Hi BP Members,
I am able to get opportunities to syndicate as a Passive investor. I am trying to sponsor a deal and not able to get enough deals. I am wondering what approach others are taking to build deal pipeline for multi-family ( > 50 units). I have reached out to few large brokers but not enough momentum there. Any suggestions to get off-market deals?
Very difficult right now to find off market deals through brokers without a proven track record or some previous relationship - there isn't really a reason for them not to go to market with multifamily as there is such a high demand. If you are looking for true off market deals I'd suggest direct mail or driving your market (or market where you'd like to invest) and putting together a list of assets you like and tracking down the phone numbers/addresses of the owners directly.
Another thing I've done in the past during my research phase was picked an area in the city where I wanted to invest and used google to find apartment complexes. From there I could pull together a list of properties/addresses and search them in public record to find the owners mailing address. Tedious but can get the job done. Apartments.com will sometimes give you the approximate size (# of units) of the property and sometimes even a rough asking rent also.
While doing these things also keep in touch with the broker to see what they have coming up on market and you can potentially snag a deal with some diligence that way. Hope this helps.
Thanks David. I will try both suggested approaches and test my luck.
@Sridhar Sannidhi - What area are you looking to buy?
Right now there is strong demand in the primary markets and we found better deals in secondary market with B/C class units.
@Sridhar Sannidhi Hang in there it's a grind right now to invest in DFW. I started looking for B/C class deals in 2014. After about a year I decided to start building properties because it was easier. With that being said networking is key. I talk to every broker and person I can to find deals. I've finally found a B minus deal in a secondary market. I'd second Vic. In this climate people are starting to look in secondary and tertiary markets.
@Vic Reddy can you add me to your distribution list? What markets do you operating in? What is your typical deal size?
@Vic Reddy, Thanks for the reply. I am looking for B/C class only, in anywhere in Texas. I would appreciate if you can add me to your distribution list.
@Sam Bates Thanks for the reply, I am looking for B/C class properties in Texas State. I am open to invest in other states also. I noticed the environment to be very competitive, Multi-Family deals are going under contract within days. PM me if you know any broker who can help me.
@Sridhar Sannidhi it sounds like you've had some success investing as a passive investor in syndicated offerings. Making the leap from passive investor to active is a natural progression and one that seems easy enough given all that you've learned by watching the sponsors you invest with as they do their thing. But, it seems that you've now discovered the big gap that vexes would-be multifamily investors as they make the transition to active investors.
As a passive investor you've been leveraging. Not in the way people in the active investing world describe leverage (debt) but in a different way. You've been leveraging the syndicator's time, knowledge, balance sheet, deal flow and most importantly, relationships. To transition to the active side means that you now have to develop those things yourself.
If you are already a passive investor you probably already have the balance sheet, and you can devote the time, so that leaves the deal flow and relationships. If you have the relationships, you'll get the deal flow. Most importantly, you need to get to know all of the brokers that sell the type of property you are looking for. Meet them in person. Take them to lunch. Do whatever you have to do to show them that you know what you are talking about, can perform, and will do everything possible to make their job easy. But, despite all that effort, there is only one thing that will build the relationship with the broker...closing a deal.
Brokers reserve their good off market opportunities for buyers that have bought from them before. They give the crappy off-market deals to people they don't know or have never done a deal with. Think about it from the broker's side, here is how the conversation goes with a potential seller: "I know the best buyer for this deal, he always closes, doesn't retrade, and will make this a smooth transaction. Instead of marketing it you might give them a shot and see if they'll get it done, and if they don't then we can market it." The seller might go along with that, but if the broker can't attest to all of those things about the buyer (you) the seller will say "no way, let's go to market."
Then there is the other broker-seller conversation: "The price you want is too high, the property isn't worth that much, but I have this hungry new guy looking for an off-market deal. He might pay it so we can float it to him and see if he bites. If he doesn't we should take it to market but at a lower price."
You want to be the one talked about in the first conversation. But most of the "off-market" stuff you'll hear about will be from the second conversation. Keep putting in the effort, close some deals, and you'll get promoted.
@Brian Burke Thanks for the reply, I have experienced the situation you mentioned in your reply. Broker showing me the crappy deals which i learnt others refused already. Reaching out to them slowly.
@Sridhar Sannidhi can we trade notes as passive investors? Maybe we are looking at the same stuff.
It's all about relationship building and that takes time. Even with experience and a track record it takes time to be on the "A" list. It takes consistent and persistent effort. Leverage lenders, property managers, appraisers, inspectors, etc. Tell all of them what you're looking for and get referrals from them of top brokers and properties that may be trading. It can take many months and longer to build trust and get taken seriously.
@Lane Kawaoka , Certainly. You can PM me with the details.
@Todd Dexheimer , Thanks for the suggestion.
@Brian Burke pretty much gave you the inside scoop of how off market deals get done and how you can transition to one day being in that position. Seriously, the feedback he gave you for free is something that people pay gurus big time $$$.
@Sridhar Sannidhi I assume you're looking in the DFW market? First of all, off market deals are hard to come by as it is because if you're a seller it doesn't make sense to not bring your product to market and get top dollar. Secondly, once you decide to be a sponsor you are now playing with the big boys who have deeper pockets, deeper relationships, more time, and more experience.
However all isn't lost! There are steps you can take to move up the ladder. Have you KP'ed on a deal yet? If not, that should be a huge priority on your list. Talk to one of the sponsors you've worked with before and see what you can do to make this happen on their next deal. This will give you some cred. Once you've got that, I would look into a few secondary/tertiary markets that you like and feel comfortable investing in and own that market so when deals pop up you can you jump on them. It will be less competitive. Another thing, hopefully if you plan on sponsoring a deal you have hard money to put down. I highly doubt there was a single deal done in DFW without any hard money. If you're looking at 50+ units plan on putting in at least $50k hard day one.
@Abel Sng , Thanks for the reply. I am looking all over TX state for B/C properties. I am ready with Hard money for the down payment. Doing cold calling commercial brokers and attending local REI club meetings to expand my network.
@Sridhar Sannidhi : I've been recently climbing the same mountain as you have, just in a different market, and I have been at it a little longer.
When you don't have a track record, you'll have to leverage your other assets:
- Your net-worth or your investor base - if you have money, or your KP's have already thrown money into the partnership, then you may have to be liberal about sharing your proof-of-funds (POF) with brokers. Unfortunately, waiving around a 6 or 7-figure POF is not as impressive as one would hope, but it's a start. Being a syndicator gives you a leg-up, since you have the potential for many deals instead of a one-and-done.
- Your Team - By now you should have an idea of who the players are in your target markets in terms of property managers, lenders, fellow syndicators, and maybe even contractors. Try to get them on your team as early as you can, and leverage their connections and names as much as you can (but only with their permission!).
- Your knowledge - You should have a very clear idea of what you're looking for, and be able to articulate it concisely. You should gain a local understanding of what you can realistically achieve in your target market, and show that you have reasonable expectations.
That all said, I feel like the only real question you need to answer in the broker's mind is: are you a closer and how often will you close a deal? I'm sure they love the free lunches and chatting up fellow investors, but this is their day-job, and they don't get paid until a deal closes, so you know where their priorities ultimately lie. Just keep that in mind.
Hope that helps!
@Lane Kawaoka , Thanks for the reply. I am not able to get deals at a faster pace to select and invest. I want sponsor deal, but not able to get the suitable deal.
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