First time with a syndication deal

Greg Moran · 2020-11-27T13:51:01-08:00

Investment Info: Large multi-family (5+ units) commercial investment investment in Augusta. Purchase price: $68,000 Contributors: Brian Briscoe, Heath Jones (11/12/2020) First syndication opportunity! Attended a webinar hosted by H Squared Capital who is helping 4 Oaks Capital fund a syndicated deal for a large multi-family complex. Was accepted as a non-accredited investor, eligible to participate in this 506(b) opportunity. What made you interested in investing in this type of deal? Looking to expand my portfolio into larger (yet still passive) deals. How did you find this deal and how did you negotiate it? Networking on webinars, and zoom led to my connection with Heath and Hutch from H Squared Capital. How did you finance this deal? Self Directed ROTH IRA How did you add value to the deal? Just one of the syndicators who can provide captial What was the outcome? still right at the beginning! Lessons learned? Challenges? We'll see

Aubrey Tatarowicz

Investor · Brooklyn, NY · Member since 2019 · 57 posts · 51 votes

5y

Exciting! Thanks for sharing.

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Greg MoranPro Member

OP

Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes

5y

Now the rubber meets the road! I have the documentation in hand, and I'd love to get a legal review. Unfortunately, my local NCR resources aren't able to help. Are there any Real Estate Lawyers, Attorneys, etc on here that can review a Private Placement Memorandum and Company Agreement? The deal is in Augusta, GA, so local to the state of Georgia is preferred. Thanks in advance!!

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Taylor L.

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

5y

Originally posted by @Greg Moran:

Now the rubber meets the road! I have the documentation in hand, and I'd love to get a legal review. Unfortunately, my local NCR resources aren't able to help. Are there any Real Estate Lawyers, Attorneys, etc on here that can review a Private Placement Memorandum and Company Agreement? The deal is in Augusta, GA, so local to the state of Georgia is preferred. Thanks in advance!!

@Mauricio Rauld

@Kim Lisa Taylor

Couple great syndication attorneys to reach out to :)

1 Reply

Greg MoranPro Member

OP

Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes

5y

I am excited because the deal closed yesterday! I got a call from @Heath Jones and @Hutch from H Squared Capital. They set the bar pretty high for my first syndication experience.

1 Reply

AJ ShepardPro Member

Real Estate Syndicator · Portland, OR · Member since 2014 · 453 posts · 312 votes

5y

@Greg Moran

Thanks for sharing your experience. Having gone through the process, is there anything you could recommend to other investors when looking for these types of deals or when going through the analyzing of the PPM?

1 Reply

Charles LeMaire

Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes

5y

@Greg Moran - On first read, I thought you were sponsoring a RE syndication of 5 units. My eyes crossed. I have to admit I am confused. How many units are there really? Is this is your first investment as a passive in a MF RE syndication? Or are you really a sponsor in the deal? Given I don't follow exactly what you have done, I make the following comment somewhat recklessly: 1. It is a problem to invest IRA money in a deal in which you are a sponsor (GP). 2. Putting IRA money into a leveraged investment puts you at risk of paying UBIT/UDFI taxes. Consider a Solo-401K asap. 3. The cost of syndication (attorney's fees) makes small deals poor economic choices. 4. I wonder about management; we always put professional managers on properties we invest in. Just my $0.02 cents and thoughts.

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Greg MoranPro Member

OP

Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes

5y

Originally posted by @AJ Shepard:

@Greg Moran

Thanks for sharing your experience. Having gone through the process, is there anything you could recommend to other investors when looking for these types of deals or when going through the analyzing of the PPM?

Great idea AJ, I can say that I'm not an expert, but I learned enough and build the necessary relationships to take action on this goal. I can break it down into 4 parts:

1. Have a goal for 1+ new stream of passive income per year. I've been adding to my active (W-2) income each year since 2016. In 2020 I wanted to expand from single family deals into multi-family, and that goal kept me focused.

2. In order to do so, I needed to educate myself on the difference between single family and commercial multifamily. This is a perpetual task, so at a certain point I had to know when enough is enough. There are many days/weeks of research in the list below, so I'm happy to dive into more details, if you have a specific question. Some areas I learned about were:

• SEC regulations of 506(b) investments for non-accredited investors
• Entity investing in an LLC using a self directed Roth IRA, and the ways to remain tax-free
• How to read a Private Placement Memorandum
• Conducting due diligence on a Sponsor company, Capital investment firm,
• Conducting Market Research into new regions for investment locations.

3. Some of the above education can come from meeting the right people. It was important to spend time getting to know the folks in the industry, and forming a relationship with folks you trust. LinkedIn and Bigger Pockets make that super easy when there are so many webinars and zoom calls these days! I found @Heath Jones and @Hutch from H Squared Capital.

4. All the above steps built the confidence to take action! All the research and networking is useless if you never actually pull the trigger. At a certain point, you have to be ok knowing that you have done everything you can to mitigate the risk of a sub-optimal investment.

Hope that helps!

