Real Estate Syndicating 101

25 Replies

I recently listened to Grant Cardone's most recent interview on the biggerpockets podcasts and found it very eye opening. 

I appreciated his thoughts on buying within a budget. Essentially, his point is why buy something that fits within the amount of capital you have to play with, rather use that capital to find partners and acquire more units. Why live within your budget constraint?

I have a substantial amount of capital available to invest and feel my best strategy is to partner up, however I need to learn the in's and out's of syndicating, how to structure it, what team is needed, ect.

I currently work as a broker in a niche (LIHTC - low income housing tax credit) segment of the real estate industry, so my knowledge is above basic, however syndicating and raising money are unfamiliar to me as I work on the sell side.

I am interested in B/C properties, 75-300 units, and value add through operational upside. As mentioned, I have capital however nothing that would allow a lender to execute a loan required for 75-300 units, nor do I have the experience that Fannie and Freddie are looking for to lend on out of state properties.

Advice, knowledge, criticism, patience and willingness to share their experiences with the process of syndicating or partnering up would be perfect and greatly appreciated. Also, if you have any interest in learning or acquiring within the LIHTC space, I can provide you with that knowledge/information as a kind gesture.

Thanks!

@Jared Carpenter there is a really good book about syndications by Gene Trowbridge. You can find it on Amazon and it will give you a good idea. 

Best option for you to partner with an experienced syndicator would be to find an off market deal and bring it to them. 

If you're in the business it should play right to your strength. 

Good luck!

Syndicating is great but not for the faint of heart.

Take @Joseph Gozlan 's advice, get Gene's book and start getting educated.  He also holds 2 or 3 day, what I would call
boot camps, covering syndications. This class is one of the best things you can do for your education and it's also a great way to meet others looking to syndicate.

@Jared Carpenter You can find a wealth of information here. A great resource is @David Thompson who runs a great blog at: Thompson Investing Blog . You will find a wealth of information that will help you in answering most questions. The forums are another great way to gain deeper insight. 

@Joseph Gozlan Thanks for the book recommendation, I will check it out. How would one go about finding an "experienced syndicator"...seems like finding a needle in a haystack?

@Bruce Petersen thank you for the boot camp advice!

@Omar Khan thank you Omar, I have begun reading the blog!

@Todd Dexheimer Thank you for your input Todd, again like I am asking Joseph, but what is the best way to find a partner to go in on their syndication?

Know beforehand if the people you say can back your deals will actually do it. Most people will stay in Broke's Ville forever but they act like they "can" help you. It's a number's game.
Don't believe a word when people tell you that "find the deal and the money will follow" that is a lie. There are a lot of deal and not so many people with the whole nine-yards to back you. People give you money if they trust you and believe you will do what you say you are going to do.
Good luck

@Jared Carpenter Syndications are a great way to scale, but can be challenging if you're new and going at it solo. I found it most helpful to get a coach/mentor and form strategic partnerships.  @David Thompson has shared a ton of great info on raising capital on this site. @Joe Fairless is absolutely crushing it and just closed another deal. I've watched him go from $7MM to $191MM in about two years! @Brian Burke is extremely knowledgable and helped me tweak my underwriting model. @Jeff Greenberg has developed a solid track record. @Todd Dexheimer has taken down quite a few deals recently all over the midwest. 

I would suggest reaching out to a few of them and get a feel for who they are, their approach and any advice for you starting out. 

@Jared Carpenter cool level of education to start from. You want to make it happen!? Find a D-E-A-L DEAL!! While you're hunting for DEALS start seeking how HWN individuals for coffee, lunch, meet at their office, etc.  My first two deals were with one partner. I found the deal, he had capital.

Listen to Cardone's sales training material. It will help you more than listening to a bunch of scattershot real estate content.  

Hit up @Todd Dexheimer on a mfam syndication reading material. Read, listen to sales and finance/syndication material. Shut everything else out!

If you can learn LIHTC you can do this!

NOW GO FIND A DEAL! :)

Hi @Jared Carpenter and welcome to all of the real estate investing courses and resources you could hope for.  Sounds like you already have some real estate experience but where are you at in the learning process? Have you read any good books that have helped you narrow down your criteria?

It is exciting to have your eyes opened to a new strategy and larger deals through syndication can create more opportunities.

I would check out @David Thompson blog post on Syndication FAQ

https://www.thompsoninvesting.com/single-post/2017...

