Starting out in Multifamily Syndications
So my brother/partner, @Chris Levarek, and I often get asked how can someone get into large multifamily investing?
They love the better economies of scale, they love the tax benefits, they love the idea of not having to be an expert on it all but just being able to focus and excel in one area, while also working on a team and contributing toward a unified goal.
But.... How do I get started in syndications for the purchase of 50, 100, 200, plus unit properties?
So after a long talk we realized that there are 3 common ways people get started... and become successful, and we've actually used 2 of these methods... somewhat effectively.
The three most common ways to get into large multifamily investing and apartment syndications.
1. Pay for a mentorship - Pros - get access to their network, professionals, and advice. Cons - Often a large deposit is needed, no guarantees on deals though - still have to do the work
2. Go it alone, self educate, learn through trial and error. Pros - Bigger returns possible, lessons learned are likely learned from making mistakes, and therefore will be remembered better. Cons - Higher risk of mistakes, failure, takes even more work, and slower to scale
3. Partner with an experienced team on an active deal, either as an active investor (General Partner) or a passive investor (Limited Partner). Pros - learn through their deal, earn returns while you learn, see everything develop in real time. Cons - still have to do your due diligence on the team, the market and the asset itself (but above all you MUST know and trust the team - cannot say enough about this - the numbers and market don't mean squat if the team cannot execute).
We actually started with #2 in October 2018, buying small residential multifamily deals - duplexes and quads. Then in Jan 2019 we completed (stumbled through0 our first syndication on our own. We quickly realized that partnering was going to help us scale much much faster, and allow us the benefit to learn from their experience, as well as pick an choose what we liked from their processes/system of acquiring a large property and executing such as massive business plan. So when a larger and more experienced syndicator saw what we were doing and asked us to partner on their next deal... well it just made sense. And now we're closing on a 220 unit, with another 2 lined up behind it.
Hope that helps.
@Ashton Levarek Thanks for posting this! I’m looking at options 1 and 3 right now. As a newbie who wants to get their hands dirty and add value, what tasks can an inexperienced person do as a co-sponsor or GP in their first few deals with a larger company?
Originally posted by @Ashton Levarek:So my brother/partner, @Chris Levarek, and I often get asked how can someone get into large multifamily investing?
They love the better economies of scale, they love the tax benefits, they love the idea of not having to be an expert on it all but just being able to focus and excel in one area, while also working on a team and contributing toward a unified goal.
But.... How do I get started in syndications for the purchase of 50, 100, 200, plus unit properties?
So after a long talk we realized that there are 3 common ways people get started... and become successful, and we've actually used 2 of these methods... somewhat effectively.
The three most common ways to get into large multifamily investing and apartment syndications.
1. Pay for a mentorship - Pros - get access to their network, professionals, and advice. Cons - Often a large deposit is needed, no guarantees on deals though - still have to do the work
2. Go it alone, self educate, learn through trial and error. Pros - Bigger returns possible, lessons learned are likely learned from making mistakes, and therefore will be remembered better. Cons - Higher risk of mistakes, failure, takes even more work, and slower to scale
3. Partner with an experienced team on an active deal, either as an active investor (General Partner) or a passive investor (Limited Partner). Pros - learn through their deal, earn returns while you learn, see everything develop in real time. Cons - still have to do your due diligence on the team, the market and the asset itself (but above all you MUST know and trust the team - cannot say enough about this - the numbers and market don't mean squat if the team cannot execute).
We actually started with #2 in October 2018, buying small residential multifamily deals - duplexes and quads. Then in Jan 2019 we completed (stumbled through0 our first syndication on our own. We quickly realized that partnering was going to help us scale much much faster, and allow us the benefit to learn from their experience, as well as pick an choose what we liked from their processes/system of acquiring a large property and executing such as massive business plan. So when a larger and more experienced syndicator saw what we were doing and asked us to partner on their next deal... well it just made sense. And now we're closing on a 220 unit, with another 2 lined up behind it.
Hope that helps.
Thanks for sharing, Ashton! Not sure if you can answer this, which it's fine if you can't, but I am curious about legal documentation when structuring the deal with GPs and LPs. Did you explain to a lawyer what you wanted to accomplish he was able to put together a LLC and other legal documents to spell out rules, responsibilities, earnings allocations, etc? Is there a set of documents that I would need to become familiar with if I wanted to start my own syndication?
Not asking for anything super detailed, but rather a starting point so I can do my own research and work. Any feedback would be greatly appreciated!
Hey @Matthew Cooper
So obviously bringing capital to any deal will be one of the easiest way into a deal/partnership. That is one of the ways we were able to partner with another syndicator, by bringing capital to the deal. That and our goals/visions/personalities aligned.
But aside from raising capital or bringing your own capital, one of the easiest (as well as one of the most impactful) ways someone can get started is by creating a brand, sharing what you know, and telling everyone what you are doing. This makes you extremely valuable both to your business, if starting at option 2 (because networking is the most important part to syndicating), but even more so if you decide to work with a mentor or partner with other operators.
