How to do first multifamily syndication deal with no money down?
Rental Property Investor · Union City, CA · Member since 2017 · 11 posts · 3 votes
How to do first multifamily syndication deal with no money down?
Most Popular Reply
Member since 2021 · 9 posts · 12 votes
3yQuote from @Jameel Jason:
Hi Everyone,
I am really getting into multifamily in the Indianapolis area and I am looking to scale my business to the next step. A friend of mine who is a buy and hold investor for large multifamily units told me that he prefers to do larger deals because of the cash flow. So far it's working wonders for him and he is only been in the game for 2 years.
I would love to understand what creative financing options are out there to do large multifamily with no money or little money down? I have heard of sellers carrying 2nd mortgages for down payments. What other ways can you do it?
Thanks
Well first you need to determine your overall approach. Too often I see new investors who are all over the map, ready to take on the world, but never even begin.
It sounds like you are trying to invest in multi units with little or no money down, rather than being a syndicate. In syndication, your job would primarily be A) Find Multi Family Homes B) Analyze multi family deals and their proforma info etc. C) Present investment opportunity to a pool of viable passive cash investors.
example:
Lets say a 12 unit complex is for sale and all of the numbers checked out as being a "great deal". Let's say the seller wants $1,500,000, the facility needs roughly $700,000 in renovations and upgrades and the fair market value of the property comps out at $7,500,000.
You negotiate with the seller and agree on a purchase price of $900,000 instead of $1,500,000.
You create a report with real time data, photos etc. and present this information to passive investors. You will need, in this example:
$900,000 purchase
$54,000 closing admin costs
$700,000 for renovations
Total money needed: $1,654,000 for this investment that has a proven top of market value of $7,500,000.
Ensure you determine then specify your exit strategy. Have a timeline and payment methods to investors. Since you don't have the funds, you need investors looking for returns who dont want NO management responsibilities.
So you market this deal to investors for shares. Let's say for this example 1000 investors have given you $1,654.00
Money needed: $1,654,000
Money collected from interested passive investors: $1,654.00 × 1000 investors = $1,654,000.00
You collect the money and make the purchase, oversee renovations and watch your budget.
Budget:
Projected $1,654,000
Actual $1,250,000.00
Relisted for $7 million 8.5 months later the multifamily sells for $6.5 million
Money made: $6.5 mill - $1.250 mill = $5,250,000 profit made
Now, since you used crowd funding through syndicating 1000 investors your split overall is 70/30 split.
You receive: $1,575,000 for syndicating the deal
The investors overall made $3,675,000 /1000 investors = $3,675.00 return on $1654 investment. Each investor within your syndication pool made a profit of $2,021 over their $1,654 initial investment.
You will need to sharpen your understanding on analyzing deals, leveraging help in areas you suck or are "so-so" in doing, and have a great market approach. Syndication is basically you collecting other investors money to invest in real estate that will yield them a medium to high ROI. You may spend $0 on the actual investment since your using OPM, however, your responsibility is to manage the investment from the beginning to the end.
Now creative financing is different and has nothing to do with syndication.
Lets use the same example and you negotiate with the seller. The seller has a $500,000 note on the property at a monthly payment of $5000 to bank of America. Although the seller tells you they at least want to walk away with $400,000 but they are in no need for the money and have concerns of tax implications on this capital gain.
YOU OFFER
$400,000 CASH PAYMENT TO SELLER amortized into 1000 payments at a 6% interest rate- Balance due in full whenever you the buyer resells the property.
With subject to the existing mortgage balance of $500,000 payment of $2,100 per month.
If you dont have money you assign the structured deal for a $50,000 fee. The assigned investor will then be responsible for the renovations, monthly equity and mortgage payments, and managing when filling occupants. Your efforts are all done up front, and when all the structuring and signing is completed and then it's time to put money up, you assign to investor who wouldn't mind stepping in this Hybrid deal. Thus, both syndication and creative financing strategies are two completly different concepts of investing. All strategies leverage another person's funds and abilities however almost never 0 money down. I think you mean 0 money down from you.
8 Replies
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes8y
@Jameel Jason There is no such thing as no money down when it comes to syndications. Even if a deal sponsor decides not to put any of their own money in a deal, they will still have to pay to do their due diligence and the deposit. So there're upfront fees.
Seller financing might be an option but that may create obstacles in terms of obtaining financing, especially when it's one of your first commercial properties.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes8y
@Jameel Jason someone with good credit and net worth is going to have to sponsor or be on the hook for the main loan.
You mention syndication in your subject line but didn't mention it in your question. A syndication is a way to buy with little of your own money. You get others to come up with the money for down payment and up front cost and get a loan for say typically 70% of the purchase price.