@Todd Dexheimer very valuable advice, thank you. I have made a co-star list today of recent transactions in select markets. Thank you again!

@Ivan Barratt

@John Casmon

@Todd Dexheimer

@Jeff Greenberg

@Joseph Gozlan

@Bruce Petersen

Gents, I am struggling with this scenario:

Let's say I find a deal for $10 million, value add, $150 ten spread, B submarket, ect. So 20% down on a private bank loan is obv $2 million, let's say I put $250k of my own money in and then syndicate the remainder. I know that any lender will want 20% down, as well as ten months reserves and a net worth that equals the loan amount. What I would like to understand more is how does a syndicator overcome this hurdle? As a syndicator do I need to be the individual that satisfies all the loan requirements, or do I need to partner with someone who does? If the later is the case, what returns would be enough to incentivize someone to do this? Or am I thinking to much "in the box" and there isn't a better way to work through this?

I would be thankful for any thoughts or real life examples!!

@Jared Carpenter if you buy a $10MM loan you probably want to look into agency debt over bank debt (I assume you meant local banks).

Regardless, even Fannie and Freddy would want to see post closing liquidity and net worth so you will need either GPs or KPs to guarantee the loan.

GP = General Partner - it's a person that will bare the same responsibilities as you and would probably expect to be compensated accordingly.

KP = Key Principal - a person with MF experience that already has agency debt to his name and agrees to co-guarantee the loan in return for a fee. There is no "standard" to that level of compensation but the most common terms I've seen was 1% of the loan amount at closing.

Make sure to check with your lenders because some of them require the KP to have some equity in the property LLC.

The GPs/KPs liquidity and net worth is totaled with yours to weigh against the lender's requirement.

Hope this helps.

@Joseph Gozlan extremely helpful, thank you. I'm going to digest and send you a more thoughtful response shortly.

@Jared Carpenter , you really have two choices:  start with smaller properties and build up your net worth and cash over time, or get a partner that brings the financial strength that satisfies the lender. This partner at minimum would be a loan sponsor (the balance sheet is their only contribution) and at maximum would be an active partner. What their cut should be is up to negotiation and would depend on their level of participation and how much balance sheet strength you bring. You might also need a partner to satisfy the lender’s experience requirements.  Your brokerage experience might satisfy them, but might not.

On another note, you’ll need a heck of a lot more than $2 million. First, you’ll probably find that you’ll need 25% down...sure 80% financing is available but such high leverage at this point in the cycle might make your investors nervous and will probably have a higher interest rate. Second, you have closing and financing costs.  Third, you’ll need capital for reserves plus initial funding for the lender’s escrow accounts, first year’s insurance premium, utility deposits, etc.  And finally, if you are planning to make capital improvements to the property, you’ll need the cash for that. As a rough estimate, plan on raising 35% to 45% of the purchase price.

Originally posted by @Ivan Barratt :

@Jared Carpenter

@Joseph Gozlan and @Brian Burke have wonderfully summed up what it takes. I only echo that if you want to play big and scale fast you'll need to learn to take a smaller slice of a bigger pie and grow your GP team. It's a team sport.

I agree that RE is a team sport but I'd urge everyone not to jump into partnerships w/o discussion exit scenarios with the potential partners.  

From MY observation, the #1 killer of deals is partnerships gone wrong...

@Jared Carpenter I used to live in seattle as of couple months ago. I don’t miss it now that it’s winter.

I like to use an airplane analogy when I explain these syndications. In an airplane, there are the General Partners in the cockpit who fly the airplane (find deal, negotiate, find investors, line up lending, manage the 3rd party property management, operate the investment). They are typically signing on the debt and their net worth needs to be greater than the loan size. In coach, you have the passive investors or Limited Partners who come on the plane and go to sleep. We look for both because its all about putting more people together and leveraging each other's strengths.

@Joseph Gozlan

one simple question, how does one find these key principals? Are they all over biggerpockets?

@Jared Carpenter unless you’re jumping into a transmission blind and w/o a team you will find that you will get a chance to talk to many experienced people along the way. 

If it’s your first transaction, I’d highly recommend finding a coach or mentor that can guide you through the process and he can also be a KP in your transaction. 

The most important thing is to make sure the KP or coach’s interests align with yours!

@Joseph Gozlan

Thanks for that. I am beginning to think that finding a mentor or coach, who can be a KP, is the most difficult part of this process!!

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