Apartment Syndication is NOT a Business Model
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
Syndication and apartments, in general, is an opportunistic play. Most things being sold don't make it past the most cursory underwriting.
ow did syndication become a model? A model implies a system, and I think of a system kind of like a conveyer belt: push the button - spit out a widget - push the button - spit out a widget, etc.
Syndication is the exact opposite of this. It's a one-off, here-and-there, once in a while above average opportunity.
How did we get to a place where syndicating $10M assets has become as automated as flipping $150,000 houses?
I am bullish as all get-up on the apartment sector. But, a lot of nonsense is going on...
The missing piece of the puzzle is relationships. You don’t find the best deals buying marketed properties...yes you can find them but they are few and far between, as you said.
The real deals are the rebounders, where the buyer they picked fails to perform and the deal comes to you after. Or the off-market deals—not the fake off-market crap that is simply using the “off market magnetism” to find a sucker for an overpriced property, but true off-market stuff that only comes to you if you have a proven track record with the broker.
Over time you will develop these relationships but you’ll have to close a few more deals first. Then you’ll see how this not only becomes a business, but how you add significant value to your investors by unlocking access to deals that they couldn’t have found on their own.
Whether it is a system or not - these are just words. But there is a process. Today, the deal flow is scarce, so acquisition efforts need larger amounts of time and resources. We're in an environment where interest rates are creeping up, so I expect that deal flow will be even more constrained in the coming year.
I don't disagree, Brian. In fact, your statement kind of proves my point, at least the point being made between the lines - too many PPMs being floated today are desperate attempts to load up on inventory ahead of the perceived further compression of deal flow.
Does that make all of the deals bad - of course not. There is still a one-off over here, and a one-off over there. Most of them are off-market.
However, where does this leave most of the deals being floated...?!
I talk to a lot of investors. The tides are a changing...
It's sexy to talk about "making relationships". Many people talk about it. Even in this thread. But, how does one actually do this? How does one develop rapport? How does one break through the BS and reach people?
The developing rapport part that everyone talks about is highly overrated. The age-old advice thrown around BP about taking brokers out for coffee and all that is just BS. If you want to build a relationship, close deals. I have brokers that I’ve worked with for years that send me exclusive deals, and I’ve never met them in person (I have people for that). But I’m a closer and they know that and that’s what gets their attention. It just takes a long time for this to develop. You have to remember that brokers have a core set of buyers that they have worked with for years and have also represented them as sellers. Why choose you over them? In the beginning there is only one reason: you were willing to pay more. That tide will shift, eventually—but you can’t force it.
But back to the original point of systemization of the acquisition process. Well, this point isn’t even a point because acquisition isn’t what this business is.
This is a financial services business just like a bank or investment firm that offers opportunities to investors to achieve their financial objectives. It just so happens that the vehicle being used happens to be real estate...which means that the core competency is asset management, operations, accounting and investor reporting. You can systematize many of those components.
The acquisition part is just obtaining the product and no matter how systematized any business is, the acquisition of their product is never fully systematized. Just look at department stores. They have product buyers that attend endless meetings with people trying to get their product in the store and most products are losers. Every once in a while they have a meeting and discover a great product. Finding a good product to sell is always a laborious process.
It's sexy to talk about "making relationships". Many people talk about it. Even in this thread. But, how does one actually do this? How does one develop rapport? How does one break through the BS and reach people?
The developing rapport part that everyone talks about is highly overrated. The age-old advice thrown around BP about taking brokers out for coffee and all that is just BS. If you want to build a relationship, close deals. I have brokers that I’ve worked with for years that send me exclusive deals, and I’ve never met them in person (I have people for that). But I’m a closer and they know that and that’s what gets their attention. It just takes a long time for this to develop. You have to remember that brokers have a core set of buyers that they have worked with for years and have also represented them as sellers. Why choose you over them? In the beginning there is only one reason: you were willing to pay more. That tide will shift, eventually—but you can’t force it.
But back to the original point of systemization of the syndication business. Well, this point isn’t even a point because syndication isn’t what this business is.
