Rental Property Investor · Orlando & Submarkets · Member since 2019 · 49 posts · 15 votes
Hello everyone, where and how have you acquired funds for conducting due diligence inspections after signing a purchase agreement? If you plan on syndicating or getting a partner who can be the loan guarantor -- and you want to do multifamily using other people's money -- where and how have you acquired the money necessary to pay all the inspectors that goes along with due diligence. It seems that for someone just starting out with little money to put down, that would be a big hurdle...especially if the due dillingence inspections finds something major enough to stop the deal or make it so buyer and seller cannot agree...Then, the new multifamily investor would need to find MORE money to do due diligence on the next multifamily property put under contract, with nothing to show from the first. So, how does the newbie multifamily investor not get into a debt hole right from the start with due dillienge inspections before sealing the deal?
Where did YOU get the cash for your first due diligence period??
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
The sponsor pays for it. If the deal closes then the sponsor is compensated from the money in the raise. If the deal falls through then of course you lose that money. That's part of the risk of this business.
But to be blunt about it, if you can't afford to even pay for due diligence then you should not be syndicating deals and handling other people's life savings. There is a reason why the banks require the sponsors to have a certain amount of net worth and liquidity because they want to know that you are willing and are able to step forward to temporarily fund with your own money if the property requires it. How will you do that if you barely got past the due diligence costs?
Rental Property Investor · Orlando & Submarkets · Member since 2019 · 49 posts · 15 votes
6y
@Alina Trigub thanks for the response, and great advice. I appreciate the reference to the book by Gene Trowbridge. The reason I threw this question out to the forum is I have not seen this question specifically addressed in many multifamily investing books I have read, including ones by David Lindahl, Brian Murray, Joe Fairless, etc. Nor was there a direct reference in a RE investing course I took. Many sources of education out there tout the "other people's money" strategy to multifamily investing. However, i may have missed it, but the topic of upfront costs and actual "skin in the game" money by the deal finder appears to be glossed over a bit in my research. Again, I appreciate the input and advice!
Rental Property Investor · Orlando & Submarkets · Member since 2019 · 49 posts · 15 votes
6y
@John Andrews thanks. The question I developed for this forum was based after reading numerous books specifically for multifamily real estate investing and after taking a 3 day boot camp by a leading RE investing company on multifamily properties. Many of these sources tout the possibilities of using fully OPM for deals, but the due diligence and other upfront costs are really not mentioned as directly as other concepts in the education. Great point about having a broker team with you. The key it appears is to have brokers take new multifamily investors seriously - that is they can close deals, eventhough they have no multifamily experience. Thus, it appears, the need for new multifamily investors to either have a track record closing other business deals or real estate deals outside of multifamily...and/or partner with a sponsor/mentor with the street cred to get the attention of the brokers...does this sound right?
Rental Property Investor · Morgantown, WV · Member since 2016 · 235 posts · 135 votes
6y
@Robert Carlson
Hi Robert, i am sure you got the information you need by now with all the posts. But this is the capital you will USUALLY need to save.
But, you can set up a deal any which way you want if there are agreements. You can ask the seller to to pay for these. Let them know that would be the only way the deal can get done as you don’t have the capital to fully complete the deal. You can increase the purchase price a little to get them to accept this. You can also ask your partner for the money. Give them a little more equity or let them know you will pay them back once cash flow starts coming in.
You have to think creatively. On one of my deals I increased the purchase price by 20k to make the seller comfortable with seller financing. I ended up putting no money down and my numbers still worked great! That property is cash flowing about 600 dollars a month right now. Get creative but make sure the numbers still work and you can figure out any situation.
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
6y
Robert,
That's a fair point. It also reinforces the necessity to work with either a mentor or an experienced syndicator while executing your first syndication to have someone experienced watch over your shoulder just in case.
@Alina Trigub thanks for the response, and great advice. I appreciate the reference to the book by Gene Trowbridge. The reason I threw this question out to the forum is I have not seen this question specifically addressed in many multifamily investing books I have read, including ones by David Lindahl, Brian Murray, Joe Fairless, etc. Nor was there a direct reference in a RE investing course I took. Many sources of education out there tout the "other people's money" strategy to multifamily investing. However, i may have missed it, but the topic of upfront costs and actual "skin in the game" money by the deal finder appears to be glossed over a bit in my research. Again, I appreciate the input and advice!
Rental Property Investor · Orlando & Submarkets · Member since 2019 · 49 posts · 15 votes
6y
@David Flores , thanks for the advice from your personal experience! Very helpful and shows how thinking outside the box can pay off. Congrats on your successful business and wish you luck in your future projects!
Boca Raton, FL · Member since 2014 · 23 posts · 10 votes
6y
@Robert Carlson everyone’s gotta start somewhere..developing relationships with brokers, lenders, investors, GCs, subs...anyone who may play a role in your investing career is a good place to start.
If you don’t have that track record yet, you’ll need lots of people who know, like and trust you..and know you’re well educated, hungry and hard working. There’s no silver bullet to break into this business. You’ll have to bear the risk financially at some point.
Street cred always helps... best of luck to you. It’s sounds like you’re on the right track. I’d just lean away from the whole OPM line to start.
Rental Property Investor · Orlando, FL · Member since 2017 · 207 posts · 125 votes
6y
@Robert Carlson I did not take the time to read all the other posts, (skimmed some) mostly because I am just going to tell you how I did it. I closed on two properties through syndication last year and have one more under contract now in the financing stage and another at the beginning of due diligence.
I used NONE of my own money for Earnest money deposits or up-front costs. What I did was networked with other like-minded investors here in the Orlando area. I go to several meetup a month. I speak with many people and find the people in the room who have the money to invest but maybe not the time or knowledge on how to do it. I then partner up with them. I provide the "sweat equity" on the front end by finding the deal, negotiating the deal, getting it under contract and starting the due diligence. They provide the up-front capital and we are the team that sponsors the deal.
So get out there and network and you would be surprised what you can do.
Rental Property Investor · Orlando & Submarkets · Member since 2019 · 49 posts · 15 votes
6y
@Shawn G. Congrats on your success, and it is really motivating to hear how your efforts in sweat equity paid off! I too am looking to invest in the Orlando area, as I visit often, have relatives in the area, and think it's hot market is far from over. Again, thanks for the advice and example of how it can be done!
Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
6y
Tagging @Shawn G. who is a active local (Orlando...works all of Florida) syndicator who has recently gone through this process. I’m sure he can share his experience
Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
6y
@Robert Carlson come to our meet up the first Saturday of each month. @Bernadeau C. started the meetup and @Shawn G. makes sure it gets posted on BP events each month.
We have a different topic each month. Great group of core members and several new folks each meeting. The culture of the group is very collaborative and supportive. Looking forward to meeting you at some point!