The first step is build your credibility with people who have money, Then find a good deal, then structure it so the investors and you can both make money. That may seem basic but each deal is going to be different and evolve differently.
You might want to follow @Omar Khan and others here. You might also want to scroll through the apartment forum here.
@Ned Carey Thanks for the shout out
@Jameel Jason As @Alina Trigub has pointed out there is no free lunch in life. All the no money down "deals" you hear about either happened after 2008 and, more likely, never happened (barring a few notable exceptions like @Gino Barbaro).
They could happen in war zone areas but more intelligent people than myself have the brain power, patience and capacity to fight that battle. I prefer to not inherit other people's problems.
Even if I was to give you a building for free, you'd still have to shell out money for inspection, environmental, due diligence, regulatory, lender and other reports (i.e. major $$$).
Most of these strategies are ways for gurus to market their products. Kinda hard to market "This is going to cost you money upfront and will be a PITA, but is a good way to make money" ;)
- Rental Property Investor · Union City, CA · Member since 2017 · 11 posts · 3 votes8y
@Omar Khan ,@Ned Carey ,@Alina Trigub thank you for responding to my post.
I do have money reserved. I was just interested to learn more about creative ways to get large multifamily deals with little to no money down. I am also thinking more along the lines of BRRRR for large multifamily. Even if I do spend money I want to be able to recover it so I can repeat the process.
- Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes8y
@Jameel Jason in short you need more education on multifamily finance and redevelopment / value add. The good news is there's a lot out there. I have a reading list on my gram account. I'm easy to find there too. All the best man!
- Member since 2021 · 9 posts · 12 votes3y
Quote from @Jameel Jason:
Hi Everyone,
I am really getting into multifamily in the Indianapolis area and I am looking to scale my business to the next step. A friend of mine who is a buy and hold investor for large multifamily units told me that he prefers to do larger deals because of the cash flow. So far it's working wonders for him and he is only been in the game for 2 years.
I would love to understand what creative financing options are out there to do large multifamily with no money or little money down? I have heard of sellers carrying 2nd mortgages for down payments. What other ways can you do it?
Thanks
Well first you need to determine your overall approach. Too often I see new investors who are all over the map, ready to take on the world, but never even begin.
It sounds like you are trying to invest in multi units with little or no money down, rather than being a syndicate. In syndication, your job would primarily be A) Find Multi Family Homes B) Analyze multi family deals and their proforma info etc. C) Present investment opportunity to a pool of viable passive cash investors.
example:
Lets say a 12 unit complex is for sale and all of the numbers checked out as being a "great deal". Let's say the seller wants $1,500,000, the facility needs roughly $700,000 in renovations and upgrades and the fair market value of the property comps out at $7,500,000.
You negotiate with the seller and agree on a purchase price of $900,000 instead of $1,500,000.
You create a report with real time data, photos etc. and present this information to passive investors. You will need, in this example:
$900,000 purchase
$54,000 closing admin costs
$700,000 for renovations
Total money needed: $1,654,000 for this investment that has a proven top of market value of $7,500,000.
Ensure you determine then specify your exit strategy. Have a timeline and payment methods to investors. Since you don't have the funds, you need investors looking for returns who dont want NO management responsibilities.
So you market this deal to investors for shares. Let's say for this example 1000 investors have given you $1,654.00
Money needed: $1,654,000
Money collected from interested passive investors: $1,654.00 × 1000 investors = $1,654,000.00
You collect the money and make the purchase, oversee renovations and watch your budget.
Budget:
Projected $1,654,000
Actual $1,250,000.00
Relisted for $7 million 8.5 months later the multifamily sells for $6.5 million
Money made: $6.5 mill - $1.250 mill = $5,250,000 profit made
Now, since you used crowd funding through syndicating 1000 investors your split overall is 70/30 split.
You receive: $1,575,000 for syndicating the deal
The investors overall made $3,675,000 /1000 investors = $3,675.00 return on $1654 investment. Each investor within your syndication pool made a profit of $2,021 over their $1,654 initial investment.
You will need to sharpen your understanding on analyzing deals, leveraging help in areas you suck or are "so-so" in doing, and have a great market approach. Syndication is basically you collecting other investors money to invest in real estate that will yield them a medium to high ROI. You may spend $0 on the actual investment since your using OPM, however, your responsibility is to manage the investment from the beginning to the end.
Now creative financing is different and has nothing to do with syndication.
Lets use the same example and you negotiate with the seller. The seller has a $500,000 note on the property at a monthly payment of $5000 to bank of America. Although the seller tells you they at least want to walk away with $400,000 but they are in no need for the money and have concerns of tax implications on this capital gain.
YOU OFFER
$400,000 CASH PAYMENT TO SELLER amortized into 1000 payments at a 6% interest rate- Balance due in full whenever you the buyer resells the property.