This is a financial services business just like a bank or investment firm that offers opportunities to investors to achieve their financial objectives. It just so happens that the vehicle being used happens to be real estate...which means that the core competency is asset management, operations, accounting and investor reporting. You can systematize many of those components.
The acquisition part is just obtaining the product and no matter how systematized any business is, the acquisition of their product is never fully systematized. Just look at department stores. They have product buyers that attend endless meetings with people trying to get their product in the store and most products are losers. Every once in a while they have a meeting and discover a great product. Finding a good product to sell is always a laborious process.
Brian - who's talking about brokers. Are you talking about brokers? Cause I'm not talking about brokers hahah
Brian - who's talking about brokers. Are you talking about brokers? Cause I'm not talking about brokers hahah
Ha! Well as you probably already know figuring out what the hell you are talking about is like translating a foreign language that I don’t speak. LOL You began by complaining about acquisitions so I stuck with that theme.
Seeing as how you’ve shifted to investors...you build those by full-cycling deals and delivering on your promises. Performance builds referrals and loyalty. But you said you could raise $35 million so it seems that you have all the relationships you need for now.
Or perhaps my Benlinguistics is still off and you are talking about something entirely diffferent. Time to fine-tune my google translate...
Brian - who's talking about brokers. Are you talking about brokers? Cause I'm not talking about brokers hahah
Ha! Well as you probably already know figuring out what the hell you are talking about is like translating a foreign language that I don’t speak. LOL You began by complaining about acquisitions so I stuck with that theme.
Seeing as how you’ve shifted to investors...you build those by full-cycling deals and delivering on your promises. Performance builds referrals and loyalty. But you said you could raise $35 million so it seems that you have all the relationships you need for now.
Or perhaps my Benlinguistics is still off and you are talking about something entirely diffferent. Time to fine-tune my google translate...
HAHAHA Burke, you are the real deal. But your shtick has been done and done well - by you. I've got to do it differently...but also well...you told me so :)
I'll be in HI in 3 weeks. Why don't you change your plans and you and Suzi come out?
If you run a syndication and are confident on your abilities to buy a property and reposition a property. Syndication gives you the tool to buy properties when they become available. By having the system and capital available to take advantage of a deal when it presents itself.
Apologies, a bit new to BP. I have yet to figure out if you can contact anyone directly. Not sure how the naming works. If only I were good at social media. But with that said...
Somehow the words "model" and "system" seem to be important to Ben. I gather Ben is a fellow that teaches flipping (I think that is what Hacking means, not really sure) SFH. And if one is making money selling how to with SF, speaking ill of MF makes sense.
There are dozens of ways to make money in RE: notes, assisted living, strorage, trailer parks, hotels, etc. I happened to walk into a group that did SF & MF; I choose MF. Some would buy alone, some would syndicate, that is some would find and sponsor a deal and some would invest as passives.
I am the latter - I had a good job that I sort-of enjoyed, had amassed some funds to invest, so this was a lucrative 'hobby'. My wife & I joined in 2010, studied and trained, for a few months, got into the first deal in 2011. We have done more passive deals than most - most want to jump to Sponsor, but I was happy at well paid job with good benefits.
I am sure Ben is much richer than I, but he works at it full time. But we have done well enough; We put $1M into MF syndication deals as passives and have pulled out about $2M and are currently in about 25 more deals - as it is hard to say what the value is until they sell, so it is hard to be concrete - sorry. Likely around another $2M in the future. I had a full time job until June of this year when I retired. The RE investments have upgraded my retirement from 'Coach' to 'First Class'.
Is this the only way? Heck NO! And this way was is not for all. I had to have money to invest; I did, so my money could do the work; I have no sweat in these. My involvement was to do the training to become knowledgeable (Sophisticated - We were Accredited, but you need to know what you are doing!) and get involved (meet & greet perhaps 10 times per year).
Some folks can go to meet-ups or perhaps they have contacts, but a active group that trains and has a network is good for many - like me, I knew near nothing when I walked in. But they are not charities, they will somehow extract a fee. All groups are not created equal!
