First Syndication Complete! - 64 units in Colorado Springs

First Syndication Complete! - 64 units in Colorado Springs

Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes

I'm thrilled to share that I closed on my first real estate syndication deal today! I wanted to share this with the community to hopefully encourage others out there that larger-scale investing is possible without expensive courses or prior knowledge, it just requires making a goal and then taking consistent, persistent action with that goal in mind!

I stumbled on BP 13 months ago, listened to Episode #238 with "Swanny" (still one of my all-time favorite episodes), and was instantly hooked on real estate. I wasn't sure which niche I wanted to pursue, but decided to pull out some equity of our primary residence, then bought a student rental in Greeley last October as a start.

In December I put an atypical duplex under contract, but had significant issues with the financing end of the deal. After getting input from several folks here on BP, I ended up canceling the contract. At the same time I started to narrow my learning focus into multi-family, through content produced by BP, Grant Cardone,  @Michael Blank, and @Gino Barbaro

In February I started reaching out to local brokers and building relationships, while also talking to several folks about partnering together if a deal could be found. In April, after evaluating over 40 deals, I finally identified a 64 unit complex in Colorado Springs as an attractive target. This property was built in the late 60's, had good bones and a new roof and pool, but was still owned by the original builder, and had been mismanaged for several years. Rents are 10-15% below market, and there are a number of straight forward exterior items (signage, overgrown landscaping, new paint) that we plan to address as part of our turnaround strategy. I ended up partnering with two folks that had prior experience in the development and SFR arenas.

The seller proved to be very difficult to pin down, and we spent most of May and part of June pushing for a response to our offer. We finally entered into contract June 10 with 2, 30 day extensions to facilitate a 1031 for the seller. Shortly after entering under contract we secured funding through Bellco Credit Union, though it was recourse debt, we got a 4% rate, 10 year term, 30 year am, with a 1 time adjustment at 5 years. We selected a local property management company with quite a bit of experience in the Springs submarket after vetting several local firms.

The final purchase price was $7.55 million, and we ended up raising just over $2 million through a 506(b) syndication structure. Oddly enough, the money raise ended up being the easiest part of the whole process!

Our plan is to hold for a minimum of 5 years, then either refinance into agency debt and hold for 5 more, or sell and distribute the profits. Our projected IRR with conservative rent growth numbers is just under 20% for our limited partners.

I'm so thankful to have resources like BP to learn from, and other folks like @Steve K. and @Bill S. that provided valuable insight early in my journey, thank you! I have much still to learn, and I look forward to creating more value for our investors in the future. Hopefully I'll meet some of you in person at a meetup in the Denver area soon!

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Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
8y

@Sam Rust Congrats, Sam! First of all, I strongly agree with you on the Colorado Springs pick. Millennials have been storming in and looking for places to rent. The military presence also provides a nice population of renters. 

But best of all is that you went BIG on your first deal. That's something I'm sure all of us here at BP admire. Keep up the hustle! 

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  • John FedroPro Member
    Investor · Austin, TX · Member since 2009 · 413 posts · 295 votes
    7y

    Thanks for posting Sam. Absolutely great work! Keep up this ambition moving forward. This is just the first of many syndication deals for you. Thanks again for sharing.

  • Rental Property Investor · Erie, CO · Member since 2016 · 2 posts · 0 votes
    7y

    So awesome Sam! Congrats on getting this deal done! Hope to hear more about it at the next Erie meetup.

  • Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
    7y

    @Yonah Weiss and @Trenton Parks

    I put together a brief video presentation of the project and the overall numbers, sent that to select friends and family in my network, and then followed up with quite a few phone calls and email discussions answering various questions about the structure. In the end, all of my investors weren't as concerned about the return, as they were about the integrity of partners involved. Another example of the importance of relationships!

  • Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
    7y

    @Curt Smith

    I excited to trade one set of challenges (deal finding, writing LOI's, raising funds, DD, etc.) for those of actually running the complex! I'm sure the 1/1's will turn quite often, but this local market is also heavy military, which should help with demand for that unit type.

    Our structure is light on the MP end, but intentionally so. With our lack of track record, I wanted to make our offering as attractive as possible; 20% of something still isn't bad! I do hope to be able to grow that portion in future deals.

    Thanks for the feedback!

  • Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
    7y

    @Tyler Silverman Same guy, I'm still working in I&C, active in REI on the side at this point. Hope things are well!

  • Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes
    7y

    Awesome Success story. keep up the good work. Best of luck on your next purchase.

  • Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
    7y

    @Themis Nissirios The way I approached this was simple economies of scale. I felt like I could raise the capital if I found a good deal even if I didn't have prior experience in the space, and opening that door got us into a complex that is large enough for a full time property manager. Deals are so different that it'd be hard to make an absolute statement, but I would rather have 10% of a large deal (+ my equity percentage for putting it together), than getting into a 3-15 unit deal solo.


    That being said, neither route is empirically right or wrong, the important thing is to pick one and start taking action! Best of luck!

