Syndicating Multifamily Deals

[Dennis Johnson]

When doing a syndicatied deal is there a min or max to raise or would it be based on the property your trying to purchase (ie a deal under a milllion dollars).  Also the initial funds like earnest money etc.  where does those funds come from the sponsor or is that something that is negotiated up front.

[Brian Burke]

You can set whatever minimum you want. Mine is typically $100K but many many years ago when I first started my minimum was $5K. Yes, $5K. Would I do that again?  Heck no, but back then I was raising money from friends and I didn't know anyone with real money. Later I moved my minimum up to $25K, then $50K, then $100K. No matter what your minimum is, your operating agreement should reserve the right for you to accept an investment below the minimum if the situation warrants it. I do this from time-to-time for first-time investors with me so they can dip their toe in before diving in later. 

You probably won't have a maximum investment but there is a practical obstacle of 20-25% of the total capital. Depending on the lender, any one investor above that threshold would have to be underwritten by the lender and sign on the loan as a key person.  Many investors won't want to do that (that's why they are investing in passive investments--to stay off of that headache).

Initial funds for deposits and up-front costs such as inspections, appraisal, loan application fees, etc typically come from the sponsor and are reimbursed from investor proceeds at closing. If the deal doesn't close, the sponsor bears the loss of all of those costs as a cost of doing business. 

This just happened to me--we canceled a deal at the end of due diligence which is something I rarely do.  But the deal just didn't pass the test. We could have closed and earned $300K in acquisition fees but instead I took a personal loss of $30K. I bring this up because sponsors need to know that their reputations for delivering on their promises to investors is more valuable than the income from acquisition fees. So be prepared to lose money, and don't get in contract on a deal if you can't afford to take some losses.