SFH to Syndication : Where to start?

19 Replies

Hey Everyone! I'm from Indiana and just started investing this year. I bought a single family home in Fort Wayne for $53,500 and get $650 a month (7% ROI w/o mortgage and 15% w/ mortgage). Not bad for a first deal to my preferences. However, I got into real estate because I want to get into large apartment complexes and I've taught myself a lot about syndications. I have the money to create one but I still feel lost and nervous to start. Should I just go talk to an attorney? Should I find someone that is experienced in syndications to form one together? I would love all advice, recommendations, and/or friends!

Thanks!

I have been considering partnering up some of my clients to do some syndication work myself. I have considered both large scale apartment complexes (100+ units in suburban areas) or complete neighborhood renovations where we would strategically target distressed neighborhoods like the St Claire Place or United Northwest District. There is already a lot of activity in St Claire Place, but I am not seeing any what I would consider strategic acquisitions. It would be much more effective to by 5-10 distressed properties on the same corner or street.

There are several ways to structure this, but my favorite is to pool money from passive oriented investors into an LLP. This is the same structure used by many law firms. It allows the partners to enter and exit the vehicle easily if the operating agreement is set up well from the beginning. The major capital investors would be limited partners whose only liability would be the money invested. The company would also have general partners who would make decisions and handle all operational needs and obligations (acquisition, financing, rehabs, hiring vendors, maintaining operational needs, etc.) The general partners would be liable for any obligations made by the company.

It's a nice structure for passive investors to combine money for a larger scale project. I would recommend a business advisory attorney. I have a couple of clients who use a group out of Vegas (tied to the Rich Dad's Educational circuit) called Anderson Advisors. They specialize in creating specialized vehicles for investors, asset protection, tax protection, etc. I have not personally used them, but I have always heard good things about them. If you are interested in getting together and brainstorming ideas, PM me.

@Aaron Van Curen Yes, you should speak with a securities attorney, specifically one that specializes in real estate syndication.  It does require time and commitment up front, but the right structure and protections are crucial for what you are trying to do.  Even more importantly, is that you'll need to be able to explain to your prospective investors how you are structured and why your offering is attractive to them.  After all, they are accredited, and they can invest with any syndicator they choose, so your value proposition needs to be there, but that only matters if you have a solid structure and securities foundation in place first.

Finding a mentor and working with them is a fantastic idea, and I would recommend that route.  Be sure to offer them something in return.  Learning your new craft will be a lot of work, but can be very rewarding as well.

@Aaron Van Curen - here are some tips on getting started. 

1. Start writing articles and social media posts discussing multifamily investing. Engage in conversations. Reference outside articles to foster discussion. This will help you know who, in your network, is interested in investing with you. 

2. Find a deal to JV on. There are plenty of people here on bigger pockets.

3. Go to other places other than REI meetings - like charitable events, etc, where there are other high net-worth, non-real estate people (doctors, lawyers, etc.)

4. Figure out what you want your marketing message to be and then consistently and constantly disseminate it. 

5. Call a securities attorney. You are welcome to connect with me. 

I hope this helps!

@Aaron Van Curen I built an 11 property portfolio but regret it because I should have pivoted to syndications sooner. The returns aren't as high but is scaleable.

@Aaron Van Curen and @Ross Denman, your best source of information when considering syndication is to have a consultation with a corporate securities or syndication attorney. Legal fields, like medical practices, are highly specialized. Such attorneys work exclusively with investors like yourselves who want to raise money from private investors on a daily basis. The entities you might set up to protect your personal assets with an asset protection attorney are not the same as the entities you will need to accept private money from investors. Additionally, if you are raising money from private investors, you will also need to comply with securities laws, so there will likely be some required rules you have to follow regarding advertising and investor qualifications, as well disclosure documents, and securities notice filings. 

@Aaron Van Curen some great answers so far. Partnering can be a great way to get started, but even if you do that I would have some meetings with securities attorney's. If you don't partner, you could also pay a MF syndicator to help guide you along the way (they may do it for free as well). Good luck and reach out if you have specific questions that I can answer - or as always post on BP! 

@Aaron Van Curen yes I have done some syndication. I am currently doing to capital raises on apartment buildings I have under contract, so I have been talking a lot with my securities attorney and investors. It is nerve racking when you are doing the raise and making sure that you have the funds to close, but challenges are meant to be conquered!

@Aaron Van Curen You've got some great advice here!  I'm a syndicator in IN and currently looking for deals in IN, KY, OH, IL.  200+ units preferred but will look at anything over 120. If you can find me a good deal I'd certainly be open to being your partner. You'll just have to hustle hard to find one! I have a full time team that underwrites everything that moves in the states I just mentioned. Feel free to reach out and happy hunting!

