For The Love of Pete Don't Syndicate your First Deal!

53 Replies

There has been a lot of activity in the forums about newbies syndicating real estate. I feel like someone needs to be a voice of reason here.

Look, I get it. The allure of doing big deals and taking big fees for buying apartments with other people's money is enough to get anyone excited about syndicating. You're probably giddy as a school girl just reading that. But syndicating real estate is possibly the most complex, tricky, difficult, and risky avenue for a new investor to go down. Actually buying the real estate is only a small part of what you need to do as a syndicator. If you can raise the money from a handful of close family and friends that really believe in you and you can do a relatively small deal, then fine. Still get a PPM and do it by the book, but maybe you can make it work. Maybe. But if you're looking to truly syndicate a 150+ unit deal, think again. It's bad enough that you'll lose your own money, but if you start losing other people's money, that's when things can really go downhill in a hurry. Say hello to Madoff for me. Or at least say goodbye to your life savings, your credit, and your reputation. 

Trying to find, underwrite, negotiate, and perform due diligence on your first deal in a space where highly experienced real estate professionals are playing means you'll be swimming with sharks day 1. There are countless pitfalls in trying to properly underwrite a large deal. This isn't like the granny-owned 6 unit deal you just underwrote on Loopnet. Do you understand how market rent, loss to lease, concessions, vacancy, and bad debt all interact so you can accurately project market rents? There are all sorts of shenanigans brokers can come up with to make a deal look better with these items. How about taxes, do you understand the assessment procedure, rates, etc.? Does the assessor chase sales? Taxes can literally double on you if they go to 85% 90% or even 100% of the sale value. This isn't retail investing. If you can even get brokers and sellers to take you seriously (they won't), they will have no problem taking advantage of you (they will). 

Then try raising a few million bucks, $20k at a time, from savvy investors with many other options who see you as some guy who wants to do deals without money or a track record. There is a lot of capital out there looking for deals, but make no mistake that money is easy to come by. If you don't have any more real estate experience than Bob the Dentist, Bob will put his hard earned tooth drilling dollars with another sponsor. Investors are looking for pros with good deals, good experience and skin in the game. (As a side note, investors should never put money with a sponsor who doesn't have a meaningful amount of their own money in a deal). Do you know the ins and outs of GP/LP JVs, waterfalls, preferred returns, etc.? How about what is market for acquisition fees, asset management fees, disposition fees, recourse fees, construction management fees?

Now try doing all of that while managing the due diligence and closing timeline, finding a solid lender (could write a whole post on how this probably won't happen for you), getting management in place, etc. all without losing your earnest money deposit. Then you've got to manage the deal, manage the investors, distribute the money, all while trying to replicate the process again. 

For the love of Pete; take your time, do a few smaller deals with your own money or the money of private lenders and/or general partners. Then, network with a few good syndicators, offer to bring them a deal and ask for a share in the GP (get the agreement on paper). Give them a sweetheart deal in exchange for being brought under the hood and building a track record. Syndicators are starved for good deals right now. Then bust your newbie tush pounding the pavement for a good deal (if you can determine what that actually looks like). Then after you see the whole process play out in detail, maybe you find a partner and go do a syndication on your own. Maybe.

Thanks so much for this post.  I am super interested in syndicated deals and I was made to believe that is was a process that a newbie could learn through research but somethings you can only learn by doing

Yup could not agree more.. I know folks have to start some where but I really don't think they understand whats involved as you delineated.. this is not just putting some buddies together and doing a deal.

I get it if they have a very strong and experienced real estate back ground.. but when I see these post from those that think its kind of like hey I don't want to wholesale I don't have any real money and I want to own MF  Hey I got it I will become a syndicator.. LOL..

