Apartment Syndicating - Deal Sponsor or Passive?

Multi-Family and Apartment Investing
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Apartment Syndicating - Deal Sponsor or Passive?

Kevin Ferguson
Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes

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? 

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Sam Rust
Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
8y

@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!

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  • Ellis HammondPro Member
    Investor · Leawood, KS · Member since 2017 · 178 posts · 108 votes
    8y
    @Kevin Ferguson if you were around great sponsors then you already know how many excellent syndicators there are out there. I’d ask myself the question, do I feel confident enough to actually bring in other people’s money to my own deal knowing the quality of syndicators out there? If you can produce a great product then go for it man! But keep in mind you can build your track record and learn more about syndications by investing passively first (or do both). Best wishes on your journey into REI!
    1Reply
  • Gwyeth Smith
    Rental Property Investor · Huntington, NY · Member since 2016 · 102 posts · 74 votes
    8y

    @Kevin Ferguson, to be honest I'm not sure I had "minimum requirements" for my passive investments.  I wanted to be familiar and comfortable with the sponsor.  Somebody once told me to bet on the jockey over the horse.  No matter how good the deal, you need the right person implementing the business plan.  The next most important aspect for me was monthly distributions.  I'm financing these investments from a line a credit and wanted a certain spread on a monthly basis to be comfortable in doing so.  The preferred return on my passive investments is 8% which gives me a positive spread that I am comfortable with on a month-month basis.  I figure if I can stagger these investments so that they mature for me in consecutive years and keep re-investing that it will provide a nice source of income that I can add to the 'kitty.'

    1Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Kevin Ferguson I don't think it's a bad idea to be an LP first in a syndication, however definitely not a requirement. If you feel comfortable and able to build a strong team and partner with other jump into being a GP and leverage others.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y
    @Kevin Ferguson Kevin, I took the time to read about your educational background. That combined with your hunger to learn, places you closer to the time when you can be a syndicator than others might think. While you can learn from anyone, your best chance of receiving good workable advice is to listen to people who have been successful syndicator, and take with a grain of salt advice offered by anyone else. On BP, as on most open forums, there are many posters giving advice on topics in which they have no experience or qualification. If I needed advice on a potential life threatening illness I’d want to listen to the advice of a highly regarded specialist in that medical field, not someone who worked for three years as a hospital orderly. Hate to sound harsh, but the amount of misleading and plain bad advice given ‘for free’ is astounding. More specifically, investing as a LP in a syndication deal will do little to move you toward becoming a real estate sponsor or syndicator. Just as purchasing 10 shares of Apple wont do anything to move you toward becoming a tech CEO. The amount you learn about syndications from being a LP you can easily pickup without investing. This is not to say that any particular syndication investment might no be a good investment; that analysis is a separate matter completely. Yes, investing your cash in small property deals you directly control will SLOWLY help move your toward yoursyndication goals. However, nothing will move you in the right direction faster than going to work for a syndicator, and asking to be allowed to work in all facets of the operation. Up until 2000, while I had been in real estate mostly as an investor, my main business was not real estate related. When I decided to syndicate real estate deals, I went to work for a established syndicator on commission only for one and one half years. For the last 16 years I have been syndicating real estate debt deals, and real estate equity deals, on my own and with a partner. I have syndicated over 500 properties, 400 of which were in two private funds, and 100 of which were individually syndicated properties. In that period of time I raised over $140 million. When I started my average deal size was $250,000, now it’s $2 million. I believe that with your background and motivation, spending two or three years with a successful syndicator as an employee or associate will be sufficient to enable you to open your own syndication business.
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  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @John Casmon

    I'll definitely put those on my books to read! Thanks for the recommendations.

    0Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Ellis Hammond

    Ellis, thanks for the feedback. 

    I'll probably take the Passive Investor path first, that way I can see the process of a whole syndication. Once I feel comfortable raising other people's money with a track record. 

    1Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Gwyeth Smith

    Thanks for the advice Gwyeth.

    I like that analogy you used, "bet on the jockey over the horse."  

    Those monthly distributions you're describing, aren't they usually quarterly distributions? 

    You look for an average 8% Cash on Cash return per year? 

    0Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Scott Morongell

    Before I went to the R2R last weekend, my partners and I were thinking about syndicating a 14-unit building, but I think that's too small now.

     Would you recommend a minimum of 60+ units to do a syndication? 

    0Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Don Konipol

    Don,

    Thanks for taking the time to read my background. I know Real Estate is the industry I wanted to be in and I think apartment syndication is powerful. I will definitely heed your advice and find a mentor who is a successful syndicator and listen to them. I appreciate the feedback and will continue to pursue my syndication goal! 

    0Reply
  • Gwyeth Smith
    Rental Property Investor · Huntington, NY · Member since 2016 · 102 posts · 74 votes
    7y

    @Kevin Ferguson.  Yes, most LP opportunities I come across provide quarterly distributions.  I was able to find a syndicator who does monthly distributions and I put a lot of value on that when deciding where I was going to invest.

    0Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y
    Originally posted by @Kevin Ferguson:

    @Scott Morongell

    Before I went to the R2R last weekend, my partners and I were thinking about syndicating a 14-unit building, but I think that's too small now.

     Would you recommend a minimum of 60+ units to do a syndication? 

    0Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Kevin Ferguson Yes too small to syndicate. It's tough to justify paying for all those legal docs on such a small asset. The syndication attorney should cost you about the same if your doing a 14 unit or 314 unit. I think 60 -100 depending on price per door/ market can work doing a syndication. 

    0Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Scott Morongell

    Economies of scale right? I can raise the money and put a property management company in place on 60+ units 

    Thanks for the advice

    0Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y
    Originally posted by @Kevin Ferguson:

    @Scott Morongell

    Economies of scale right? I can raise the money and put a property management company in place on 60+ units 

    Thanks for the advice

     It will support a 3rd party professional mgmt company, however at 60 units they will probably suggest having someone off site. Typically a good rule to go by is for every 100 units 1 on site staff member. 

    0Reply
  • Kevin Ferguson
    OP
    Specialist · San Antonio, TX · Member since 2018 · 77 posts · 18 votes
    7y

    @Scott Morongell

    Okay so it's not typical to see a 3rd party mgmt company at anything less that 100 units? 

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    I am always amused by posts like yours. Why would you bother? It's like posting on a public forum: how do you know when it's time to have a baby...?

    Hah Knock it off with the amateur nonsense and look in the mirror. You are either ready or not :)

    2Reply
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