This works because you create a network of people to work with, ask advice, get referrals, find other professionals (CPAs, PMs, Contractors, Attorneys, Etc) but you also become the subject matter expert in your circle - which makes raising capital much much easier. And if you have a large network you become indispensable.... even as a newbie in a mentorship.
Other ways to increase your value (get your hands dirty) as a syndicator is to find your niche. Find something in the business that you are extremely good/passionate about and market that. Whether that is analyzing properties, markets, creating content, teaching, podcasting, you-tubing, tracking financials, managing rehabs, building and managing a team, etc. Mentoring/partnering with someone that adds value to your business becomes a no brainer at that point.
Hope that helps.
Hey @John Lyszczyk
So one of the first action steps regarding this would be to find good syndication attorney and set up a meeting. You don't know what you don't know of course so a way around all the fees for free information try and find/attend some meetups that host a syndication attorney as a guest speaker. You'll be able to ask all the newbie questions without racking up an enormous bill. @Yonah Weiss just hosted a great virtual meetup and the presenter had an awesome presentation on syndication requirements, stipulations to raising money, etc. (We actually run a meetup of our own that does much the same thing - if interested PM for details)
But that said, there are about 101 ways to structure a syndication. Each lawyer will likely have one they prefer and recommend which is why it'll be beneficial to hear more than one take on that subject. For example for our first syndication we actually completed a 504 offering because that was what our attorney recommended.... we learned a lot on that first one. (The most common offerings are 506b and 506c.) @Chris Levarek - care to weigh in on this one?
Hope that helps.
Originally posted by @Ashton Levarek:Hey @John Lyszczyk
So one of the first action steps regarding this would be to find good syndication attorney and set up a meeting. You don't know what you don't know of course so a way around all the fees for free information try and find/attend some meetups that host a syndication attorney as a guest speaker. You'll be able to ask all the newbie questions without racking up an enormous bill. @Yonah Weiss just hosted a great virtual meetup and the presenter had an awesome presentation on syndication requirements, stipulations to raising money, etc. (We actually run a meetup of our own that does much the same thing - if interested PM for details)
But that said, there are about 101 ways to structure a syndication. Each lawyer will likely have one they prefer and recommend which is why it'll be beneficial to hear more than one take on that subject. For example for our first syndication we actually completed a 504 offering because that was what our attorney recommended.... we learned a lot on that first one. (The most common offerings are 506b and 506c.) @Chris Levarek - care to weigh in on this one?
Hope that helps.
This was very helpful. I will send you a PM for more info on Syndication meetups. I'd like to attend if they are virtual, but would travel if necessary. Thank you!
Congrats @Ashton Levarek for pulling the trigger and not getting stuck in the analysis paralysis mode.
These are all great options to start out for those who want to manage multifamily properties full-time eventually.
Others may prefer to take a passive seat while producing more investing dollars with their primary job because the opportunity cost is too great to leave it.
All the best!
Originally posted by @Ashton Levarek:Hey @John Lyszczyk
So one of the first action steps regarding this would be to find good syndication attorney and set up a meeting. You don't know what you don't know of course so a way around all the fees for free information try and find/attend some meetups that host a syndication attorney as a guest speaker. You'll be able to ask all the newbie questions without racking up an enormous bill. @Yonah Weiss just hosted a great virtual meetup and the presenter had an awesome presentation on syndication requirements, stipulations to raising money, etc. (We actually run a meetup of our own that does much the same thing - if interested PM for details)
But that said, there are about 101 ways to structure a syndication. Each lawyer will likely have one they prefer and recommend which is why it'll be beneficial to hear more than one take on that subject. For example for our first syndication we actually completed a 504 offering because that was what our attorney recommended.... we learned a lot on that first one. (The most common offerings are 506b and 506c.) @Chris Levarek - care to weigh in on this one?
Hope that helps.
Thanks for the shoutout Ashton. That was a great presentation.
Thanks @Andrew Hogan
Haha I've been pulling the trigger for the last 21 years my friend. Literally. Analysis paralysis, never heard of it... could go on all day about this, about fear and why we are afraid... but I won't. Short and sweet, it's all in your head. If you have a goal - Commit, and take action daily. There is no such thing as analysis paralysis, merely a lack of knowledge and fear. And fear is merely a mental projection of an unknown future that we justify through our admittance of a lack of knowledge. And knowledge is subjective, or at least the idea of how much you need to know.
You know how you beat that - take action. Commit to your goal and take action. Then you will truly learn.
But to your second point - that is exactly what option 3 is, partnering as a limited partner, i.e. passive investor, on a syndication. But for someone looking to eventually get into running a syndication themselves developing a good relationship with the sponsor can often allow you a peak behind the current if you will.
In fact that is one of the things we've been doing with some of our closer more involved passive investors, holding meetings each month to explain the inner workings of the whole syndication process. Win win.
After all, "If you want to go quickly go alone, if you want to go far, go together" - African Proverb
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Congrats on getting started. There are a ton of different ways to get there, but the most important factor is that you need to get educated and take action! I took a completely different path from any of the options you mentioned and know a lot of others who took various routes, but they all had the same burning desire and took action on it.