Again understand people have to start somewhere.. but boy syndication is not a starter business. I know for darn certain I would never in a 1000 years put money into someone who did not have a lot of experience in the space.. don't want to go through the learning curve..

and right now the market is SO frothy its even doubly tough

the other thing that will happen is the how too guru's will jump into the space and take 20 to 50k from these folks to teach them how to do this.. :)  there by throwing more rookies into the deep end

Excellent post Phil; I can't decide which is more ridiculous; investors giving their money to a newbie or newbies expecting money from RE investors. Syndicating is serious business and not something you learn by watching a bunch of videos on youtube! Would you get a root canal done by someone who is not a dentist? There should be professional standards and requirements before you can call yourself a Syndicator to protect the investor and the reputable Syndicators. It does not matter how 'good' the deal is, unless it is handled by a pro the best deal can be reduced to a steaming pile of poop in no time. Jeez! 

Originally posted by @Phil McAlister :

There has been a lot of activity in the forums about newbies syndicating real estate. I feel like someone needs to be a voice of reason here.

Look, I get it. The allure of doing big deals and taking big fees for buying apartments with other people's money is enough to get anyone excited about syndicating. You're probably giddy as a school girl just reading that. But syndicating real estate is possibly the most complex, tricky, difficult, and risky avenue for a new investor to go down. Actually buying the real estate is only a small part of what you need to do as a syndicator. If you can raise the money from a handful of close family and friends that really believe in you and you can do a relatively small deal, then fine. Still get a PPM and do it by the book, but maybe you can make it work. Maybe. But if you're looking to truly syndicate a 150+ unit deal, think again. It's bad enough that you'll lose your own money, but if you start losing other people's money, that's when things can really go downhill in a hurry. Say hello to Madoff for me. Or at least say goodbye to your life savings, your credit, and your reputation. 

Trying to find, underwrite, negotiate, and perform due diligence on your first deal in a space where highly experienced real estate professionals are playing means you'll be swimming with sharks day 1. There are countless pitfalls in trying to properly underwrite a large deal. This isn't like the granny-owned 6 unit deal you just underwrote on Loopnet. Do you understand how market rent, loss to lease, concessions, vacancy, and bad debt all interact so you can accurately project market rents? There are all sorts of shenanigans brokers can come up with to make a deal look better with these items. How about taxes, do you understand the assessment procedure, rates, etc.? Does the assessor chase sales? Taxes can literally double on you if they go to 85% 90% or even 100% of the sale value. This isn't retail investing. If you can even get brokers and sellers to take you seriously (they won't), they will have no problem taking advantage of you (they will). 

Then try raising a few million bucks, $20k at a time, from savvy investors with many other options who see you as some guy who wants to do deals without money or a track record. There is a lot of capital out there looking for deals, but make no mistake that money is easy to come by. If you don't have any more real estate experience than Bob the Dentist, Bob will put his hard earned tooth drilling dollars with another sponsor. Investors are looking for pros with good deals, good experience and skin in the game. (As a side note, investors should never put money with a sponsor who doesn't have a meaningful amount of their own money in a deal). Do you know the ins and outs of GP/LP JVs, waterfalls, preferred returns, etc.? How about what is market for acquisition fees, asset management fees, disposition fees, recourse fees, construction management fees?

Now try doing all of that while managing the due diligence and closing timeline, finding a solid lender (could write a whole post on how this probably won't happen for you), getting management in place, etc. all without losing your earnest money deposit. Then you've got to manage the deal, manage the investors, distribute the money, all while trying to replicate the process again. 

For the love of Pete; take your time, do a few smaller deals with your own money or the money of private lenders and/or general partners. Then, network with a few good syndicators, offer to bring them a deal and ask for a share in the GP (get the agreement on paper). Give them a sweetheart deal in exchange for being brought under the hood and building a track record. Syndicators are starved for good deals right now. Then bust your newbie tush pounding the pavement for a good deal (if you can determine what that actually looks like). Then after you see the whole process play out in detail, maybe you find a partner and go do a syndication on your own. Maybe.

I agree 100% (would agree 200% but that's broker math ;) )

You know what's even more shocking? How every single "capital raiser" apparently suddenly knows underwriting, risk management, property management, broker relations, investor relations, waterfall calculations, etc etc etc. 

