Closed on 250 apartments in Houston, Texas yesterday! 2 Lessons Learned...
I'm proud to say that my group closed on a 250 unit yesterday. It's the second deal I've syndicated and both of them have been over 150 units (first one was 168).
A couple syndication and multifamily lessons I've learned so far from these deals:
1. If you are not doing the property mgmt yourself, then have your local mgmt partner put their own money in the deal. This creates much more accountability and aligns the interests. I didn't do this on my first deal (mistake) but did it on this deal in Houston.
Bonus pts: if the local partner also brings in investors. That adds another layer of accountability and alignment of interests.
2. Yes, money will find good deals but you shouldn't wait for the deal to get the money. On my first deal I raised over $1M and had to do it after finding the deal. It was a...character-building experience :) I don't recommend that same experience to others. On my second deal I had already prepped most of my investors so it was much smoother. I still brought in new investors but the overall process is much better when you prep investors before you have a deal. Note: I don't actually receive money before I have a deal. I only speak to investors about a hypothetical deal (or past deals) and gauge their interest level in investing.
Bonus pts: How do you prep investors before you have a deal? Easy. Schedule a meeting with them and learn their financial goals and how they evaluate success with their investments. Then, talk to them a little bit about what you're doing. At the end of the conversation ask them "If I find something that meets your financial goals would you like me to share it with you?" I've never had anyone say no. Then, keep them updated as you look at properties and, when you have one, they are well aware of everything and more inclined to invest.
Bonus bonus pts: another way to do this is to create a fund where you actually do raise and have money wired before your deal. I haven't done this before but it's a natural evolution from raising money on a deal-by-deal basis.
For anyone who wants to raise money and do syndicated deals, I'm confident these two lessons I've learned will help you be successful.
Joe
@Colin Kwabi thanks so much for the congrats! And, yes, it was purchased in NW Houston - in the Klein School District.
@nathan
@Nathan Duncan thx a lot and will do!
@larry
@Larry K.yep, I used to live in NYC but after 10 years of living in the East Village and Brooklyn I was ready for a new lifestyle. Plus I have my 168 unit in Cincinnati and a large development opportunity I'm pursing. Plus...my girlfriend lives here :)
Originally posted by @Joe Fairless:
@Brent Thurnbefore the due diligence phase and before the offer is submitted, I sit down with my local mgmt partner who also has a renovation dept to discuss the vision and what we want to do with the property. We then conservatively estimate the cost for the work. If something changes during due diligence we update accordingly.
@Joe Fairless: Interesting, however I've always wondered how you go about estimating construction budgets when you are purchasing assets all over the country. I mean you're not able to have a union guy plunge a toilet for less than $400 in NYC.
I always figured estimating in multiple locations would be a nightmare.
@Brent Thurncorrect, that's why I use the local mgmt and renovation partner to give input on costs
@Joe Fairless Tremendous success, i look forward to listening to a few of your podcast. Subscribed!!
My simple question what was the overall time from point of contact to closing deal ? Also how many man hours would you guess you put in ? Just curious
@Joe
Great job!
I do have one question. Earlier you wrote that you ask the potential investors what their goals are and then in the compensation post you wrote that you get whatever is above their goals. If someone says they are looking for deals with 12%+ return and you have a deal with 17% return does that mean you will give them the 12% portion and you get the 5% or they will get the 17% or something in between? How does that part work?
Thank you Joe. Great advice. I also need to work on my 10sec elevator speech to generate interest in what I do.
Hi Joe,
Thanks for the inspiration. Can you provide an example or two of how to structure a deal with investors? Do you offer them shares in your real estate firm that pay dividends or repayment of their investment with a certain percentage of interest over a set number of years? I'm just not sure how to structure the investor side of the deal. Thanks!
Also @Joe Fairlessdo you have a complete break down of every step of a process like this on your end. I don't really care for knowing your personal stake in something like this. Just so i can learn and hopefully structure something like this in the future. I believe i have a network that i can work with but understanding some of the minute details so when i do make a proposal i have all bases covered. Or can direct me where i can find one ?
Congrats on your deal.
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- Real Estate Broker
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#5 Coronavirus Conversation Contributor
- Real Estate Broker
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@Joe Fairless, congrats on your newest acquisition, and best wishes for its future success!
@Ceasar Blackmanit took about 90 total days for this property - about 30 to go back an forth to get under contract and 60 days from the point we had it under contract to close.
I'd estimate it was about 4 hours a day when factoring in everything involved (finding property, negotiations, due diligence, raising money, financing, closing).
@Therese V.great question, if they are looking for a 12% return but I have a 17% return project then I will still show them the 17% return. My profits are already built into the projected return.
@James Roachsure, in your question you basically described both debt and equity investments.
Debt: investor gets a loan and is paid a fixed percentage.
Equity: investor has equity in the deal and shares in the profits.
For my deals, I do equity but also give investors a preferred return. And a preferred return is a certain percentage of the property's profits that is paid to the investor before anyone else is paid (besides outstanding loans and mortgage pmt).