If you want to make the jump to MF and you're not connected, look around at various groups, kick some tires. I suggest my guy; a fellow named Brad Sumrok, you can google him (read this - I have not learned how to point at his site in this interface). He operates out of DFW area, but has members from across the country (I am in deals in 5 states). He does a week-end "Rat Race to Retirement" (R2R) event 3 times a year (Nov, Mar, July). He actually does a great overview of the process (but it is only 16 hours, so not deep enough to know all, so you can decide if this is good for you. He does not make a hard sale!
To be crystal clear: I have been with Brad since he started his company. I volunteer to help at many of his events, but he does not pay me anything. I volunteer because I think he is the real deal, this is good for so many (but not all), and I like to help my mentor. For this to work as a passive investor, I feel you need to have:
* Money - I think you need to have about $200K to invest plus the fee to join. This has increased a bit as the fee tends to increase and the market has compressed a bit.
* Time - You need the week-end, a month or so of evening to watch the on-line training, and 5 to 10 days in DFW to network.
* Personality - you can not be so shy, that you can't network.
At the R2Rs, I have told folks to go away and come back. I told a friend not to bother as he works too much to come to networking events. And I know of folks that are too introverted.
If you are interested and you attend, I will likely be there, say hello - big, load, white hair.
As for BEN, I really have no idea what he is teaching, selling, etc. He may be great. House hacking may be right for you...
Regards,
Charles LeMaire
As for apartment syndicating. I feel it’s the hot topic. The gurus are out and their followers are flocking in. I’m sure there are very strong syndicators out there and it sounds like there are quite a few in this thread, but it’s scary when I get a call from a 24 year old whose never done a deal asking me to sell a 24 plex with nothing other than “drive and determination” fueling his tank.
For now I’ll stick to my small Multifamily investing and watch from the sideline these syndicators.
This is my point, exactly. I am on the record, on 3 BP podcasts saying the same thing. There were years when I only did 1 deal, and I am happy. When the point was nothing down, the nature of the beast required an above average deal. Now that it's private placement, the nature of the beast still requires above average deals.
Above average, one-off opportunities are the essence of what we do. I totally agree.
The stuff I am seeing floating around, though, doesn't look to me as above average. It's still being funded. You make conclusions :)
@Ben Leybovich Can we just step back and comment on how you look like a doppelganger for my dentist? https://s3-media4.fl.yelpcdn.com/bphoto/A9S_gMO-ZO...
But on a serious note, I don't understand how someone selling an "underwriting model" for $1500 per person can then turn around and in the same breath crap on the market they're selling the model to.
Syndicating is indeed a profitable business model and good sponsors will work multiple deals at any given time. In my day job, I see a lot of repeat sponsors continuously bringing new deals. There's a reason why companies like Tishman Speyer are worth billions.
I'm happy for you that you closed your first syndication recently, but I'm not sure it makes you an expert in the space. I don't claim to be one either since I'm still working on closing my first syndication.
Just my $.02
As for apartment syndicating. I feel it’s the hot topic. The gurus are out and their followers are flocking in. I’m sure there are very strong syndicators out there and it sounds like there are quite a few in this thread, but it’s scary when I get a call from a 24 year old whose never done a deal asking me to sell a 24 plex with nothing other than “drive and determination” fueling his tank.
For now I’ll stick to my small Multifamily investing and watch from the sideline these syndicators.
This is my point, exactly. I am on the record, on 3 BP podcasts saying the same thing. There were years when I only did 1 deal, and I am happy. When the point was nothing down, the nature of the beast required an above average deal. Now that it's private placement, the nature of the beast still requires above average deals.
Above average, one-off opportunities are the essence of what we do. I totally agree.
The stuff I am seeing floating around, though, doesn't look to me as above average. It's still being funded. You make conclusions :)
It's wholesaling apartment buildings. Scary.
@Ben Leybovich Can we just step back and comment on how you look like a doppelganger for my dentist? https://s3-media4.fl.yelpcdn.com/bphoto/A9S_gMO-ZO...
But on a serious note, I don't understand how someone selling an "underwriting model" for $1500 per person can then turn around and in the same breath crap on the market they're selling the model to.
Syndicating is indeed a profitable business model and good sponsors will work multiple deals at any given time. In my day job, I see a lot of repeat sponsors continuously bringing new deals. There's a reason why companies like Tishman Speyer are worth billions.
