New to Syndication but have a deal

7 Replies

I've been on the side lines for about 6 months, reading, researching, learning, etc. 

I've found my first deal and hope to close within the month- duplex which will return 20-30% CoC.

I've found a second, much larger deal: a set of 6 multi-family buildings, that make up 19 units. 

Location: across the street from a well respected, but small, university. The neighborhood is B- to C+, but because it's right next to the university, the crime rate is almost non-existent due to a robust campus police force. 

Asking Price: 629,900

Average monthly rent: $8,600

Yearly Taxes: $6,669

Based on my analysis (but I of course could be wrong), this has a Cap Rate of over 10%, even if I include a property management fee

All my personal money is tied up currently in this first duplex. I've read here on BP syndication is a potential option, but I'm not sure the steps to take down that road.

Any thoughts/help?

Additionally, I think there is a lot of potential for the rents to be raised and to purchase for lower than asking price- I just ran my numbers based on the current scenario.

@Evan Kline ,

You did not provide enough information. Here is what you need:

Income:

  • current rents
  • market rents
  • current economic vacancy: (gross potential rent - collected rent)/gross potential
  • typical economic vacancy for the sub-market (but don't go below 10%!)
  • other income if any

Expenses (current and projected):

  • payroll
  • property management (not the same as payroll!)
  • general admin
  • contract services
  • marketing
  • repair and maintenance
  • make ready 
  • utilities paid by owner
  • property taxes
  • insurance

Once you'll get all these items, you'll be able to analyze this property:

Future NOI = (Market rent * (100% - Economic vacancy) + other income) - projected expenses

Future value = NOI/Future cap rate

Your max offer price = Future value * 80% - initial repair costs

Is this close to you? Within say, 2 hr. Drive? 

You do need all those expense details, but not necessarily before you get it under contract. If it is an all-bills-paid property, use 55% of existing rent as your expense projection. If tenants pay for their own utilities, use 45%. What is the cap rate in that case? What is the cash return if the note is for 80% at 4.5%? 

Will the seller carry a note, either a second or a first at 5%, interest-only for the first year? That would help preserve your cash flow. 

If you've got a solid 8%+ cap rate and 10%+ cash return on ALL expenses needed to buy it, get it under contract soon before someone else does, and wait to get the exact expenses later. (You can call the utility companies now to get the average monthly bills.)

Good luck...move fast. 

And, in answer to your question, syndication is complicated but depends greatly on state law. Start with your state securities office web site and see what options are available; they are usually really helpful. You may be able to raise funds from investors in your state without too much trouble...either through a crowdfunding exemption to federal securities laws or a small company intrastate offering.

But, people are are not going to give you money if they 1.) Don't know you, and 2.) Don't think you have a suitable track record. You may need a Key Principal person with experience doing deals like this who can also sign on the loan docs. 

"Find the deal and the money will come." - Anonymous. 

@Evan Kline Syndicating a deal as small as this is a tough way to go. Depending on how you split it up, there may not be much meat left on the bone.  Partner up with someone that has the funds and maybe help get the loan. This is a much easier way with a small property.

Evan - I am from Clemmons right outside the Dash. I would be interested in discussing this with you. Syndication is going to involve jumping through a lot of legal and regulatory hoops. And convincing investors to fund your syndication on your first deal will be an uphill battle. In addition, on a deal this size it will likely be easier to just partner up with another investor.

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