@Joe Fairless Thanks very much for taking the time to answer my question. Your generosity of time and expertise are helping so many people pursue their dreams. Really appreciated.
This is real good stuff. I love gold nuggets
Originally posted by @Joe Fairless:
@Therese V.great question, if they are looking for a 12% return but I have a 17% return project then I will still show them the 17% return. My profits are already built into the projected return.
@James Roachsure, in your question you basically described both debt and equity investments.
Debt: investor gets a loan and is paid a fixed percentage.
Equity: investor has equity in the deal and shares in the profits.
For my deals, I do equity but also give investors a preferred return. And a preferred return is a certain percentage of the property's profits that is paid to the investor before anyone else is paid (besides outstanding loans and mortgage pmt).
Thank you for answering my question.
Great job on the deal!
@ruben
@Ruben Ramosit's my pleasure. Your comment made me smile because last night I was at the grocery store buying eggs and an elderly lady asked me if I was going to buy those "golden nuggets" - took me a second then finally realized she was calling the eggs the golden nuggets! :)
Congrats @Joe Fairless! Well done to say the least!
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Real Estate Agent NJ (#0897533)
- 862-208-2287
- http://www.ReiMeetupTampa.com
- Podcast Guest on Show #48
@darren
@Darren Sager thanks a lot. And, on a side note, I am working on building up my BP Cincinnati meetup as big as your NYC one - big shoes to fill!
Seriously @Joe Fairless we're at a loss not having you around anymore. Please let me know ahead of time when you might be back in town so we can get together. That or I might have to do a roadtrip to Ohio. Come see you and my buddy @Ben Leybovich.
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Real Estate Agent NJ (#0897533)
- 862-208-2287
- http://www.ReiMeetupTampa.com
- Podcast Guest on Show #48
Originally posted by @Darren Sager:
Seriously @Joe Fairless we're at a loss not having you around anymore. Please let me know ahead of time when you might be back in town so we can get together. That or I might have to do a roadtrip to Ohio. Come see you and my buddy @Ben Leybovich.
Wow - Joe, congrats!!!
And unless your name is Brandon and Turner, don't no one be coming to Ohio to see me :)
@Joe Fairless Awesome Deal!! Cincy Ohio...oh so many reasons to visit there!!
So much knowledge being spilled in this post...love it. A few more points if you haven't hit them, for myself and i'm sure other... Can you share how you came up with the $5800 per unit reno (what are you doing to the units?)? At what point would you have felt as if you were over-renovating, and what kinds of tenants are you attracting?
Any rules of thumbs or experience guidelines (systems) to follow when considering improving properties?
@Joe Fairless: Thanks for sharing the particulars of this deal. I'd love to hear how you addressed the following issues in your situation.
When I've been involved in deals similar to this in the past, raising funds was an....interesting experience. Some of the investors who looked at the deal with were very laid back when it came to the format of the offering; a fairly comprehensive property write-up, appraisals, comps etc and they were good.
Other investors wouldn't even look at the opportunity unless it was in a PPM (Private Placement Memorandum) with any possible SEC disclosures AND the PPM had to have been "blessed" by a securities attorney who had been personally anointed by the SEC.
Which format did you follow? And, how did you address SEC and accredited investor issues?
If anyone else would like to chime in on this, I'd love to hear your opinions.
Thanks in advance for your replies!
@Rob Green I had our attorney draft up a PPM and we only took accredited investors.
Wow! I copied & pasted all of your posts into a word document in order to take action on all of your recommendations. Looking forward to learning from you at tomorrow's BP meet up in Mason.
I have a few quick questions for you when you have a moment:
1) Do you have a business plan detailing your future goals as well as your past successes?
2) Is this something you use when presenting deals out to potential investors? Or do you have some sort of template you use to present out deals?
3) I am assuming that because of your reputation, finding investors for deals is a cake walk. But for your initial 168 unit complex, how did you go about finding and securing the 12 investors that provided the $1 million plus capital?
For the 3rd question, I know there is no cookie cutter way, but I was just curious to know if your recommendations above (regarding "get 1 person from each network to be interested in investing with you" and then name check) was what you did initially or if that is what you do now?
@Zachary Smith- that's right - maybe the Bengals and Giants will play in the Super Bowl this year and we'll go party together for it!...sigh...maybe...:)
Re: improving properties and coming up with what you should do, it all boils down to what will the market allow. So, specifically, what I do is look at where I want to take the property then work backwards to see what we have to do to get it to that point. And the "where I want to take the property" is tied to other properties achieving certain rental rates higher than what we are achieving. That gives me a goal and a proven biz model to follow.
So, our capital improvements were budgeted based on that strategy. As far as the specific renovations we're doing, we are upgrading the kitchens to put in stainless steel fridge, black microwaves, dishwashers, etc. Putting in nice blinds on the windows and faux wood flooring as well as upgraded lighting throughout.