I'm happy for you that you closed your first syndication recently, but I'm not sure it makes you an expert in the space. I don't claim to be one either since I'm still working on closing my first syndication.
Just my $.02
If you don't understand, the two things are evident:
1. You'll pay $350 and go to someone else's event.
2. You need to read more of the things I write
Good luck :)
@Ben Leybovich Can we just step back and comment on how you look like a doppelganger for my dentist? https://s3-media4.fl.yelpcdn.com/bphoto/A9S_gMO-ZO...
But on a serious note, I don't understand how someone selling an "underwriting model" for $1500 per person can then turn around and in the same breath crap on the market they're selling the model to.
Syndicating is indeed a profitable business model and good sponsors will work multiple deals at any given time. In my day job, I see a lot of repeat sponsors continuously bringing new deals. There's a reason why companies like Tishman Speyer are worth billions.
I'm happy for you that you closed your first syndication recently, but I'm not sure it makes you an expert in the space. I don't claim to be one either since I'm still working on closing my first syndication.
Just my $.02
If you don't understand, the two things are evident:
1. You'll pay $350 and go to someone else's event.
2. You need to read more of the things I write
Good luck :)
1) False, never saw the value in buying other peoples' models as I'm fairly versed in excel and financial modeling.
I'll go to conferences and other networking events, but never saw the value in workshops. This applies to my primary job as well. Maybe I'm missing out.
2) Always self promoting. It's a good skill to have. This business is predicated on others' perceived value of you and/or your offerings.
@Ben Leybovich Can we just step back and comment on how you look like a doppelganger for my dentist? https://s3-media4.fl.yelpcdn.com/bphoto/A9S_gMO-ZO...
But on a serious note, I don't understand how someone selling an "underwriting model" for $1500 per person can then turn around and in the same breath crap on the market they're selling the model to.
Syndicating is indeed a profitable business model and good sponsors will work multiple deals at any given time. In my day job, I see a lot of repeat sponsors continuously bringing new deals. There's a reason why companies like Tishman Speyer are worth billions.
I'm happy for you that you closed your first syndication recently, but I'm not sure it makes you an expert in the space. I don't claim to be one either since I'm still working on closing my first syndication.
Just my $.02
If you don't understand, the two things are evident:
1. You'll pay $350 and go to someone else's event.
2. You need to read more of the things I write
Good luck :)
1) False, never saw the value in buying other peoples' models as I'm fairly versed in excel and financial modeling.
I'll go to conferences and other networking events, but never saw the value in workshops. This applies to my primary job as well. Maybe I'm missing out.
2) Always self promoting. It's a good skill to have. This business is predicated on others' perceived value of you and/or your offerings.
Haha And, as that one line in that movie goes: We'll both go our separate ways and be just fine.
Good luck!
That all depends. You could devote yourself to building newly constructed apartments with the intention to hold, and you can do this anytime almost anywhere. The syndicator would play the rolls of developer and property manager. You certainly could develop this as a system, quite repeatable, with consistant intention , purpose, and definition. You would do this both designing and developing and plan.
Some people just want to invest their money and have someone else do all of the work, the definition of an investment. Not everyone wants to be hands on, they just want to have their money grow or participate in a revenue generating system.
The typical fix and flip investor or buy an hold investor wants to play an active roll in operating and managing their properties, they run their own business.
Now you could also include used and ready made apartment buildings and the buy and hold strategy to syndication as well . You would have a department for creating an inventory of projects much like in the mining industry some companies do exploration work only and pass the projects off to those that concentrate on doing the actual mining only with syndication you would do more. The exploration, development, and management. plus even the sales and distribution of gains. This can certainly serve as a business model in which you can apply economies of scale.
Maybe you were referring to the way people go about creating syndications now and that leaves a lot to be desired.
Except for those that like to do nothing but all cash deals most all of real estate investing involves the use of leverage. other people's money, and in this case syndication would be no different except that you would be using private investor's money rather than a lender's.
Now you say that syndication is ********, other people would say that doing all the work yourself is ******** too., who's to say that one way to earn money is more legit than any other way.
If you would rather operate, run, and manage your own business, then the more power to you.