With subject to the existing mortgage balance of $500,000 payment of $2,100 per month.
If you dont have money you assign the structured deal for a $50,000 fee. The assigned investor will then be responsible for the renovations, monthly equity and mortgage payments, and managing when filling occupants. Your efforts are all done up front, and when all the structuring and signing is completed and then it's time to put money up, you assign to investor who wouldn't mind stepping in this Hybrid deal. Thus, both syndication and creative financing strategies are two completly different concepts of investing. All strategies leverage another person's funds and abilities however almost never 0 money down. I think you mean 0 money down from you.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Jameel Jason
Working wonders and 2 years. Yes because he has been involved in the best 2 years of real estate ever probably. Do not judge the past two years and think the next 2 will be like that.
7e investments53 Reviews - Member since 2020 · 3 posts · 0 votes3y
Quote from @Gary Leonard:
Quote from @Jameel Jason:
Hi Everyone,
I am really getting into multifamily in the Indianapolis area and I am looking to scale my business to the next step. A friend of mine who is a buy and hold investor for large multifamily units told me that he prefers to do larger deals because of the cash flow. So far it's working wonders for him and he is only been in the game for 2 years.
I would love to understand what creative financing options are out there to do large multifamily with no money or little money down? I have heard of sellers carrying 2nd mortgages for down payments. What other ways can you do it?
Thanks
Well first you need to determine your overall approach. Too often I see new investors who are all over the map, ready to take on the world, but never even begin.
It sounds like you are trying to invest in multi units with little or no money down, rather than being a syndicate. In syndication, your job would primarily be A) Find Multi Family Homes B) Analyze multi family deals and their proforma info etc. C) Present investment opportunity to a pool of viable passive cash investors.
example:
Lets say a 12 unit complex is for sale and all of the numbers checked out as being a "great deal". Let's say the seller wants $1,500,000, the facility needs roughly $700,000 in renovations and upgrades and the fair market value of the property comps out at $7,500,000.
You negotiate with the seller and agree on a purchase price of $900,000 instead of $1,500,000.
You create a report with real time data, photos etc. and present this information to passive investors. You will need, in this example:
$900,000 purchase
$54,000 closing admin costs
$700,000 for renovations
Total money needed: $1,654,000 for this investment that has a proven top of market value of $7,500,000.
Ensure you determine then specify your exit strategy. Have a timeline and payment methods to investors. Since you don't have the funds, you need investors looking for returns who dont want NO management responsibilities.
So you market this deal to investors for shares. Let's say for this example 1000 investors have given you $1,654.00
Money needed: $1,654,000
Money collected from interested passive investors: $1,654.00 × 1000 investors = $1,654,000.00
You collect the money and make the purchase, oversee renovations and watch your budget.
Budget:
Projected $1,654,000
Actual $1,250,000.00
Relisted for $7 million 8.5 months later the multifamily sells for $6.5 million
Money made: $6.5 mill - $1.250 mill = $5,250,000 profit made
Now, since you used crowd funding through syndicating 1000 investors your split overall is 70/30 split.
You receive: $1,575,000 for syndicating the deal
The investors overall made $3,675,000 /1000 investors = $3,675.00 return on $1654 investment. Each investor within your syndication pool made a profit of $2,021 over their $1,654 initial investment.
You will need to sharpen your understanding on analyzing deals, leveraging help in areas you suck or are "so-so" in doing, and have a great market approach. Syndication is basically you collecting other investors money to invest in real estate that will yield them a medium to high ROI. You may spend $0 on the actual investment since your using OPM, however, your responsibility is to manage the investment from the beginning to the end.
Now creative financing is different and has nothing to do with syndication.
Lets use the same example and you negotiate with the seller. The seller has a $500,000 note on the property at a monthly payment of $5000 to bank of America. Although the seller tells you they at least want to walk away with $400,000 but they are in no need for the money and have concerns of tax implications on this capital gain.
YOU OFFER
$400,000 CASH PAYMENT TO SELLER amortized into 1000 payments at a 6% interest rate- Balance due in full whenever you the buyer resells the property.
With subject to the existing mortgage balance of $500,000 payment of $2,100 per month.
If you dont have money you assign the structured deal for a $50,000 fee. The assigned investor will then be responsible for the renovations, monthly equity and mortgage payments, and managing when filling occupants. Your efforts are all done up front, and when all the structuring and signing is completed and then it's time to put money up, you assign to investor who wouldn't mind stepping in this Hybrid deal. Thus, both syndication and creative financing strategies are two completly different concepts of investing. All strategies leverage another person's funds and abilities however almost never 0 money down. I think you mean 0 money down from you.
@Gary Leonard do you have any recommended reading for creatively structuring deals like you mentioned?
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