First Multifamily Property..... Solo or Syndication?

27 Replies

I have 250k to invest...... Should I use that as a DP for a 10-12 unit property? -OR- Leverage with other investors to jump directly into something bigger like a 40-50 unit? I have property management experience as I’ve owned 14 single family rental properties for over five years now...... but no experience managing it all under one roof. Thoughts?

@Carlos Casanueva Do you want to lead or participate in a commerical multifamily as an LP?

Either way I’m a “roll your own” kinda guy. I like the control of owning my own. I don’t want to have to justify preventative maintenance costs to LPs, don’t want to be forced to sell based on a timeline for returns, etc. And I want all of the tax benefits 😀

But if I did invest I’d want someone to have owned or led a previous syndication with comparable magnitude. I don’t know that I’d hand my money over to someone who has owned/managed SFRs to acquire and run a 50 unit complex. It’s not rocket science but it adds risk to the deal. But that’s just me.

@Carlos Casanueva - like @Andrew Johnson said, it basically comes down to if you want an active or passive role and fyi... you can go much bigger than 40-50 units my friend.  Generally speaking you would want something at least 75 units, so you can implement some quality full-time property management.  Also Carlos, I got your email and I'll try to dig up that stuff you were asking me for.

@Andrew Johnson thanks man. I want to get my hands dirty on this first one.... and ideally double-up every 18-24 months.

@Chris Tracy you’re the man. Appreciate your input. Came across your site after the email I sent you.... I’ll be following.

@Carlos Casanueva It really isn’t rocket science but I try to put myself in the shoes of an investor. I own a 27-unit apartment myself. I’m sure I could “figure out” how to source, negotiate, close, and manage a 100-unit complex. But if I was an outside investor would I give my profile (track record, experience, etc.) money? Nope. It’s different enough to create a learning curve. And those learning curves always have some economic cost.

@Andrew Johnson of course, I forgot to mention that I already have a handful of happy investors who've been with me for 3-4 years... (I flip around 25-30 SFH a year) I've been making these ppl crazy, steady returns (~30% annual) which I think has actually spoiled them so I would need to probably go after the paper asset/Wall St investors for a syndication anyway.....

To simplify things, I like think of repositioning MF properties as just flipping “bigger homes”, but I know it’s a different animal completely, especially the part of managing the income/expense game with inherited tenants. The cap ex stuff is actually my forte.

Really appreciate your very good points and help/expertise on this topic.

@Carlos Casanueva going to echo a bit what @Andrew Johnson and @Chris Tracy have said that all things being equal it probably makes sense to do your first deal on your own. Once you get a good team in place, especially a property manager, you'll feel much better about going into the next deal with investor money (if that's the route you want to go). Brokers and lenders will also put more time into helping you since you can show your multifamily 'street cred'. I wouldn't be so sure that your existing investor base wouldn't want some exposure to these projects as well. It's a different risk / reward profile than flips and more active development. Some may like the long term approach, not to mention the cash distributions that they get with multi but not flips. 

@James E. agreed, I’ve been leaning more and more toward doing it myself with the first couple MF... experience is priceless. Thx!

@Andrew Johnson how’d you end up in AR?

@Carlos Casanueva I have some extended there, visited 20+ times growing up, have seen where growth is headed and where it isn’t (not that it’s any guarantee). So that’s the “personal comfort” stuff. As for more spreadsheet-style things: low property taxes, landlord friendly, land value is low so I get to disproportionately depreciate more of the purchase price, etc. It also doesn’t swing up/down in value like “hot” markets. So it’s a little easier to model what “downside risk” looks like for me. The net result is a nice little yield but I’ll never have “epic returns” like someone who bought in Denver, Nashville, etc. 5 years ago. But I also won’t have the potential for a epic downside if there’s a market swing. Since I have commerical multifamily I can also nudge rents up and (if cap-rates stay the same) can force appreciation even if the dirt doesn’t increase in value.

So I can’t say that AR is the land of magic returns but it did (and does) fit my personal situation, risk profile, etc.

@Andrew Johnson I see you like cash flow, cash flow, cash flow.... if you don’t mind sharing, whats your cash on cash there?

@Carlos Casanueva Ha!  It's not cash-flow, cash-flow, cash-flow, it's about finding the balance between cash-flow and tax benefits (for me anyway).  They're at roughly 10%ish if you look across the portfolio.  Believe me, if I was just after "cash-flow" there are other places in Arkansas I would invest!  Not to mention I could cruz up to dicey parts of Memphis, Ohio cities, etc. and get a better return.  So where I invest it's a little bit of a middle ground.  And I guess that some of the property has appreciated because I have been able to nudge rents up.  But I really don't get caught up in trying to guess or calculate that.  It's only relevant to the bank (if they want to look at net worth) or if I want to sell.  Aside from those things it doesn't matter if my $325K property is currently "worth" $325K, $350K, or $400K.  Okay, it's probably not $400K but it wouldn't matter to me if it did.