Your opinion is that syndication does not offer anything over running your own business and therefore has no reason for being. Maybe it is just that people are not doing syndication to best way?
If syndicators were to create a forum like BiggerPockets that is focused on establishing real estate investing as departmentaliized corporations instead of concentrating on the individual real estate investor that wants to setup and run their own business then they might succeed in gaining more support for syndication as a business model.
Your point is taken but it should be directed at present day syndicators but not syndication as a business model.
I mean we have privately held businesses, and closed corporations and we also have publicly traded companies.
Different strokes or different folks.
The definition of an investment is where someone puts in the money without any direct participation in the managment or the outcome of the investment yet with an expectation but no guarantee of a profit.
So if we take that as our premise most real estate investors are not investors at all but simply business owners.
Actually it is more of a hybrid because real estate investing offers certain deductions that other businesss do not get to claim, and if you puchase a piece of real estate with the intention to earn rental income you get to claim that income as passive where as other businesses do not.
Even if you own, run, and operate your own real estate business, real estate is still classified as an investmnt class. Which goes to my point that syndication should be set up, run, and managed as an investment therefor qualifying as a system with its own strategy and purpose, but also with its own defined kind of investor not for those that want to run their own business, and more in line with with the coporation model.
@Ben Leybovich feisty aren't we...hope you don't have this type of interaction with your investors as I would be confused.
@Ben Leybovich feisty aren't we...hope you don't have this type of interaction with your investors as I would be confused.
Hah my investors are confused by half-truths, So, I make it a habit to tell the whole truth :)
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
@John Nachtigall - agreed!
Just read this whole post thus far. That's 15min I'll never get back!! ;)
Warren Buffett looks at 200 pitches and swings on one; at best! That's a model I'm happy to stick with. What keeps our machine going is a focus on being a vertically integrated management firm. "Deals" come 2nd to management execution. Management makes payroll. :)
Just read this whole post thus far. That's 15min I'll never get back!! ;)
Warren Buffett looks at 200 pitches and swings on one; at best! That's a model I'm happy to stick with. What keeps our machine going is a focus on being a vertically integrated management firm. "Deals" come 2nd to management execution. Management makes payroll. :)
That is a great model. Yours is absolutely a system. Love it!
Just read this whole post thus far. That's 15min I'll never get back!! ;)
Warren Buffett looks at 200 pitches and swings on one; at best! That's a model I'm happy to stick with. What keeps our machine going is a focus on being a vertically integrated management firm. "Deals" come 2nd to management execution. Management makes payroll. :)
Ivan, in fact your post and your model prove my point. The reason you are able to wait for only the best opportunities is that you are not a syndicator - you are a PM company who opportunistically takes advantage of only the best opportunities. You don't need to syndicate to make payroll, You make payroll in the course of PM business. And you wait to exploit only the best syndication opportunities, as you should.
This is a great model, indeed! @Sam Grooms and I take a different spin on it. We don't have enough units under management today to warrant a PM company. But, each of us are involved in other ventures whereby we don't need to syndicate to make money. Thus, we are able to hold out for only the best opportunities. As the number of units under our management grows, the natural progression of things will require formation of a PM business.
Regardless, it is the very notion of "paying the payroll by other means" which gives both you and us the flexibility to be choosy. There is no moral hazard for either you or us, which is the point :)
Thanks indeed for your post. You've more eloquently than I outlined the argument, even if it were inadvertent...
So your 'business model' is to not have syndications be your primary income source? Sorry but that's not a model at all. You're talking two different things.
A W2 employee gets paid bi-weekly. That doesn't mean that a business getting paid 'Net 30' doesn't have a valid business model just because they're not paid on a regular schedule. And that doesn't mean a business with a long sales (e.g. CRM software, like Salesforce) or irregular cycle (e.g. Ferrari dealership) doesn't have a valid business model because they don't know 100% when their next sale will come in. Just because you can't budget money between syndication deals doesn't mean every other syndicator is frantically looking for and overpaying for deals and it surely doesn't mean there isn't a model behind it.
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
Everyone gets the same tax breaks / perks. It's a matter of hiring a quality accountant versed in real estate. Even low level real estate investors can afford this.