  • NJ · Member since 2018 · 17 posts · 4 votes
    7y

    THanks for the reply @Sam Rust.  I totally understand what you're saying, and I agree.  I feel I need to get my feet wet on a smaller scale though first to gain credibility as an investor before I go after the large deals.  That is my goal however, to be in your shoes.

    How would one valuate the equity for just putting the deal together?

    Congrats, best of luck, and here's to many more!!

  • Investor · Colorado Springs, CO · Member since 2016 · 15 posts · 13 votes
    7y

    This is awesome motivation as I’ve just been stationed in Colorado Springs and want to start my investing here. I’d love to meet you eventually along with many others in the area. I come from a small town so this is awesome being around a bunch of like minded people!

  • Rental Property Investor · Nashville, TN · Member since 2017 · 108 posts · 66 votes
    7y

    Crushing it, @Sam Rust. I'm sure your investors appreciate the simple (and incentivizing) structure of your LLC. Way to go!

  • Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
    7y

    Great work! Keep it up!

  • Member since 2011 · 7 posts · 1 vote
    7y

    Truly inspiring. Power of action. Love the gut! 

    Thank you for sharing.

  • Member since 2018 · 2 posts · 0 votes
    7y

    @Sam Rust Congratulations for your first deal.  Could you please share your underwriting sheet?  

  • Johnny PineyroPro Member
    Golden Oak, FL · Member since 2018 · 78 posts · 25 votes
    7y

    Very smart to cut it up with investors the way you did Sam.  Avoid the watershed.  This is the first of many for you.  Plenty of time to build wealth after you build knowledge. Smart smart smart.

  • Rental Property Investor · Philadelphia, PA · Member since 2016 · 26 posts · 9 votes
    7y

    My man! Excellent work. Would love to discuss further in detail about the structure of the capital that you raised. Hit me up

  • Denver, CO · Member since 2018 · 7 posts · 2 votes
    7y

    Congrats on taking down your first deal, Sam! Thanks for sharing your story and some of the numbers

  • Real Estate Investor · Takoma Park, MD · Member since 2011 · 74 posts · 38 votes
    7y

    Great work @Sam Rust! Congratulations on getting the first one under your belt!

  • Real Estate Agent · Las Vegas, NV · Member since 2016 · 589 posts · 275 votes
    7y
    @Sam Rust congratulations on the deal that is very inspiring.
  • Real Estate Broker · Los Angeles, CA · Member since 2018 · 307 posts · 146 votes
    7y

    That's impressive. Good job!

  • Sioux Falls, SD · Member since 2016 · 11 posts · 1 vote
    7y
    @Sam Rust This is real motivation!
  • Ronan DonnellyPro Member
    Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
    7y

    Thanks for sharing such an inspiring success story!

  • Real Estate Broker · San Francisco, CA · Member since 2016 · 76 posts · 50 votes
    7y

    Congrats, @Sam Rust, on the impressive execution of your goal in such a short amount of time relative to that monster deal size. I'm also learning the syndication business myself via several sources, including the accounts of others. Would you be so kind to share the following, if you have time (I apologize if you already answered these in the thread somewhere and I missed them)? How did you meet your partners, and did any of them have prior experience with being a sponsor or operator of MF? How many LP's / investors did you end up having? Was there a minimum investment amount you were asking, and did you structure an investment unit size? When you initially presented the offer to the seller, did they ask for proof of funds? Prior to raising money, how much liquid did you need to have upon acceptance of your offer for the EMD, and then for transactional items like the syndication attorney, inspections, etc?

    Thank you!

  • Rental Property Investor · Denver, CO · Member since 2017 · 50 posts · 23 votes
    7y
    @Sam Rust congrats on your first syndication. This is very inspiring, and I think you’re in a rapidly growing market. If you wouldn’t mind me asking how did you get around the net worth requirements for the loan, and what occupancy was the complex at when your lender underwrote the deal?
  • Specialist · Denver, CO · Member since 2017 · 60 posts · 137 votes
    7y

    @Dan Wallace Good question, one I asked pretty early on when the deal seemed like a winner. This property was never on the MLS or Loopnet, but was marketed pretty widely by several local brokerages. It went on the market back in September '17, and was at 70% occupancy with several significant one-time capex charges on the T12. This made it nearly impossible for anyone to purchase with non-recourse debt. Several folks put it under contract, only for financing to fall through. In addition, the seller was VERY difficult to work with and wanted several extensions on any possible sale contract.

    The seller hired a better manager in November, and committed to his own renovation program, but failed to update the T12 or RR in his marketing package. The listing broker happened to be one that I had reached out to, and knew the property was improving. It still took us almost 2 months to get the property under contract after submitting our initial offer.

  • Flipper/Rehabber · Hager City, WI · Member since 2018 · 22 posts · 10 votes
    7y
    @Sam Rust Awesome post! I'm working the same niche. Newbie here! Midwest market. Your inspiring! Thank you! With that. Being in Colorado... Have you ever used pine financial? Been talking to them lately about funding my next deal. Any help is appreciated. Regards
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