Apartment Syndicating - Deal Sponsor or Passive?

42 Replies

I just came back from the R2R event hosted by Brad Sumrok - The event was great and I got to meet tons of successful people who are doing syndications. 

My question is should you invest in a passive deal first or jump straight in to being a deal sponsor? 

That's up to you!  What are your goals?

@Kevin Ferguson - I am along time (since 2010) Sumrok student.  I have invested passively in several deals over time.  You don't say if you joined or mention your experience, but making some assumptions...  I assume you are talking about your action, not your selection of Brad's Personal Mentoring vs. Foundations programs.

Say you attempt to be a sponsor, is your resume likely to attract me to your deal?  Can you swing an agency loan?  If you have 'creds' go for it, but if not, do a passive first, consider being a KP, and work up to sponsor if that is you goal.

Regards,

Charles LeMaire

Hey @Kevin Ferguson .  I don't know if there is a right answer here. I too would like to get in on the GP side of a syndication and have taken the approach of investing as a LP first.  I invested in two syndications this year as a LP.  I don't think that alone will lead me to the GP side of a deal but figured it was at least a way to earn a good return with the added benefit of learning a thing or two along the way.  Good luck.

@Chris Tracy

My goal is to invest in a passive deal by the end of this year. Then build up a track record and become the deal sponsor. 

@Charles LeMaire

I plan to join the foundations program next year. I realized how much goes into apartment deal syndicating and I'm still learning. 

You're right, my resume wouldn't be enough for you to be attracted to any deal I would possibly have; I heard that word a lot during the conference is that a Key Player or Key Principle? 

@Gwyeth Smith

Awesome! What was your minimum requirement for those passive deals? I'll probably invest as a passive and then work my way to becoming a deal sponsor.

Originally posted by @Kevin Ferguson :

@Chris Tracy

My goal is to invest in a passive deal by the end of this year. Then build up a track record and become the deal sponsor. 

 I was about to ask, do you want a new job or are you just looking to invest some money and earn a good return without doing much work? 

But it sounds like you answered your own question. That's a typical path, and I've seen many achieve those goals even in the few years I've been in the MF game. 

Originally posted by @Kevin Ferguson :

I plan to join the foundations program next year. I realized how much goes into apartment deal syndicating and I'm still learning. 

You're right, my resume wouldn't be enough for you to be attracted to any deal I would possibly have; I heard that word a lot during the conference is that a Key Player or Key Principle? 

Neither, it means Key Principal ;) Some lenders don't use that terminology, they just call it non-managing guarantor. 

I was there too but I don't think we got a chance this weekend. My opinion is that being a passive is a good start. A lot of people (including myself) started that way.

@Kevin Ferguson I think both routes are good options, depending on largely on your personal network and willingness to dedicate lots of time to daily action. As several folks have already attested, starting as an LP is a great way to start; I went straight to syndication and was able to recently close on a $7.5 million property in Colorado. 

My syndication was a 506(b) offering and I had enough people in my network that both had money, and trusted me with it, to raise a bit over $2.1 million. I spent 9 months learning as much as I could through books, podcasts, and free meetups, then applying that knowledge to find and close a deal.

Both routes are possible, it just takes looking in the mirror and deciding which way you want go!

@Kevin Ferguson  

It looks like you've got your answer here already as to how to start out. I also took a similar route by investing as an equity partner first in a few deals. As to when is the time to become active is really up to you: when you will be ready to implement the knowledge you acquire through learning about syndications. 

So read books on the topics of syndication and multifamily investing (if you need recommendations, PM me), listen to podcasts and network with like-minded investors to keep the momentum going for yourself!

Best!

@Paul B.  

Haha, I guess I did answer my own question!

I have a full-time job right now but I know through passive investing and syndications, I'll be able to leave my job and pursue REI full-time (Allowing me to Travel!)

@Michael Le  

Key Principal! I went back and forth with the spelling ;) 

Unless you have the network and people willing to trust you with your first syndication; Being a passive sounds a lot better. The goal is to be the deal sponsor though! 

@Sam Rust  

Wow, Congratulations! So you got a commercial loan for about 75% LTC, and raised the rest (2.1 Million) ? 

I've been going to meet-ups and listening to podcasts, are there any books you recommend? 

@Alina Trigub

Great advice! How long did it take you to become a passive in your first syndication? I bet you looked through a lot of deal analyzers from the deal sponsors. 

In order to be of any use to me on the GP side you've got to know stuff. Just ask yourself, what is it that we do most of?

1. Sourcing deals

2. Sourcing capital

3. Underwriting

If you've got chops in one of those departments, raise your hand and we'll talk. If not, study and network :)

@Kevin Ferguson Congrats on being inspired to take action! Being a passive investor is a great way to start and learn more about syndication before taking on your own projects. I'm not sure of your background, but really embrace the education process. I would suggest listening to multiple podcasts as well as reading books on the subject. 

Originally posted by @Kevin Ferguson :

@Chris Tracy

My goal is to invest in a passive deal by the end of this year. Then build up a track record and become the deal sponsor. 

 I think that's a good way to approach it. This is what I've done starting from about a year ago. I've found some deal sponsors that I've learned a lot from. They're very responsive and have the heart of a teacher. 

@Ben Leybovich

I definitely have to keep grinding, studying and networking. 

Thanks for the advice Ben.

@John Casmon

I'm definitely motivated! I love Real Estate, it's very powerful.

What podcasts/books helped you get to the deal sponsor level? 

@Kevin Ferguson  there’s definitely advantages to possibly investing in syndications, however I would try to work with sponsors that are going to allow you to be a little more active. Make sure that you’re truly looking at this deal as a learning experience. 

 This is not the only way to get experience, however. You can invest in smaller multi families on your own, invest actively with several partners that have some experience or volunteer/work For active investors. 

 If you’re going to go the passive route, just make sure you understand who are you are doing business with. It’s very important to find sponsors that you can trust and that have a good track record of honesty and integrity. Also make sure that they can fully explain their underwriting to you and that it appears to be conservative in nature. Just recently Rent growth through most major markets either stalled out or was negative. The sponsors that are underwriting at 5% growth are going to end up in a heap of trouble eventually.

@Todd Dexheimer

Definitely going to work with smaller Multi Families with my partners until we're ready to do a syndication.

I will make sure to ask future deal sponsors if they have a good track record and to explain the underwriting fully. 

Thanks for the great advice! 

In order to become an apartment syndicator, you need to have a track record in real estate (doesn't need to be apartments) and/or business (i.e., held a high level position, started your own company, etc.) AND have a strong educational foundation. In other words, you need a background that allows potential investors to trust you with their money.

If you don't have those requirements covered, I would passively invest first and work on your education and real estate experience (passive investing in a deal will help with your credibility, but you really want to have some experience successfully managing a deal).

@Theo Hicks

Awesome advice Theo, I definitely have a track record in SF but not the MF level yet. 

I have some sophisticated investors that would want to invest into an apartment deal but I want to keep educating myself and invest passively into a deal first. That way I can have the track record you're describing. 

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