Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
I would like to hear from all of the real estate investors with syndication experience. What was your biggest lesson learned in closing your first REI syndication deal. Thanks for your participation!
Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
5y
@Evan Polaski
Thanks for the response Evan. I think there is value in both LP’s and the sponsors experiences. I want everyone to share the knowledge gained from crossing the finish line.
@Nick B. On your very first deal please share some basic details to add value to this thread. I’m interested to here how you got involved.
The very first deal was indeed a value-add. It was supposed to cash flow almost nothing in the first year, then get 90% of the original equity out on refinance, and then cash flow 8-10% annually for 5 years and deliver 100% ROI upon sale.
In reality, it got refinance with only 50% of the original equity, then cash flowed 3-4% but when it got sold in 4 years, the overall ROI was a bit over 200%.
Homerun? Yes. But never close to the original projections. Rent growth was higher but so were expenses. The biggest contributing factor was cap rate compression and thus much higher sale price.
Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes
5y
I've been writing about my first syndication experience with @Four Oaks Capital and @H Squared Capital on my Deals list: https://www.biggerpockets.com/...
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
5y
The big lessons I learned on my first co-sponsored project was to always over capitalize the deal with large cash reserves - more than required by the lender and especially if a large renovation is part of the business plan.
I would also echo @Nick B. 's comment on proforma accuracy, especially on value add deals. Value add deals have a high standard deviation variance in performance and cashflow. The potential for cash flow can be huge but it usually takes time to get there. In today's market, compressing cap rates have made it so even if the execution isn't great a sponsor can still deliver strong IRR's - that may not be the case in different market conditions.
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
5y
@Shannon Hogan @Dan Handford has a great podcast series that interviews people specifically about their multifamily acquisitions. It’s a great place to learn about syndication deals
Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
5y
@Greg Moran thanks! If you don’t mind contributing to this thread and sharing with us your biggest lesson from your first deal that made you a better and wiser investor
3rd party property managers need to be replaceable. Giving them a piece of the GP does not guarantee performance and actually misaligns incentives.
@Taylor L., can you explain the misaligned interest part by giving PM's a part of the GP? I had not done this so far, but have heard others recommend it.
Investor · Seattle, WA · Member since 2019 · 139 posts · 54 votes
5y
@Nick B. Hi Nick, did all LPs and GPs put together funds and purchase the property in all cash? Can you please tell me how many investors in your first deal and what were the splits upon the agreement?
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@Christopher B. Not all property managers are good. When you make one a part of the GP, and they aren’t performing, it can be challenging to right the ship, since the manager is generating profit from the property.
I would not argue it is a misalignment of interests, per se (that would imply all sponsors that use in-house management do not have the LPs interests in mind), but particularly on early deals where you have a limited relationship with the manager, it can pose an issue.
@Desmond A Dowdell LP = Limited Partner GP = General Partner