Milbridge , ME · Member since 2018 · 11 posts · 3 votes
I'm really interested in syndicating a rental property deal. I'm looking for somebody who has done this successfully, and somebody who was not so successful with it. What did you do right? What did you do wrong? What are some tips you would give to somebody preparing to syndicate a deal for the first time? How did you structure your deal? And any other important information you have about syndication. Are there any books anybody would recommend that can prepare somebody to structure a syndication deal?
As for deals that I have done and what I did wrong:
1. Talked about the deal too early. I sent investors preliminary numbers based on the initial walk through. I would wait until you at least have reviewed all the DD documents, but better yet would be to wait until you have walked 100% of the units.
2. Didn't have lender financing ready from the start
3. Trusted that all my close investors would invest and invest the dollar amount that I expected.
4. Did not convey the opportunity properly. On one of my deals everything is projected and a business plan is in place, but one of my investors expects different performance than what is projected. This only means one thing to me - I did not clearly communicate with the investor what the expectation of the property would be. Even though you may give them everything in writing, you should also have a clear conversation, so they understand the details.
What went right: Everything else
Some tips that I would give: Be prepared. Make sure you are experienced and understand the asset class that you will be purchasing. Have a detailed business plan and conservative analysis of the asset. Also, be very open to your investors about the risks and expectations for the property - communication up front and throughout the project is critical! Be conservative - under promise and over deliver. It is easy to get optimistic. The broker is telling you how awesome the deal is and you want to get one under your belt, so you convince yourself that the market will keep increasing in value at it's current speed.
Structure: 70/30 with 8% preferred. 2% asset management and 2% acquisition fee
Books: "It's a whole New Business" Gene Trowbridge
"Principals of Real Estate Syndication" Samuel Freshman
@Joshua Goston its kind of hard to answer your question without knowing what kind of deal you're looking to put together, as structure differs depending on the deal. That being said, some general tips (that come from some assumptions I've made based off of your original post):
1. When syndicating a deal, you've now turned it in to security. Talk to securities attorney. Best piece of advise given all the legal implications if you do things incorrectly and given your level of understanding of syndication in general.
2. I'm not sure what type of deal you're looking to put together, but by your wording "a rental property deal" I'm guessing it's SFH or small MFH. If that is in fact the case, consider another alternative. The legal consultations, PPM/subscription agreement, etc. will cost you thousands upon thousands of dollars alone, which is why syndication is typically used for larger deals that can support the cost.
3. If I'm wrong and you are putting a larger deal together (commercial MF, self-storage, mobile home parks, retail space, etc.) or you still want to look into syndicating regardless, @Kim Lisa Taylor may be able to help you out.
As for deals that I have done and what I did wrong:
1. Talked about the deal too early. I sent investors preliminary numbers based on the initial walk through. I would wait until you at least have reviewed all the DD documents, but better yet would be to wait until you have walked 100% of the units.
2. Didn't have lender financing ready from the start
3. Trusted that all my close investors would invest and invest the dollar amount that I expected.
4. Did not convey the opportunity properly. On one of my deals everything is projected and a business plan is in place, but one of my investors expects different performance than what is projected. This only means one thing to me - I did not clearly communicate with the investor what the expectation of the property would be. Even though you may give them everything in writing, you should also have a clear conversation, so they understand the details.
What went right: Everything else
Some tips that I would give: Be prepared. Make sure you are experienced and understand the asset class that you will be purchasing. Have a detailed business plan and conservative analysis of the asset. Also, be very open to your investors about the risks and expectations for the property - communication up front and throughout the project is critical! Be conservative - under promise and over deliver. It is easy to get optimistic. The broker is telling you how awesome the deal is and you want to get one under your belt, so you convince yourself that the market will keep increasing in value at it's current speed.
Structure: 70/30 with 8% preferred. 2% asset management and 2% acquisition fee
Books: "It's a whole New Business" Gene Trowbridge
"Principals of Real Estate Syndication" Samuel Freshman
As mentioned by others, speaking with an experienced syndication attorney is your best bet. @Kim Lisa Taylor is a great attorney and should be able to answer your questions about syndication structure and etc.