Apartment Investment and Syndication NIghtmares

7 Replies

Hi BP,

As I'm getting closer to raising the funds for and acquiring my first apartment property, I'd like to hear the bad and the ugly of your experiences and what you LEARNED from them.

We usally her the good and the successes, but we learn most from failures. Can you experienced syndicators and CRE investors chime in with your stories and wisdom?

@Scott Isley one of the big concerns is raising sufficient funds to close and having them come in on time. Having to extend a closing date in order to get the rest of your funds is very stressful. Always get over commitments on your deals. Tell your investors bad news early. Fortunately we have never had a cash call. But that definitely is a situation we try to avoid.

@Scott Isley Get verbal commitments of 30% more than what's needed. Even after you think you've raised all the money needed - keep raising. People who originally say "yes, I'm in for XYZ" might completely back out or lower their original amount. Fortunately, it is much easier to raise money after the goal amount is raised vs. having to raise money from scratch.

Until all the money is safely deposited in the escrow account, keep raisin'.

Hi Scott, I echo Joe and Jeff's advice as well. I'll also suggest you extend your closing date (assuming you are under contract) for as long as possible, and leave yourself an option for extensions. Once your partners commit, many of them may have to sell off an investment and perhaps establish a self-directed IRA or RE 401k, and that can take 30 days or longer. Once that happens, funds have to be sent, cleared, and then there's a holding time..... It's not as quick as any of us would like, but this has been the case for several of my investors. As for other gotchas, hiring a good attorney that is well versed in creating syndicates for Real Estate will help to insure that you have all your ducks in a row as it pertains to the documents used to cover yourself. Oh, and make sure that you are the General partner in the syndicate, and the general manager of any associated LLC's. ONE CHIEF! The remaining indians should be limited partners or members.

Lots for you to study in this "art form": So much, that I teach a 3 day Private Lending & Syndication Summit once per year, and we still can't cover it all, but at least this forum is good for a few tips.

Keep us posted.

80% of your investors will usually come in at the minimum syndication amount, so set your levels accordingly at the outset.

Also, although people may only come in at the minimum, it is often not the only amount that they have to invest with you. So go back to your original investors and see if they are willing to invest more as you move along your fund raising goal.

@Joe Fairless excellent idea, hadn't thought of that, will do approaching investors. ---> thoughts on a blind pool mitigating the issues mentioned?

Great advice guys; @Jeff Greenberg, @Joe Fairless, @Scott Meyers, @Eric Tait, in your personal apartment investing, can you recall a major issue or horror story with one of your acquisitions and what you learned form it? (occupancy significantly reduced, under planned capex.... I know @Michael Blank has a pretty rough one with the DC area and code violations with a monster tenant almost driving the property to bankruptcy... something like that?)

Thanks all!

@Scott Isley,

Well, you're not going to like this.... but after owning several large Apartment complexes, and COUNTLESS nightmares, I sold them all and now I only invest in Self Storage: No Tenants, Toilets, or Trash...

When they don't pay, I lock them out, sell their stuff, and recoup my $. I reduced 80% of my stress and opportunities for a deal to go south by investing in an asset class without Tenants. PERIOD!

Besides - The returns are insane in this industry, which makes it much easier to raise capital. We have more people wanting to partner with us than we can find deals.

Again, just my $.02, and admittedly, I am extremely biased. But our lives literally changed when we flipped our business model to the opposite end from trophy properties to these simple 10 X 10 Concrete boxes on metal slabs.

Keep us posted.

@Scott Isley my pleasure. And, sure, blind pool would be ideal but that's much more challenging to raise more for unless you have a great/long track record.

It's a lot easier to raise a dollar for property X than it is to raise a dollar for the to-be-named-later property behind door #2.

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