It's funny/tragic that most folks, literally, go off whatever presentation a Sponsor gives them, never ask anything more than the absolute basic questions (which you can get by a simple Google search) and think their mentor's 6-week "super-awesome" coaching program has now prepared them to be a "Managing Principal" of their 1-man LLC.

Also, funny how single deals these days are being called funds. As soon as you ask a very simple question i.e. the difference between a fund and a deal (cuz' why wouldn't you?), you are either met with silence or "umm-yea but I call a deal a fund". 

P.S. Just because a property manager says they like a deal, doesn't mean it's a good deal. For the love of Pete, make your own pro formas!

@Phil McAlister

Great post, fantastic points. One portion of it I question is where you mention “There is a lot of capital out there looking for deals, but make no mistake that money is easy to come by.”

For me, finding the capital has been the most challenging part. Once someone has mastered the main point of your post, what advice can you offer on seeking out reliable capital to put your deal in front of?

@Jay Hinrichs - The guru thing has certainly gone too far. There's probably a place in the market for paid training and systems, but that's for people who have the money and business acumen and the program just helps them shorten the learning curve and get the right systems in place quickly. It feels like most of them now are targeting people looking for a way out of their current job/financial situation and making it sound like real estate is an easy path to solve all of life's problems. 

@Bjorn Ahlblad @Omar Khan - I think there will be a lot of unhappy investors over the next 5-7 years that didn't see the difference between a good sponsor and a rising tide that lifts all boats. But I don't have much sympathy for those folks. They are grown ups and no one but them is responsible for their money. On the other hand, investing with a good sponsor is probably the best way for a person with the capital but not the time or knowledge to gain exposure to the real estate sector.

I loved the comment about making your own pro forma. Maybe I'm biased because I make my living underwriting/modeling real estate deals, but how do you even consider yourself a real estate investor if you're not capable of underwriting a deal? You should be consulting your property manager and getting their buy-in but certainly not relying on their numbers. 

@Jared Carpenter - Everyone's situation is different, it depends on your current network, skill set and experience level.  The most important things to have are trust and experience. Even if it's not a full blown syndication, if you've got a deal that needs more funding than you have, I am a huge advocate of going to a very experienced real estate pro with a deep network of investors - give them most of the profits and ask in exchange that they let you in on every aspect of the deal and discuss every step with you. Now you've got a track record to discuss with people and you're off to the races. 

If you're not going to partner and assuming you've got some level of track record and/or relevant experience, the first thing you need to do is know everything about your deal, backwards and forwards. Stress test everything and understand every contingency. Structure as much risk as possible away from your investors and be able to tell that story well. Here's what happens if rents decline 10%. Here's what happens if cap rates go up 50, 100, 200bps. etc. Here's why I think your money will still be safe. The go to a handful of people who know real estate very well and mock-pitch them your deal. Tell them not to pull any punches and grill you hard. Remember UPOD - under-promise and over-deliver. This concept is one of the most important things any human should know if they want to be successful in any field. If you think your deal will be a 20% IRR, present it at a 15%. If you hit 18% you're a stud instead of a failure.

Create a professional pitch deck. If you don't have the skills, go to upwork and pay someone a few hundred dollars to do it for you. It needs to look great. No typos, no excel copy and pastes where you still see the grid lines, no bigger pockets deal analyzer print outs. The deck should explain the deal, the overall investment thesis, and how everything will work. It should follow a clear, logical path and cover all the bases. 

Then start networking like crazy. Don't hard sell people - desperation is a stinky cologne. Just tell everyone you know about what you are doing and this great deal you are involved in. The interested people will let you know it. Try to avoid people who have never invested as an LP in a real estate deal. These people need a ton of hand holding and will second guess everything. Look for people who are constantly spreading their money around with real estate sponsors. Answer all questions, but DON'T PRESSURE ANYONE INTO A DEAL. Don't take any investor who isn't 100% convinced that they want to do the deal on their own accord. Just tell them thank you and you will reach out if you ever have a deal that meets their needs. Ask every investor who else they know that might like a deal like yours. 