1 Reply

Greg MoranPro Member

OP

Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes

5y

Originally posted by @Charles LeMaire:

@Greg Moran - On first read, I thought you were sponsoring a RE syndication of 5 units. My eyes crossed. I have to admit I am confused. How many units are there really? Is this is your first investment as a passive in a MF RE syndication? Or are you really a sponsor in the deal? Given I don't follow exactly what you have done, I make the following comment somewhat recklessly: 1. It is a problem to invest IRA money in a deal in which you are a sponsor (GP). 2. Putting IRA money into a leveraged investment puts you at risk of paying UBIT/UDFI taxes. Consider a Solo-401K asap. 3. The cost of syndication (attorney's fees) makes small deals poor economic choices. 4. I wonder about management; we always put professional managers on properties we invest in. Just my $0.02 cents and thoughts.

Howdy Charles,

Thanks for the clarifications. Yes, my first syndicated investment deal. Magnolia Park apartments is a 167 Unit apartment complex. I am an investor/LP in a syndicated apartment complex deal (not the sponsor).

1. I understand the restriction of "self dealing" using my personal IRA funds for a deal where I would be the partner. That's a big No-go!

2. I researched the unrelated business income tax and determined that my investment in this LLC and the dividends it earns are clear of UBIT.

3. The "5+ Units" category must have been misleading, but it was the largest choice from the drop down menu on the BiggerPockets webform. This was no small deal. This total capital raise was $3.975M.

4. The Sponsor already has other properties under management just up the road from this property. That was a big selling point in this deal because they are able to leverage the experience of a known management company.

I appreciate your thoughts!

1 Reply

Charles LeMaire

Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes

5y

@Greg Moran -- UBIT/UDFI: Are you investing with an IRA? Does the property have a mortgage? Will the property be sold before the mortgage is paid off? If YES to all, I think you and UDFI will become acquainted in the future. Be aware... Good Luck with the deal!

1 Reply

Greg MoranPro Member

OP

Investor · Washington, DC · Member since 2017 · 136 posts · 59 votes

5y

Originally posted by @Charles LeMaire:

@Greg Moran -- UBIT/UDFI: Are you investing with an IRA? Does the property have a mortgage? Will the property be sold before the mortgage is paid off? If YES to all, I think you and UDFI will become acquainted in the future. Be aware... Good Luck with the deal!

Good suggestions Thanks @Charles! I did dig further and you're right. The LLC will get us a K-1 Tax form which shows the UBTI [unrelated business taxable income] associated with this deal. I asked for the anticipated tax burden for my overall investment and they gave me their 6-year projections. Now I know to keep some reserve capital in my SDIRA to cover the moderate near term income, as well as the larger gains when the property is liquidated.

Also, I hope you're doing well and staying warm through this Extreme winter weather! I have family in Plano/Richardson and they're telling me the rolling blackouts are done now, but they're rationing water.

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Charles LeMaire

Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes

5y

Hey @Greg Moran, It is usually the UDFI that gets R.E investors as there is a mortgage. If it is a buy and hold, you just pay down the mortgage to avoid any extra. If it is not a large investment, the exemptions may save you. If it is bigger and a short hold (3 to 5 yrs), look into a Solo-401K. There is also a Blocker LLC option. Good Luck.

Yeah, folks are laughing at TX's electric issues, I guess we deserve it. It was cold on the Sun 14th, lost power overnight, noticed it at 4am. Moved to a series of hotels thinking it would clear. Power out Monday (15th), Tuesday (16th), back up Wednesday (17th). But water frozen. We enjoyed a hotel until Friday (19th), returning that day. The weather changes in TX; we stayed above freezing all night Sat (20th), not a speck of snow left!

We got to -3, which I believe is the lowest in all of recorded history. In 40 years, I don't recall lower than +10. So I can't fault failure when we go that far below the expected range. We don't build our houses to handle that kind of weather! We don't even require tornado shelter!

1 Reply

David Lee

Portland, OR · Member since 2017 · 17 posts · 8 votes

4y

Whoa! Man am I glad I found this. I’m setting up my marketing campaign to buy MFH in Augusta GA now.

I spent several years as a Wholesaller and land flipper because I felt it would be good to learn to create deal flow and learn what I’m doing. I focused on the Houston market mainly whereas that’s where I found my first consistent success. Now I’m transitioning to buying.

Based on my review of data Augusta GA is a good buy and hold location even in the current climate. Thank you all for contributing. I will be looking to see where I can help you all in return. Currently I’m building my team locally. Any recommendations on realtors and PMs would be appreciated. Though I get it if you don’t want to give yours up. Lol

Thanks again!

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Phillip Vera

Rental Property Investor · Augusta, GA · Member since 2019 · 129 posts · 112 votes

4y

@David Lee I'd be happy to connect and share some great realtors and a PM. I'm under contract for a 35-unit in the market and purchased a 16-unit in the area earlier this year. Looking to continue scaling and find several off-market deals. Let me know if I can help in any way.

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David Lee

Portland, OR · Member since 2017 · 17 posts · 8 votes

4y

@Phillip Vera
Thats awesome. Thanks for the inspo. Were you the sponsor? Did you syndicate or take the deal down on your own? I would love to chat and collaborate. If there is anything I can do to offer value let me know. Also, feel free to DM me if you would prefer.

Cheers
David

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David Lee

Portland, OR · Member since 2017 · 17 posts · 8 votes

4y

This….

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First time with a syndication deal

First time with a syndication deal

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