That's why I'm saying that it's hard for me to tell someone else where I invest is "right" for them.  Most people on BP either swing heavy appreciation or heavy cash-flow.  They make educated guesses about each and make their "bet".  You run across periodic threads on BP of "I want both!" and it generally evolves/devolves to people in current cash-flow markets talking about how their market is ripe for appreciation.   

@Carlos Casanueva if you're looking at being in the business of apartment management then the answer is obvious. If you're not... well the answer is again obvious. ha!

250k won't get you far in apartments but if you're looking to a grow a biz, start small, fail small, fail forward and scale from there.

I started with a 32 unit and put $200k down and got an $800k recourse loan. Then I did a 250 unit as a lead syndicator with only $100k of my own money and was able to get a non-recourse loan. And the larger property was easier to manage with 3rd party mgmt and I did less work and everyone made more money. Syndication is the way to go and you also can get carried interest and help more people. But make sure you learn the ropes before syndication before you take action.

@Carlos Casanueva

Lots of really good answers so far. Let me throw in my 2 cents: it really depends what your current network looks like. If you're starting at square 1, and don't have wealthy friends, family or contacts that are willing to take a bet on you personally, then it will be hard to establish credibility with people you haven't met since you don't yet have a track-record. 

It's not impossible to do so, but it won't be cheap or easy. You might have to "buy" credibility by jumping on-board with a well-known syndicator/educator.

With 250k, that might eat up too much of your capital, so if you don't have a built-in network, I'd go it alone. Once you've gone full-cycle on a deal, it will be easier to show that you have the chops to get'er done.

you mentioned an ambitious target to double-up every 18-24 months. The first double-up is highly aggressive but may be doable depending on your risk tolerance and strategy. However, the 2nd double-up may not be doable with the same property. Keep in mind that a 24 month double-up represents a roughly 50% IRR, which no self-respecting syndicator would ever actually promise to an investor (unless they enjoy being sued.)

If you're swinging that hard for the fences, I would actually recommend going it alone unless you can find a niche of investors of the same mindset.

Hope that helps!


Originally posted by @Carlos Casanueva :

@Andrew Johnson of course, I forgot to mention that I already have a handful of happy investors who've been with me for 3-4 years... (I flip around 25-30 SFH a year) I've been making these ppl crazy, steady returns (~30% annual) which I think has actually spoiled them so I would need to probably go after the paper asset/Wall St investors for a syndication anyway.....

To simplify things, I like think of repositioning MF properties as just flipping “bigger homes”, but I know it’s a different animal completely, especially the part of managing the income/expense game with inherited tenants. The cap ex stuff is actually my forte.

Really appreciate your very good points and help/expertise on this topic.

 I used to flip a bunch of homes and my investors that I used for flipping came with me when I switched to multi-family syndication. Owning a 100 unit comes with a lot of benefits, but as others have said, you loose some control and have to answer to others. If you mess up, then you piss a lot of people off and likely feel horrible about it. If you own it yourself and mess up, you just make your self mad. 

It really depends on your business plan and goals. Syndication is a business and needs to be treated as such. If you want to handle millions of dollars in other peoples money, the syndication may be ok. Personally, I enjoy the interaction with investors, the challenges that it comes with and I really enjoy seeing those big payouts to my investors. 

@Carlos Casanueva Maybe there’s an argument to be made for “Why mess with a good thing?” Right now if your flipping model is humming long, generating 30% returns for investors, you have happy and plentiful investors, odds are you have a system if you’re selling a home every two weeks. If I were in your shoes I’d be tempted to milk that cow until there is some ebb/flow in the macro environment. Actually, check that, I would milk it. Why not go for 50 flips a year? Maybe there’s a supply constraint 🤷🏻‍♂️ Either way, it sounds like you have something going very well now. There’s always “greener grass” or a “new shiny thing” but I’d imagine the best strategy for you is to buy one yourself. It diversifies you (personally), gives you some multifamily experience (for a future syndication), and a 10-12 unit property doesn’t have to be a massive time-sink (ie distraction).