Also please consult a securities attorney and make sure you are doing everything by the book. Can't stress that enough. That's the cliff notes version. One could write a book on this and still leave out a lot of info. 

@Jared Carpenter   the 20k investor etc is one of the toughest to get and manage.. 

just look at how the crowd funders have had issue with customer service after the fact 

they get cremated in social media.. too many small investors no way to service a 1000 5 k people just too many.

and you will see them complain and you would think they have 500k in the deal not 5k.. 

what I see happening is this is become HEY I want to do that.. so you have gurus selling how too law firms pitching their set up documents at 10 to 20k a wac and then you have totally inexperienced folks spending the money and then realizing HEY I cant raise any money I have no tract record I have never done this.. man this is hard.. and yes it is.. very hard.  So like most things Guru  the Guru's make the money selling the ideas that in theory work.. but in practice 1 out of a hundred will pull it off..  

The folks I think that can do this are Like a few of folks on here that are CPA's they understand and have deep clientele bases they know who has money.. very experienced Real Estate developers who have significant track record then can hire the social media and marketing person to help raise funds.. get in front of family offices put up a decade or two of past deals etc etc. 

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

Originally posted by @Steve K. :

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

Don't get me wrong,  syndicating deals is a great way for people to invest in real estate with a good sponsor.  It's just not the right avenue for a newbie. The problem is absolutely not that there isn't enough regulation. That's the last thing we want.

@Phil McAlister great post and agree 100%. I read on here to often people trying to buy real estate which is way over your head. If your new to real estate starting with a complex project is suicide

Let me tell a story about a developer that the company I worked for was building. The developer had sold his software company for $30M in 2004 and decided he wanted to be a real estate developer. He syndicated a deal where he put in all of his money and had 2 other investors building a luxury condo building. The unit layouts were horrendous (bowling alley), location was great but they were clearly overpriced and the developer was spending $ on items that would bring in no additional revenue. We started building these in 2006 on a 24 month project.

Guess what happened - 2008 happened. The buildings units went to foreclosure auction and the developer lost everything. Was he a smart guy - absolutely guy was a genius at what he did and what he knew - but he didn’t know real estate.

It’s like riding a bike, you start out on training wheels or a simple bike- you don’t take a 5 year old and put them on a Harley.

Originally posted by @Chris Seveney :

Phil McAlister great post and agree 100%. I read on here to often people trying to buy real estate which is way over your head. If your new to real estate starting with a complex project is suicide

Let me tell a story about a developer that the company I worked for was building. The developer had sold his software company for $30M in 2004 and decided he wanted to be a real estate developer. He syndicated a deal where he put in all of his money and had 2 other investors building a luxury condo building. The unit layouts were horrendous (bowling alley), location was great but they were clearly overpriced and the developer was spending $ on items that would bring in no additional revenue. We started building these in 2006 on a 24 month project.

Guess what happened - 2008 happened. The buildings units went to foreclosure auction and the developer lost everything. Was he a smart guy - absolutely guy was a genius at what he did and what he knew - but he didn’t know real estate.

It’s like riding a bike, you start out on training wheels or a simple bike- you don’t take a 5 year old and put them on a Harley.

I suspect a big part of this was 08.. happened to the best of us.. and for no other reason than the market froze.

Originally posted by @Steve K. :

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

there are many reasons for this.. as you stated there are regulations but the sponsor is on the honor system and when it turtles up that's when they get hammered and its not pretty and the investor usually take a huge loss..  try being one 50k investor with 50 other investors in a deal were your sponsor goes dark or is not operating correctly..  you don't know who the other folks are.. you have no REAL access to any financial other than what the sponsor provides .. your not on the checking account so no way to know where the money went or is going.. there is a total lack of control by the limited partner or small investor..  then you take not ready for prime time sponsors lay millions of dollars on them for the first time in their life's.. ?  and next thing you know you get that robbing peter to pay paul thing going on.  I have seen it first hand many a time.. they don't start out that way but somehow start going down that slippery slope to oblivion.

