figure out which attorneys you'll work with and what their costs are so that when you're ready to do a deal, you just pull the trigger on everything you'd put in place.