@James Kojo I currently manage a $3 million fund with just 5 total investors in it. These people have trusted me over the past 3-4 years, and I've made them good money flipping SFH. I just need to transition their mindset over and get them to understand it won't be 10% cash on cash return every 4 months..... it will be a longer play.

I’ve averaged these ppl ~30% annually on their money, so they’re hesitant to change strategy at all.

It’s my job to simplify and explain things correctly. I’ve never syndicated or put a deal like this together, though I do have a good understanding of how it works..

@Brad Sumrok Just like that 200k you started with on your first one.... that’s exactly the point I’m at right now. What was your exit strategy there? Timeframe? By the way, your name sounds familiar, not sure where from. I’ll be in your city next week for the Real Estate Guys syndication seminar. Feedback?

@Andrew Johnson BINGOOO!! I'm not stopping the SFH flips anytime soon. I have a good niche + it creates my steady cash flow. Like a lot of people here, my flips or potential syndications are meant to create cash flow to throw into my own long term multifamily properties. I am now transitioning my 14-SFH rental portfolio into MF.

Thats why I’m looking to put my 250k into my own 10-12 unit property, so I can get my feet wet managing it/adding value, and trade that into the next one or potential syndication deal. 

Everyone’s responses on here have been amazing and very helpful, I really appreciate your time @Andrew Johnson @Chris Tracy  @Brad Sumrok @James Kojo @Todd Dexheimer @Ivan Barratt @James E.

Carlos, if you don’t mind asking how do you structure your current business model and what are your plans if you do go the syndicated route?
(What kind of splits?, do you plan on offering a preferred return, and what fees if any are you planning on charging?)

I’m somewhat in the same boat as you. I’ve been part of few syndicated deals but would like to put some together for myself but I lack the street cred like some of mentioned. I personally would not give myself 250,000k. And nor would I ask will without having success in the realm of RE.

@Carlos Casanueva  Hi Carlos!  There are definitely pros and cons to both.  We started off in small MF years ago!!!  We have over 2600 units now...mostly through syndication.  We are passive investors as well as syndicators, so I understand both sides of the coin.

Syndicating larger deals is our sweet spot now...but not without its own struggles.  Partnerships are great...but they can also be a source of contention.

Getting out of a bad partnership is harder than getting out of bad marriage.  So...If you opt for partnership and syndication...Prepare for the worst case scenario in your contracts and hope for the best.  

You have to understand the pros and cons of both syndication and partnerships and decide what is best for you.

We have (1) 8 unit property now and just sold an 8 unit...and for the most part, buying 100 units is the same amount of work.  Actually our 200+ units are the easiest. If you are considering a 40-50 unit through syndication (using other people's money)...why limit it to 40-50 units?  With 100 or more units, you can consider using a 3rd party property management company to run the staffing, leasing, etc...and you can manage them as asset manager.  This will give you the ability to work on your go Bigger - Faster - and not as much IN the business. 

The advantage to staying in the 10-12 unit zone and managing yourself...

(1) There tends to be less competition for the smaller units

(2) You don't have to worry about conforming to the SEC Requirements of a Syndication (but easy to learn if you wish)

(3) You don't have to worry about a partnership  - which can be awesome or nightmarish (WE have stories of BOTH!).

It is definitely a personal decision.  I think you need to decide if you enjoy the full hands on experience of self management...and if you want to continue to invest the time.

Hope this helps some.  Good luck in your decision making.  Real Estate Investing is very exciting business!

Hey Carlos lots of great information and suggestions here!

Impressive that you're finding that many SFH deals to flip each year.

I'm local to you so I sent you a colleague request so we can connect.

@Carlos Casanueva I will be on the Faculty at the RE Guys Event in Dallas so we can talk then in person. Knowing what I know now, I wish had started with larger deals. 

@Tamiel Kenney thank you for feedback. Couple questions.... you’re actively into 2600+ units now? Or you’ve bought/repositioned/sold that many over the years? 

You mentioned there’s less competition at the small level (10-12 units) but I may be looking in the wrong places because all I’ve seen is top dollar. 

I have a knack for cleaning up properties and managing tenants; my weak point right now in Multifamily is actually finding the deals. I know it takes a little time and experience, and a lot of these diamonds in the rough are off-market, but I’ll get there. Once I figure that out and get acquainted with structuring syndications, I’ll be fine. 

I've been managing investor $ successfully for years now, so I enjoy that, and it's definitely been very active (as opposed to passive) as we've been flipping 25-30 SFH for the past 4 or so years..

Last question to you is... the smaller properties you own yourself (without  other investors) like the 8-unit you mentioned... are those long-term passive plays or are you adding value/trading up?

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