The Sponsor is the key to any of these deals.. especially rental property.. rental property simply is not that complicated.. there are many ways to lose money at it.. poor management being the main one..  but the transactions its self is not complicated.. So everything being equal and 90% of he syndicators chasing the same product.. it comes down to who do you trust. 

@Jay Hinrichs 2008 was of course a major player but like today - everybody and their brother thinks they can be a developer or a big time real estate investor. The company I worked for stopped doing work in Miami during that time because people with no experience were syndicating deals.

I built my house in 2013 and started it the same time my neighbor did who thought he could GC it himself. He got his Certificate of occupancy this past November (5 years later). The guy was a doctor and commented to me that if he can operate on someone then how hard is it to buid a house. People post all the amazing stories making it sound super simple. It’s not. 

Originally posted by @Chris Seveney :

@Jay Hinrichs 2008 was of course a major player but like today - everybody and their brother thinks they can be a developer or a big time real estate investor. The company I worked for stopped doing work in Miami during that time because people with no experience were syndicating deals.

I built my house in 2013 and started it the same time my neighbor did who thought he could GC it himself. He got his Certificate of occupancy this past November (5 years later). The guy was a doctor and commented to me that if he can operate on someone then how hard is it to buid a house. People post all the amazing stories making it sound super simple. It’s not. 

I took a trip to Miami in I think 09.. got with a fellow Cirrus owner and he took me my wife and I up for a tour of the city.. one high rise after another vacant or not finished ..

I hear ya though My wife represented a few dentist that thought they would flip houses in 07 by the time they came on market they had short sales.. in 08.. not drastic because the PDX market did not crater but it was 50 to 75k on two houses.. banks would not let them out these guys were making 500k a year so the only way out was for the Dentist to pay the difference or sign notes..  

One thing that has happened though is banks will not go with newbies in the development business these days.. so that has throttle the beginner developer.  But with this syndication stuff and on MF which they all chase.  there are lenders hunting for deals and will do them with less than the best sponsors as long as equity is there.. and whose equity is it at risk its the little guy.

Just like in your area of interest NPN.. and those that just take class's and learn from a guru and then are in the note business with very little practical experience.. and are going to create a note fund.. you know how complicated your business is.

next thing you know they raise a million bucks but have to pay that pref day one from funds coming in... next thing you know panic buying of notes have to get that income coming in to off set the pref.. right.. and that's where less than the best decisions are made.. 

Originally posted by @Phil McAlister :
Originally posted by @Steve K.:

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

Don't get me wrong,  syndicating deals is a great way for people to invest in real estate with a good sponsor.  It's just not the right avenue for a newbie. The problem is absolutely not that there isn't enough regulation. That's the last thing we want.

oh, I am not calling for more regulation

just pointing out what I discovered while researching

it did not prevent me from joining syndications, it served as a reminder to always vet the sponsors carefully

Originally posted by @Jay Hinrichs :
Originally posted by @Steve K.:

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

there are many reasons for this.. as you stated there are regulations but the sponsor is on the honor system and when it turtles up that's when they get hammered and its not pretty and the investor usually take a huge loss..  try being one 50k investor with 50 other investors in a deal were your sponsor goes dark or is not operating correctly..  you don't know who the other folks are.. you have no REAL access to any financial other than what the sponsor provides .. your not on the checking account so no way to know where the money went or is going.. there is a total lack of control by the limited partner or small investor..  then you take not ready for prime time sponsors lay millions of dollars on them for the first time in their life's.. ?  and next thing you know you get that robbing peter to pay paul thing going on.  I have seen it first hand many a time.. they don't start out that way but somehow start going down that slippery slope to oblivion.

The Sponsor is the key to any of these deals.. especially rental property.. rental property simply is not that complicated.. there are many ways to lose money at it.. poor management being the main one..  but the transactions its self is not complicated.. So everything being equal and 90% of he syndicators chasing the same product.. it comes down to who do you trust. 

another article I found at the same time was talking about how the syndication groups will state that they are "in compliance with SEC regulations" or throw around terms like "rule 501 (a)", "rule 506 (c)" and "regulation D" and imply that these securities are regulated/monitored like stocks, bonds, etc

this is not the article I am talking about, but another SEC document

https://www.investor.gov/news-alerts/investor-aler...

