Syndication and value of property management

[Account Closed]

Based on my research as well as conversations with experienced syndicators, property management is one of the most important aspects of a successful syndication. As someone new to syndication, it would seem to make sense to start with a smaller asset, say 25 units or less. Basically build your track record and move up to larger buildings. However, from what I can tell it's tough to get true professional management for assets of this size. I feel like buying a property of this size may actually set me up for failure or a mediocre syndication at best. Does it make sense to focus on something larger (50 or 75 units) and try to partner with someone experienced? Am I totally off base with my assumptions or is this there something to this line of thinking?

[Brian Burke]

@Account Closed, property management is not one of the most important aspects of a successful syndication.  It is one of the most important aspects of ANY real estate investment.

Just like any other profession, there are good property managers and bad ones.  The level of sophistication typically increases as you move up in property size.  Larger properties are easier from a management perspective because you can hire a very sophisticated and experienced manager (the trick is finding and vetting them).  And you can hire more experienced on-site staff (managers start at small properties and work their way up to larger ones just like owners should).

That said, if your objective is to acquire property with investor's money, a large property with a sophisticated management company isn't going to be your golden ticket.  For investors to trust YOU with their money (they aren't investing with the management company) you have to have a track record.  A large property with a good management company can still fail under a bad owner.

This means that you'll most likely have to cut your teeth on smaller properties, which will challenge you and educate you as you interface with management companies of lesser sophistication.  This will prepare you for larger deals.

I say "most likely" because you might get lucky and find a big investor willing to let you obtain your education at the risk of their dime.  But that's the exception, not the rule.  Unless, of course, you are at a guru seminar, in which case you'd be led to believe that kind of thing happens all the time.