Is this fair?? 1.3 Million syndication structure.

7 Replies

Hey BP,

So I have recently purchased a 4-plex and its going great. Now im on to a 46 unit apartment building. I am partnering with a bigger broker in town that is into real estate. We are going to be offering on this building and are going to be raising money to fund the down payment. This is looking like a great deal, being conservative the cap rate is 10% and ROI is 13%. I just got done sitting down with him and here are my concearns.

There is a 15% deal structuring fee. This will be split 3 ways equally.

1.ME

2. Him

3. His brother

This seems like a high deal acquisition fee to me. The way we get it is him and his brother will do everything up to closing. After closing they are out and I manage the building. I will also get a 5% managing fee on the net income, which i can defer to a management company at any time.

All of us are going to be puting money into the deal as well and are going to have to raise around 275k from investors.


Should I ask for more anywhere else? They dont have any other rental properties but their family owns ALOT.


What do you think is this deal fair to me?

No expert but 15% seems very large.  Immediately you are pocketing 195k (1.3m x 15%) and then your partners are out.  How much do they stand to make at closing, or rather, what incentive to they have to see this deal through after close?

Also, as a broker is #2 pocketing commission?

@Todd Dexheimer Ya we will not be taking profits on top. Ive researched alot and found other structures alot better 2% aquistion, 1% managing, 70/30 profit split.

This is just what he brought to me and thought it was funny. Especially if they arent going to do anything after closing. ITs not like I wouldnt be able to do the due diligence period myself either. Im going to be getting most of the investors as well. 

Originally posted by @Cole Johnson :

@Todd Dexheimer Ya we will not be taking profits on top. Ive researched alot and found other structures alot better 2% aquistion, 1% managing, 70/30 profit split.

This is just what he brought to me and thought it was funny. Especially if they arent going to do anything after closing. ITs not like I wouldnt be able to do the due diligence period myself either. Im going to be getting most of the investors as well. 

 So what is the structure that you are trying to set up and what are you asking? Sounds like you don't need these people as partners and I don't really see what they are bringing to the deal. Pay them commissions/fees for what they are bringing to the table (if anything)

Hi Cole,

Yes, 1-3% acquisition fee; 1-3% asset management fees are the main fees that syndicates charge and are industry averages.  Syndicates with a lot of experience and solid track record get 2-3%.  Newbies in the 1% range.  Splits 70/30 very common for experienced operators and I see clubs / newbies going 80/20 or 75/25 to just get some experience going and attract investors in w/higher potential returns for the limited partner.  Any investor w/experience won't signup for a 15% fee off the top.  Certainly roles should be defined but if this is a partnership the partners should be putting in money into the deal and aligning w/the investors.  The GP should be getting most of their return on the backend not front end.

Couple other tips.  Raising capital has important legal considerations so seek out a competent attorney w/SEC experience in doing syndications.  Here's a few blogs to review that might help you as you enter the syndication game and position yourself favorably w/investors.

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/53959-vet...

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