Apartment Syndicating - Deal Sponsor or Passive?

42 Replies

@Kevin Ferguson One place to start is by @Theo Hicks and @Joe Fairless  the Best Ever Syndication Book. I would also check out the recent BP book by @Matt Faircloth ,  Raising Private Capital. Multifamily Millions by David Lindahl is another good one, less about raising money and more about multifamily. 

For podcasts, there are a lot and I know many of the podcasters so I don't want to slight anyone. I can DM you my favorites. 

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@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!

@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.'

@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.

@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.

@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. 

@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? 

@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? 

@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! 

@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.

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? 

@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. 

@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

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. 

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 :)

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