If I'm trying to purchase a specific commercial property, I've seen that one method of raising funds could be a syndicate. My questions are...
1. Since I need a specific property, isn't it likely that someone else would buy it by the time I can raise the funds? Especially since I've never done this before?
2. What do I give the investors in return? Do I just give them interest like it's a loan? Or do they share in the profits as well?
3. Do they actually get any ownership of the company that owns the property? I would hope not.
4. How is their investment secured? Especially if there is any real bank loan involved. Obviously I can't secure both the bank loan and the syndicate investors with the same property. Do they have any guarantee at all?
Not too much. And not if I don't have to. I suppose it all comes down to how much cash did I put in and how much am I getting. And also how much of my time do I have to spend managing/worrying about the place.
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
7y
@Patrick Philip well give it a go and see what you can raise.
If you are syndicating a deal, the normal process is you will get debt (mortgage) from the bank and the down money, closing costs, working capital, capex money, etc (Equity) will come from a group of investors.
Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
7y
Hi Patrick,
It depends on the type of investor. Debt investors exist but, you will likely need to provide them with equity in the deal, especially since you will be dealing with family and friends at first and smaller passive investments. For example, you can offer them a preferred return on their investment plus a 50/50 to 70/30 (them/you) profit split.
As @Brian Adams said, a small percentage of something is better than complete ownership of nothing.
If you don't like the idea of giving up a chunk of the deal, I would consider a different investment strategy. Investors will likely be turned off by the idea of investing, receiving an interest rate, and then receiving all of their money back while you hold onto the deal. Plus, it has to be a good enough deal that you can refinance out the entire down payment.
Attorney · Miami, FL · Member since 2017 · 108 posts · 113 votes
7y
It sounds like you are chasing an impossible deal.
If you dont want to give equity and sell debt only, then that is what banks are for. You get the down payment, finance the rest at a 5-6% rate, own 100% and go forward. Simple.
But if you're looking for private investors to match the banks (i.e.- no equity and cheap money) then that is not going to happen. Investors want double digit returns. They aren't interested in helping you build a real estate portfolio. For less hassle and virtually no risk, they can throw their money in any random mutual fund and grab 10-12%.
Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
7y
@Patrick Philip it's time to study real estate finance and learn how it works IF you want to roll with the big dogs. For starters try "Maverick Real Estate Finance." It's a great primer on several aspects of funding big deals. Best!
It sounds like you are chasing an impossible deal.
If you dont want to give equity and sell debt only, then that is what banks are for. You get the down payment, finance the rest at a 5-6% rate, own 100% and go forward. Simple.
But if you're looking for private investors to match the banks (i.e.- no equity and cheap money) then that is not going to happen. Investors want double digit returns. They aren't interested in helping you build a real estate portfolio. For less hassle and virtually no risk, they can throw their money in any random mutual fund and grab 10-12%.
Getting the down payment is the hard part. I was only planning to raise down payment money from private investors. Which is another reason I think giving away 70% of the profits for just the 25% down payment is unreasonable.