Originally posted by @Chris Tracy :

@Brendan Kelly- What specific questions do you have about interacting with investors?

 @Chris Tracy - Nothing in particular.  Was just wondering if maybe there were any good resources that maybe I was missing.

Aaron,

Lot of good advice above.  Syndication is about talking and dealing with investors, lenders, etc and having credibility is key and more difficult when you don't have it but it can be built.  You are pooling other people's money (limited partners) and you and your partner's (w/more experience) will be the general partner.  You need to have a good market, good deal and experienced team behind you.  If you have capital, then go find partners with experience to build that credibility faster and minimize mistakes. If you don't have capital, lend your time to help those that have that experience and perhaps help them with a variety of tasks including raising capital, finding deals, etc.

Places to learn and network:

1) BP (of course), books on syndication from practitioners, networking at MF meetup groups to start then branch into areas you are interested that will increase your chances of learning and networking w/the right groups...etc.

2) Legal / courses and conferences on syndication, MF investing, etc.  Many do's and don't that you need to understand at federal / state level.  You are now dealing w/SEC regulations and you want to do things right from the beginning.  

3) Start building a list of who you know that may be interested in what you are doing and may have the resources to invest with you, mentor you, provide services for your business, partner w/you, etc.  As you network, grow that list and setup 1x1s to see where you may add value to them and where that person may add value to you.

4) Develop a thought leadership platform to grow your credibility @Jillian Sidoti highlights a few ideas but it's really endless.  As you learn and develop, you can and will want to share more w/others, this increases your credibility and attracts folks who want to learn and participate perhaps with you.  Website, blogs, podcasts, forum participation, newsletters, special report articles, eBook, instructional videos, speaker, start a MF meetup, etc.

Bottomline, think about your business (less transactional) and more about building a strong foundation of contacts, knowledge, capital, ideas to create your future as you want it to be.

@Aaron Van Curen , we both have similar starts. After looking at several classes of single family houses and small multifamily assets, I bought my first duplex. From there, I kept analyzing bigger and bigger properties and saw the potential but didn't know how to begin.

Part of the reason I got into real estate was because my Dad had purchased around a dozen properties of his own and was doing well. When I purchased the duplex, my Dad was doing taxes for several real estate professionals. Because of this, he had insider knowledge as to which professionals were doing well and how they were successful. One particular client was working with a mentor trying to transition out of his work as a physician.

My Dad approached me to see if I wanted to do some training with this same mentor. I was highly skeptical at first and had thoughts of being duped by some slick individuals. However, since he had observed his client working with them already, we felt confident they were the real deal.

My expectations have really been blown away. They have provided top-notch training and support. One of the great things about them is that they are happy to partner with you as much or little as you want for as long as you want. To give you an idea of their experience, they have over $150M in assets under management and have made the Inc. 5000 list.

At this point, we are actively looking for investors and others that want to partner with us and expect to close on our first deal within the next year. We feel like we have all the resources we need to make this happen and are glad to have some mentors to help us along the way. 

@Account Closed - my best advice for finding investors is to go out, have fun, and passion. One of my favorite things to do is to go to charitable dinners and auctions. They are usually a ton of fun and filled with people who have money to spend. Often times, they are filled with other professionals who want to be in real estate investing and don't know how to get into it. Be smart about it: go out to be part of something bigger than yourself and come back with some new contacts. Be casual about it. Be yourself. 

Remember, there are only two types of people: those who are in real estate and those who want to be in real estate. There are no other people. :) 

@Jillian Sidoti I love the short and sweet summary you've provided. Dive in deeper where you need extra support. My partner and I are finding potential deals right now and working with a great mentor to provide some new education and guidance. It is nice to remember that it isn't rocket science, it just takes time, due diligence and the desire to connect with other people to share our passion. Getting out and networking to bring good deals to more people is one of the aspects of syndication I'm most looking forward to! Similar thanks to @David Thompson for your great summary here. I appreciate the reminder to share the education I've already gained with others immediately, even while I'm learning myself.

Originally posted by @Aaron Van Curen :

Hey Everyone! I'm from Indiana and just started investing this year. I bought a single family home in Fort Wayne for $53,500 and get $650 a month (7% ROI w/o mortgage and 15% w/ mortgage). Not bad for a first deal to my preferences. However, I got into real estate because I want to get into large apartment complexes and I've taught myself a lot about syndications. I have the money to create one but I still feel lost and nervous to start. Should I just go talk to an attorney? Should I find someone that is experienced in syndications to form one together? I would love all advice, recommendations, and/or friends!

Thanks!

 I would first get the overall structure down of syndication you can read Joe Fairless book about apartment syndication. Then watch some youtube video and read online about 506B and 506C.