What should I consider when investing in private placements?

  • Investing in securities, including through private placements, involves risk. You can lose your entire investment.
  • You will not be able to sell the securities you invest in as easily as you would a publicly traded stock. You may have to hold your investment indefinitely.
  • You will likely be provided with less information about your investment than would be required to be disclosed to you if the securities were sold to you in an offering registered with the SEC. Companies and private funds engaging in private placements have more discretion in what information to disclose to you.
  • If the company or private fund does not regularly file reports with the SEC, there will likely be less information available about your investment on an ongoing basis.

You should read and understand all the information that is provided to you regarding the investment, including any offering memorandum or private placement memorandum that describes the investment. Pay particular attention to any risk factors that are described to you. In addition, you should carefully consider the terms of any subscription agreement or other agreements you have to enter into for the investment.

I can only speak for myself, but I think many of the other posters in this thread are trying to say the same thing- syndications in and of themselves are not a bad thing, nor are all syndicators bad or fraudulent. but you need to examine the track record and credentials of the sponsor team along with the terms of the deal

@Phil McAlister @Jay Hinrichs

A question for the two of you: property management. Everyone wants to syndicate but few seem to truly know how to manage property. I’m laser focused on being an exceptional property manager (whether I hire a PM or not), do you think that’s the right move?

My instinct tells me to truly learn everything there is to know managing properties. Most notably pride of ownership, reducing expenses, proper budgeting, seamless tenant relationships, debt management, and overall running a professional business of real estate investing?

As one of those young aspirants looking to syndicate in the future, I would admit I think it’s a poor time to start syndicating. Much more focused on building my own experience with my own resources... which will become the reason investors will want to work with me.

Originally posted by @Steve K. :
Originally posted by @Jay Hinrichs:
Originally posted by @Steve K.:

when I first started researching investing in syndications, one of the first web pages I found was this:

http://www.nasaa.org/22284/informed-investor-alert-private-placement-offerings/

Private Placements and the Risk of Fraud

Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.

Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.

According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.

there are many reasons for this.. as you stated there are regulations but the sponsor is on the honor system and when it turtles up that's when they get hammered and its not pretty and the investor usually take a huge loss..  try being one 50k investor with 50 other investors in a deal were your sponsor goes dark or is not operating correctly..  you don't know who the other folks are.. you have no REAL access to any financial other than what the sponsor provides .. your not on the checking account so no way to know where the money went or is going.. there is a total lack of control by the limited partner or small investor..  then you take not ready for prime time sponsors lay millions of dollars on them for the first time in their life's.. ?  and next thing you know you get that robbing peter to pay paul thing going on.  I have seen it first hand many a time.. they don't start out that way but somehow start going down that slippery slope to oblivion.

The Sponsor is the key to any of these deals.. especially rental property.. rental property simply is not that complicated.. there are many ways to lose money at it.. poor management being the main one..  but the transactions its self is not complicated.. So everything being equal and 90% of he syndicators chasing the same product.. it comes down to who do you trust. 

another article I found at the same time was talking about how the syndication groups will state that they are "in compliance with SEC regulations" or throw around terms like "rule 501 (a)", "rule 506 (c)" and "regulation D" and imply that these securities are regulated/monitored like stocks, bonds, etc

this is not the article I am talking about, but another SEC document

https://www.investor.gov/news-alerts/investor-aler...

What should I consider when investing in private placements?

  • Investing in securities, including through private placements, involves risk. You can lose your entire investment.
  • You will not be able to sell the securities you invest in as easily as you would a publicly traded stock. You may have to hold your investment indefinitely.
  • You will likely be provided with less information about your investment than would be required to be disclosed to you if the securities were sold to you in an offering registered with the SEC. Companies and private funds engaging in private placements have more discretion in what information to disclose to you.
  • If the company or private fund does not regularly file reports with the SEC, there will likely be less information available about your investment on an ongoing basis.