@John Lyszczyk You are correct. The establishment of the legal documents will take you verbalizing your intentions and business plan to the securities attorney. Here is how the process works :
Start with a free intro call, usually available with an attorney, and layout what you plan on doing. They will show the weaknesses or strengths and provide inputs. If you feel they are a good candidate, you then proceed on structuring the documents together.
For about 3-4 weeks, the attorney will work with you to customize their existing template to fit your needs. If you want a 30/70 split, they will add it. If you want a specific affiliate named as partner, they will add it. If you want a butterfly museum as an acquisition fee they will add it, maybe...
As @Ashton Levarek, these can be customized and highly detailed. 40-60 pages of a PPM are not uncommon, hence why it takes 3-4 weeks to deliver it. ...And of course then you must reread it yourself to ensure you are not missing anything...
The second go around will be easier as you have your own template in place from the first unless the structure changes dramatically.
My recommendation is either invest passively on a deal to gain access to the documents and see firsthand how they work and the process unfolds. All documents even those you will not sign should be presented to the investor as Exhibits at signing, so can really show you what these look like.
Alternatively, you can actively run through a deal and allow yourself the extra time with a qualified securities attorney to learn, gain feedback and review the syndication agreement, operating agreement and PPM.
Third, you can join a mentorship that will share such documents from previous deals or have an amazing partner/friend/mentor who will show you one.
Interesting how those three recommendations seem to align with the recommended steps from @Ashton Levarek how one gets into multifamily ;) It's almost like we are brothers.
Originally posted by @Ashton Levarek:Thanks @Andrew Hogan
Haha I've been pulling the trigger for the last 21 years my friend. Literally. Analysis paralysis, never heard of it... could go on all day about this, about fear and why we are afraid... but I won't. Short and sweet, it's all in your head. If you have a goal - Commit, and take action daily. There is no such thing as analysis paralysis, merely a lack of knowledge and fear. And fear is merely a mental projection of an unknown future that we justify through our admittance of a lack of knowledge. And knowledge is subjective, or at least the idea of how much you need to know.
You know how you beat that - take action. Commit to your goal and take action. Then you will truly learn.
But to your second point - that is exactly what option 3 is, partnering as a limited partner, i.e. passive investor, on a syndication. But for someone looking to eventually get into running a syndication themselves developing a good relationship with the sponsor can often allow you a peak behind the current if you will.
In fact that is one of the things we've been doing with some of our closer more involved passive investors, holding meetings each month to explain the inner workings of the whole syndication process. Win win.
After all, "If you want to go quickly go alone, if you want to go far, go together" - African Proverb
Love the "literally" comment :)
This is definitely a team sport. Partnering with the right team will make all the difference in the world. Most people get too caught on underwriting every specific nail in the property rather than the operator's team and track record.
Originally posted by @Chris Levarek:@John Lyszczyk You are correct. The establishment of the legal documents will take you verbalizing your intentions and business plan to the securities attorney. Here is how the process works :
Start with a free intro call, usually available with an attorney, and layout what you plan on doing. They will show the weaknesses or strengths and provide inputs. If you feel they are a good candidate, you then proceed on structuring the documents together.
For about 3-4 weeks, the attorney will work with you to customize their existing template to fit your needs. If you want a 30/70 split, they will add it. If you want a specific affiliate named as partner, they will add it. If you want a butterfly museum as an acquisition fee they will add it, maybe...
As @Ashton Levarek, these can be customized and highly detailed. 40-60 pages of a PPM are not uncommon, hence why it takes 3-4 weeks to deliver it. ...And of course then you must reread it yourself to ensure you are not missing anything...
The second go around will be easier as you have your own template in place from the first unless the structure changes dramatically.
My recommendation is either invest passively on a deal to gain access to the documents and see firsthand how they work and the process unfolds. All documents even those you will not sign should be presented to the investor as Exhibits at signing, so can really show you what these look like.
Alternatively, you can actively run through a deal and allow yourself the extra time with a qualified securities attorney to learn, gain feedback and review the syndication agreement, operating agreement and PPM.
Third, you can join a mentorship that will share such documents from previous deals or have an amazing partner/friend/mentor who will show you one.
Interesting how those three recommendations seem to align with the recommended steps from @Ashton Levarek how one gets into multifamily ;) It's almost like we are brothers.
Thank you for the help! I'm jotting down notes and circled "write in butterfly museum" lol
This gives me a clearer picture of what my next steps are. Sent you a PM. Once again, thank you for your feedback! It's greatly appreciated!
@John Lyszczyk Glad we all enjoy a bit of humor on these forums :)
@Ashton Levarek congrats on the success. I thought of option 2 - go it on your own - for years, but learned that following others’ proven models for success expedites the process that otherwise only experience can provide. I will soon join a network and partner with others as I start in multifamily.
Thanks for sharing your experiences.
Rodney
Hey Rodney - I actually have a couple partners down your way that are just getting into syndications. They've been working on other real estate strategies up till now and have been fairly successful but are now growing the business to do multifamily as well. If you like perhaps I could link you guys up.
Best of luck.
Respectfully Ashton
@Ashton Levarek yes I would love that! Will dm you
@Ashton Levarek Thanks for the advice! Will definitely be creating a brand in the future👍