You should read and understand all the information that is provided to you regarding the investment, including any offering memorandum or private placement memorandum that describes the investment. Pay particular attention to any risk factors that are described to you. In addition, you should carefully consider the terms of any subscription agreement or other agreements you have to enter into for the investment.

I can only speak for myself, but I think many of the other posters in this thread are trying to say the same thing- syndications in and of themselves are not a bad thing, nor are all syndicators bad or fraudulent. but you need to examine the track record and credentials of the sponsor team along with the terms of the deal

what you posted is a standard disclaimer in every PPM I have seen.. I call it 50 ways to lose your money when you  read through the warnings on PPMs

were it gets interesting is the 1mil and under they can have non accreds in those up to 35 of them I think..

but bottom line its as everyone is saying experience matters in these deals.. strength of sponsor matters.. someone's great idea or deal but has no money and experience .. that's just a disaster waiting to happen. 

@Jonathan Child  maybe @Ivan Barratt   will talk with you off line that is how he built his great business.

he was / is a PM for years learned the trade from the ground up.. got his experience got his wherewhithal and launched.

going in with a sponsor who is trusting 3 party PM when they have never PM or really owned rental real estate I cant see how that is not risky !!!  Just knowing what I know about rental real estate..

and to get the big cap rates to day your taking on very high risk properties that the pros wont touch.. 

@Phil McAlister

The thought crossed my mind to create another account to vote for this again. 

I have nothing else to add to your excellent summary of why owning a portfolio of 15 SFRs doesn't prepare you to undertake a 150+ unit property. However, finding, acquiring, managing, and disposing of the property is only half of the equation. Managing people's money and running back of the house operation don't get a lot of PR in my humble opinion here on BP. In addition to overseeing the property, you need to make sure quarterly dividend checks go out on time and to the right address/accounts, K-1's go out before April 12th (maybe that's a pet peeve of mine and other people don't care, but I don't understand why they can't be out by March 1), basic payroll functions happen for your employees,... the list goes on. 

I see more and more people here on BP who have jumped into syndication similar ways. Their funds (sorry @Omar Khan ) have cool names, great websites with free calculators to generate leads, cool video intros and bios talking about where they came from (usually not REI/PE/Finance background) and how their strategy is different from everyone else's. Under odd titles like 'Strategic Partner', 'Board Member' or 'Advisor' I see the same few names and faces over and over again.

We've seen the impacts of paid mentoring on the flipping and wholesaling space, but man, the stakes are so much higher when you layer on the complexities of the MF space and involve SEC regulated products. Like you said, goodbye life savings, credit, and reputation, hello protracted legal battle and/or SEC/DoJ subpoenas.

I honestly wonder how much these 'coaches' cost/what percentage of the capital raise is going to their pockets and how long until the carnage starts.

@Jay Hinrichs thank you for the shoutout! 

@Account Closed building on a solid management foundation first is very hard and very rewarding. If you're looking to go far in this biz execution of management (asset level and property level) is mission critical. A bad manager can wreck a great deal and a great manager can turn a bad deal into a big profit.  Learn small, fail a lot and fail fast. Learn from the inevitable mistakes before you go big!

The best deals are where the prior management team screwed up the project in one more ways (lack of capital, expertise, pie in the sky proforma, etc).

Right now the market is making everyone look good but that won't last! And, when it changes guys like me will be in acquisition mode.  Today I'm lucky to find one D-E-A-L in two hundred looks.  Rising interest rates, slowing rental growth and black swans will shrink that ratio back down to 1 in 50-100 and when that happens we'll be licking our chops!!

"I think there will be a lot of unhappy investors over the next 5-7 years that didn't see the difference between a good sponsor and a rising tide that lifts all boats."

I have likely reviewed and underwritten 100+ offerings over the past year and routinely see red flags and deal breakers...inexperience, mis-aligned deal structures, weak offering materials, aggressive assumptions, background check follow up items, under-capitalized sponsors, etc...but the deals still get funded.  In this market, deal flow is king and whoever has the grit and time to generate it can make a good profit.